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Retail Sales to Surprise to the Upside, Don’t Buy Into It

The calendar for the week has a key piece of data that you’ll want to watch out for. We have August Retail Sales data to be released on Wednesday morning. The consensus among a survey of economists conducted by Bloomberg suggests that this figure will decline by 2.1% after having surged 2.7% in the month prior. This may be overly pessimistic as a reading of -2.1% on the sales side would imply that spending among the US public was at its worst since last December, when it tanked 3.2%. Keep in mind that since the start of the year, Retail Sales have only shrunk in two of the months. Such a swing to the downside would be a sharp change in the public’s mindset.

Note that when excluding automobiles from the metric, the consensus forecast is set for an increase of 0.2%. This leads one to believe that automobile sales plummeted throughout the month, causing the broader metric to sink as well. This might not necessarily true. The popular “Cash for Clunkers” program was extended during this period and saw car purchases soar. In fact, there was a 25% jump in the number of autos sold. So there is little reason to believe that August saw such a pathetic performance in Retail Sales.

What to take away from this: Retail traders may splurge on stocks when they see that this number is surprisingly high. But one must ask themselves if this high figure is surely sustainable. Keep in mind that this data is for August and not for September – that’s five weeks back. Cash for Clunkers is over with and there is now little incentive to keep car purchases up. Just moments ago, Philips released it’s Q3 earnings report. In it, they said that the structural recovery in their primary end-markets has been absent. This speaks contrary to that which has been heard from the popular media and other pundits.

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Filed under: Economics, Global Economics, , , , , , , , , , , , , , , ,

FINANCIAL TIMES CHIEF DECLARES ‘NEW WORLD ORDER’ AS POWER SHIFTS TO CHINA AT G20 MEETING

DURING TONIGHT’S LIVE BROADCAST OF CNBC WORLD’S ‘SQUAWK BOX EUROPE,’ FINANCIAL TIMES EDITOR LIONEL BARBER DECLARED THAT WE ARE NOW LIVING IN A ‘NEW WORLD ORDER’ WHERE THE ‘GROUP OF 20’ (G20) COUNTRIES WILL BE MAINLY FOCUSED ON WHAT CHINA WILL DO, INSTEAD OF THE UNITED STATES, IN SOLVING THIS FINANCIAL CRISIS. HE OFFERED THE IDEA THAT THE G20 OUGHT TO BE REFERRED TO AS THE G2 WITH THE U.S. AND CHINA BEING THE TWO HEGEMONIC POWERS…

FT Editor Lionel Barber interviews China’s Premier Hu Jintao

TEN-THOUSANDS PROTEST IN START OF ‘SUMMER OF RAGE…”

OBAMA MEETS BROWN FOR TALKS (VIDEO)…

OBAMA PREACHES GLOBAL ‘UNITY’ IN INTERVIEW WITH FT…

Filed under: Economics, Politics, World, , , , , , , , , , , , , , , , , , , , , , , ,

New Zealand GDP Better Than Expected

New Zealand’s economy shrunk by -0.9% in the three months ending 2008 after economists had expected this south-Pacific country’s GDP to contract by more. The move marks the fourth straight quarter that the island-nation has seen its annual output decrease.

Since July the central bank has slashed interest rates by 5.25% to 3.0% in an effort to provide short-term liquidity to businesses and financial markets in order to stave off the effects of the global recession.

Now, in its fourth straight quarter of contraction, the New Zealand economy has shed thousands of job. In the final three months of 2008, their unemployment rate jumped 0.4 percentage points to 4.6%, the highest level since 2003. Their Treasury department predicts that it will get worse. They have forecast that by early 2010 the jobless rate may jump to an 11-year high of 7.2%.

Yesterday, the IMF released a report stating that New Zealand’s economy would contract a total of 2.0% in 2009 after 2008 experienced a slight 0.1% decrease. One key “vulnerability” that is likely to keep the country under water is the extensive amount of short-term borrowing from abroad, the IMF said.

This final period of the year saw the country’s currency depreciate by as much as -20.95%, but ended the quarter down only 10.15%.

– LG

Filed under: Global Economics, World, , , , , , , , , , , , , , , , ,

New Zealand Trade Balance Soars on 11.6% Decline in Imports

New Zealand’s trade balance in February improved substantially from that which was expected. The figure jumped to 489.0 million from an expected 75.0 million after imports fell 11.6%.

The alleviating news comes just a day after Bill English, the nation’s Minister of Finance, said that the current account gap is “uncomfortably large.”

