Thursday, August 27, 2009

Update: Corporate Bankruptcies

We've only just begun......

As a side note, last week's bank failures reduced the FDIC bankroll to a few hundred million dollars (my guesstimate). They have announced a plan to levy another "special assessment" this year and another one in the first quarter of 2010. The Quarterly Banking Profile will be released later today, so we can get the latest numbers.

Sunday, August 16, 2009

GDP & Japan: Imperfect Together

Asian equity markets are not responding kindly to the latest economic data out of Japan. Second quarter GDP growth came in at 3.66% (annualized), the market was looking for a number closer to 3.9%.

This means that economic activity in Japan is where it was in December, 2004. Yep, no growth in over 4 years. No wonder why the Nikkei is down over 2% and Chinese stock indices are down between 2% and 3%.

U.S. equity futures are trading lower as well, pointing to a drop of about 0.4% at this time.

Economic Data Coming Up

Release Period Prior Median
Indicator Date Value Forecast
Empire Manu. Index 8/17 Aug. -0.6 3.0
Net Long Term TICS $ Bl 8/17 June -19.8 17.5
Total TICS $ Blns 8/17 June -66.6 23.0
NAHB Housing Index 8/17 Aug. 17 18
PPI MOM% 8/18 July 1.8% -0.3%
Core PPI MOM% 8/18 July 0.5% 0.1%
PPI YOY% 8/18 July -4.6% -5.9%
Core PPI YOY% 8/18 July 3.3% 2.8%
Housing Starts ,000’s 8/18 July 582 598
Building Permits ,000’s 8/18 July 570 575
Initial Claims ,000’s 8/20 8-Aug 558 550
Cont. Claims ,000’s 8/20 1-Aug 6202 6228
Philly Fed Index 8/20 Aug. -7.5 -2.0
LEI MOM% 8/20 July 0.7% 0.7%
Exist Homes Mlns 8/21 July 4.89 5.00
Exist Homes MOM% 8/21 July 3.6% 2.1%

Friday, August 14, 2009

Failure Friday: Back With a Bang

Five more banks were shuttered today, one really tiny, one fairly large and three in the middle. The biggest one was Colonial Bank, located (formerly, I guess) in Alabama. Colonial could not sustain the losses they suffered from an ill conceived foray into Florida real estate.

As a result, we are much closer to insuring our own deposits. I know that I have been harping on this for quite some time, but the de facto insolvency of the FDIC (along with the PBGC, NCUA and the continuing conservatorship of Fannie and Freddie) is transferring the financial burden of failure from the risk takers to the tax payers. This is not capitalism.

In review:

- 77 bank failures in 2009

- Cost of 2009 failures: $18.3 billion

Since the most recent FDIC quarterly report:

- Insurance Fund balance on 3/31/09: $13 billion

- Cost of failures since 3/31/09: $16 billion

- Special assessment income (one time): $5.7 billion

- Additional income (my estimate): $1.25 billion

- Current balance: $3.95 billion

Wednesday, August 5, 2009

Workers Continue To Lose Jobs: ADP Report

371,000 jobs were lost in July according to today's ADP Employment Report. June was revised to a loss of 463,000 jobs (previous estimate was -473,000). The goods producing sector continues to fare much worse than the services sector, losing 4 times as many jobs on a percentage basis.

= Since (and including) 12/2007: 6,543,000 jobs lost

= 18 consecutive months of job losses (average loss of 368,000)

= The economy now has the same number of jobs as it did in March, 2004

The BLS will release its report on Friday. My guess: loss of 355,000 jobs

Tuesday, August 4, 2009

Financial Stocks & Dilution

Since the financial nightmare of late 2008, financial institutions have engaged in various capital raising ventures. Included in this is an increase in the number of common shares outstanding. Please remember this when bidding up the shares: market capitalization is the product of share price and shares outstanding !!!!!!!!!

For example:

Bank of America

Average common shares issued & outstanding Q2 2009: 6.81 billion

Average common shares issued & outstanding Q2 2008: 4.43 billion

Therefore, today's close of $15.64 per share of common stock is roughly equivalent to a price of $24.04 from 1 year ago (keeping market cap constant).

Not something we are accustomed to thinking about.....

Sunday, August 2, 2009

....And By The Way...

(Eurozone Data immediately above)

It may be the same situation overseas. Pleas don't forget:

2008 GDP Estimates (Courtesy of the CIA World Factbook):

European Union: $14.8 trillion

USA: $14.3 trillion

Japan: $4.3 trillion

These 3 entities comprise 48% of the world's GDP. I dare say they determine the path.

"Why oh Why Didn't I Take the Blue Pill?"

It has been my contention that the amount of slack in our economy is too great to allow for a quick rebound:

The above graphs pint out the excess in the manufacturing sector, the abundance of workers without employment and the excess of goods (falling prices).

As I have mentioned before, inflation is related to the growth of money supply. Some have mentioned that the decline in prices is mainly due to falling energy prices. This is true to some extent, but I would also like to point out the following:

Money supply growth, although positive, is hardly expanding at alarming rate. Especially when one considers the following:

So not only is there slack, but the government's efforts to reflate are not of the magnitude that many perceive.

Here is why:

Banks are STILL not lending, choosing to hang onto cash in unprecedented proportions. Be careful greenshooter..........

Update: FDIC Continues to Bleed Dry

This week's tally: 5 bank failures, $911.7 million in losses

This year's tally: 69 bank failures, $14.45 billion in losses

According to my estimates (please see post on 7/25/09), the FDIC's fund is well under $8 billion. This amount of money is backing over $4.8 trillion in insured deposits. Would you allow your insurance company to operate that way? Would you agree to bail out your insurance company if they screwed up? Well, then why is the FDIC so special??????

Another Big Data Week

Release Period Prior Median
Indicator Date Value Forecast
ISM Manu Index 8/3 July 44.8 46.5
ISM Prices Index 8/3 July 50.0 51.5
Construct Spending MOM% 8/3 June -0.9% -0.5%
Vehicle Sales Mlns 8/3 July 9.7 10.0
Domestic Vehicles Mlns 8/3 July 7.2 7.4
Pers Inc MOM% 8/4 June 1.4% -1.0%
Pers Spend MOM% 8/4 June 0.3% 0.3%
PCE Deflator YOY% 8/4 June 0.1% 0.2%
Core PCE Prices MOM% 8/4 June 0.1% 0.2%
Core PCE Prices YOY% 8/4 June 1.8% 1.7%
Pending Homes MOM% 8/4 June 0.1% 0.6%
ISM NonManu Index 8/5 July 47.0 48.0
Factory Orders MOM% 8/5 June 1.2% -0.6%
Initial Claims ,000’s 8/6 18-Jul 584 580
Cont. Claims ,000’s 8/6 11-Jul 6197 6245
Nonfarm Payrolls ,000’s 8/7 July -467 -325
Unemploy Rate % 8/7 July 9.5% 9.6%
Manu Payrolls ,000’s 8/7 July -136 -105
Hourly Earnings MOM% 8/7 July 0.0% 0.1%
Hourly Earnings YOY% 8/7 July 2.7% 2.5%
Avg Weekly Hours 8/7 July 33.0 33.0
Cons. Credit $ Blns 8/7 July -3.2 -4.2