Imports fell as the New Zealand Dollar continued to stifle the purchasing power that domestic residents had for goods produced abroad. The first two months of the year saw their currency depreciate 16.57% against its U.S. counterpart and 9.12% against a trade-weighted basket of currencies.

The amount of goods shipped to the country from Europe fell by a staggering 21.3% and 14% from Asia.

– LG

Filed under: Global Economics, World, , , , , , , , , , , , , , , , ,

Economy Shrinks 6.3%, Worst Since 1982

WIRE: The U.S. economy shrank at a 6.3 percent annual pace in the fourth quarter, the worst performance since 1982, in what may be the depths of the recession.

The contraction in gross domestic product was larger than the previously estimated 6.2 percent drop, the Commerce Department said today in Washington. A report from the Labor Department showed the number of people collecting jobless benefit this month climbed to a record 5.56 million…

Filed under: Economics, , , , , , , , , , , , , ,

Obama Admin. Set to Propose Largest Expansion of Government Tomorrow

REGULATE

PAPER: The Obama administration’s plan, described by several sources, would extend federal regulation for the first time to all trading in financial derivatives and to companies including large hedge funds and major insurers such as American International Group. The administration also will seek to impose uniform standards on all large financial firms, including banks, an unprecedented step that would place significant limits on the scope and risk of their activities…

Filed under: Economics, Politics, , , , , , , , , , , , , , , , , , , , ,

New Zealand Economy Will Contract 2% in 2009, Says IMF

In a report filed by the International Monetary Fund (IMF) the Washington-based body said that the New Zealand economy will contract by 2.0% this year. “The near-term outlook is weak,” they mentioned. “Households are constrained by high debt levels, falling house and equity prices and uncertain employment prospects,” they added.

The startling words come after Bill English, New Zealand’s Minister of Finance, said that the current account gap is “uncomfortable large”. Indeed, the actual figure for the current account balance in the final quarter of 2008 came in at -4.026, surprisingly better than in the three-month period prior. Despite what would look to be as a positive sign, the deficit-GDP ratio actually became weaker, coming in at -8.9% from -8.6% the period prior.

Claims of weakness in the country are legitimate. Now, in its fifth straight quarter of contraction, the New Zealand economy has shed thousands of job. In the final three months of 2008, their unemployment rate jumped 0.4 percentage points to 4.6%, the highest level since 2003. Their Treasury department predicts that it will get worse. They have forecast that by early 2010 the jobless rate may jump to an 11-year high of 7.2%.

One “key vulnerably” is the country’s substantial level of short-term financing from abroad. With the central bank slashing rates by 5.25% since July, foreigners have been continuously disincentivized to invest in these debts with maturities of less than one year. The IMF may have been too cautious here. Albeit this may seem to be a risk on an absolute basis, the fact that short-term rates abroad are much lower than those in New Zealand may actually direct a greater amount of these foreign cash flows towards this South-Pacific economy.

Now, since Mid-March the New Zealand Dollar has fallen by as much as 40.4% against it’s U.S. counterpart. Generally, such a bearish movle would lead investors in domestically denominated short-term debt to flock away in hysteria. But what if their was an expectation that the currency would begin to rise in value? Under such a case, one would expect exchange rate risk to be of less of concern.

We are seeing such a pattern now. From the low on Mar. 3rd, the currency has rebounded 17.95%. This may be due to the inflationary fears that the Federal Reserve, with its plan to buy $1.2 trillion in treasury and agency/mortgage securities, has sparked among global investors. During this time we have also seen gold rally 7.43% and crude (West Texas Intermediate) break out of a range bound environment and rally 37% to as much as $54.18.

Historically we have seen a strong correlation between the New Zealand currency and commodities. A 180-day rolling correlation with the S&P Goldman Sachs Commodities Index shows that these two instruments have a correlation of .9688, a very substantial relationship.

Thus, if inflationary fears are correct (which the commodities markets seem to believe) then the New Zealand Dollar is likely to continue rising. Hence short-term financing from abroad may actually increase and not decrease.

– LG

Filed under: Global Economics, World, , , , , , , , , , , , , , , , , ,

European Union President Says Obama Stimulus is The ‘Road to Hell’

The head of the European Union slammed President Barack Obama’s plan to spend nearly $2 trillion to push the U.S. economy out of recession as “the road to hell” that EU governments must avoid.

The blunt comments by Czech Prime Minister Mirek Topolanek to the European Parliament on Wednesday highlighted simmering European differences with Washington ahead of a key summit next week on fixing the world economy…

eurpres

Filed under: Economics, Obama, World, , , , , , , , , , , , , , , , , , , , , ,

Geithner Open to China Using Non-Dollar as Reserve; Dollar Plummets

WIRE: Geithner was initially asked at a Council on Foreign Relations event in New York about proposals from People’s Bank of China Governor Zhou Xiaochuan for a new international reserve currency. He said “as I understand his proposal, it’s a proposal designed to increase the use of the IMF’s special drawing rights. And we’re actually quite open to that…”

geithner

Filed under: Global Economics, Politics, , , , , , , , , , , , , , , , , ,

Senate Democrats Push Cuts in Obama’s $3.6 Trillion Budget

MEDIA: Sen. Kent Conrad of North Dakota said the Senate Budget Committee, which he chairs, will vote on his version Wednesday.

“We’ve made hundreds of billions of dollars of changes to make this work to get down to the deficit goal and at the same time maintain the president’s priorities — education and energy and health care,” Conrad said as he left a closed meeting in the Capitol, where he briefed Senate Democratic colleagues on his plan…

Filed under: Economics, Obama, Politics, , , , , , , , , , , , , ,

Obama to Meet With Heads of Goldman Sachs, JPMorgan, Citi and Other Bank Leaders

PAPER: President Barack Obama will meet with about a dozen U.S. bank leaders on Friday to talk about his administration’s plans to put the sector on a sounder footing, The Wall Street Journal reported late Tuesday on its Web site. Invitees include Goldman Sachs Group Inc. , J.P. Morgan Chase & Co. and Citigroup Inc. The meeting follows more than a week of controversy over large bonuses paid at American International Group Inc. , after the insurer received billions in federal aid…

Filed under: Economics, Obama, , , , , , , , , , , , , , , ,

OBAMA ADMIN SEEKS POWER TO SEIZE NON-BANK FINANCIAL FIRMS

PAPER: The Obama administration is considering asking Congress to give the Treasury secretary unprecedented powers to initiate the seizure of non-bank financial companies, such as large insurers, investment firms and hedge funds, whose collapse would damage the broader economy, according to an administration document…

Brendan Smialowski / Bloomberg News

Brendan Smialowski / Bloomberg News

Filed under: Economics, Obama, , , , , , , , , , , , , , , , , , ,

Stocks Surge After Geithner Unveils Taxpayer Guaranteed Toxic-Asset Plan

US Session Key Developments

  • Treasury Announces $1 Trillion Toxic Asset Purchase Plan
  • S&P Surges 7.1%, Most Since Oct. 28, Biggest 10-Day Gain Since 1938
  • February Home Resales Rise 5.1%

Stocks Surge After Geithner Unveils Taxpayer Guaranteed Toxic-Asset Plan

Stocks surged 7.1% with the S&P 500 advancing by the most since Oct. 28 after U.S. Treasury Secretary Geithner’s toxic-asset plan jolted Wall Street. The sharp move ushered in the largest 10-day gain since 1938. Geithner’s plan will use $1 trillion to incentivize private investors to purchase many illiquid assets including mortgage securities and agency debt. The deal will employ 10% of this money to work as a taxpayer subsidy to many of these investors while also providing government guarantees in case the securities continue to falter. Not surpassingly, financials in the blue-chip index bulled-ahead 22.91%, marking a 50.1% advance in the sector over the last two weeks. JPMorgan and Wells Fargo performed the strongest gaining on average of 24% with Citigroup seeing its shares traded the most of any company in the index. But this rally may be short-lived. If the real economy continues to falter, the consumption habits of the public may continue to be dwarfed, disabling much wealth creation that would truly enlighten the banking sector.

Dow 30            7775.86                +497.48                  +6.84%
Financials in the blue-chip index rose surged 22.91%, led by JPMorgan’s 25% move. Industrials were the second-best performing sector with Caterpillar advancing 9.46%.

NASDAQ        1555.77                 +98.50                      +6.76%

Information Technology advanced 6.38% with leading names such as Microsoft and Cisco jumping 7.44% and 6.73%, respectively. Sun Microsystems was one of the few stocks that slipped, as investors took some of the profits earned from the IBM take-over news.

S&P 500         822.92                   +54.38                       +7.08%

Consumer Staples was the worst performing sector in the Standard and Poor’s index, managing to gain a still impressive 3.77%. Only seven stocks slipped on the day. Implied volatility on the index fell 2.66 points, or 5.8%.

Filed under: Stocks, , , , , , , , , , , , , , , , , ,

Geithner Will Work With Congress For More Money If Needed, He Says

U.S. Treasury Secretary is currently speaking at a conference in Washington where is offering his first words since word of his $1 trillion toxic asset relief program was leaked over the weekend. Within the last 30 minutes, the 47-year-old has stated that the economic crisis won’t end until the market takes on more risk. Despite the lack of risk-appetite seen in markets, he does see “hope” in corporate finance.

Today, the S&P 500 surged 7.1%, advancing 20% over the last two-weeks. This, however, does not indicate that the economy has been revived. After all “one day does not make a plan,” Geithner noted. But should markets come crashing down and see the economy slip further, Geithner will be willing to work with Congress if additional money is needed.

“The world is watching us” to stabilize the system, he said. Interestingly, the European Central Bank President, Jean-Claude Trichet, seemed to express the opposite sentiment about his jurisdiction. In an interview with the Wall Street Journal yesterday, the central bank chief stated that Europe does not need a fiscal stimulus to save itself from the global recession. The statement came just days after ThyssenKrupp, Germany’s largest steel-maker, announced it would be laying off 3000 jobs, the first of such lay-offs among the major companies in the region.

– LG

Filed under: Economics, Politics, , , , , , , , , , , , , , ,

Sell Financial Stocks, Says Bank of America Analyst and Hedge Fund After Historic Rally

WIRE: “The history of bubbles shows quite well that financial sector consolidation is inevitable,” Bernstein, Bank of America’s chief investment strategist, wrote in a research note. “Financial stocks will be attractive when the government tries to speed up that inevitable process. However, to the contrary, the government continues to attempt to stymie that inevitable consolidation…”

WIRE: BlackRock Inc.’s global macro fund, the world’s second-best performer over two years among hedge funds that invest based on economic trends, is betting against this month’s equities rally and buying bonds as a recovery from the worst credit crisis since the Great Depression falters…

Filed under: Stocks, , , , , , , , , , , , , , , , , ,

Stimulus? U.S. to Buy Chinese Condoms, Ending Alabama Jobs

“Call it a condom conundrum.

At a time when the federal government is spending billions of stimulus dollars to stem the tide of U.S. layoffs, should that same government put even more Americans out of work by buying cheaper foreign products?

In this case, Chinese condoms…

Filed under: Economics, Politics, , , , , , , , , , , , , , ,

Stock Bargains Everywhere as ‘Bull-Market’ Begins, Says Analyst

WIRE: The next “bull-market” rally has begun and there are bargains in every emerging market, Templeton Asset Management Ltd.’s Mark Mobius said, refuting predictions that the equities meltdown will continue.

“You have to be careful not to miss the opportunity,” said Mobius, who helps oversee about $20 billion of emerging- market assets at San Mateo, California-based Templeton. “With all the negative news, there is a tendency to hold back…”

Filed under: Economics, Stocks, , , , , , , , , , , , , , , , ,

Obama’s Laughter Over Economic Crisis, ‘Are You Punch-Drunk?’ (Videos)

INTERVIEW: You’re sitting here. And you’re— you are laughing. You are laughing about some of these problems. Are people going to look at this and say, ‘I mean, he’s sitting there just making jokes about money—’ How do you deal with— I mean: explain. . .” Kroft asked at one point.

“Are you punch-drunk?” Kroft said…

obamalaughter

Ready to Place “Exit Strategy” in Afghanistan Policy…

After Sending In A 17,000/45% Increased Troop Surge…

Filed under: Economics, Obama, , , , , , , , , , , , , , , , ,

Return of Fear, Obama Warns of Collapse if Big Institution Fails

INTERVIEW: Interviewed on the CBS television program “60 Minutes,” Obama was asked if the financial system could implode if the likes of bailed-out insurer AIG or banking giant Citicorp were to fail.

“Yes,” the president replied, in the interview broadcast Sunday, as his administration prepared to announce new steps Monday deal with the toxic assets clogging up US banks’ books…

Filed under: Economics, Obama, , , , , , , , , , , , , , , ,

Euro Central Bank President Trichet Says Deflation Won’t Hit Euro-Area, No Fiscal Stimulus

European Central Bank President Jean-Claude Trichet spoke to the Wall Street Journal and was quite reluctant to acknowledge some of the 16-nation currency bloc’s financial problems. He said that Europe does not need to use fiscal policy as liberally as the United States has.

He took some shots at the global financial community, stating that it is unjustified to criticize Europe for its lack of conviction in battling this crisis. Nonetheless he did offer his own critique of the U.S. situation, stating that the U.S. should be ‘quick’ on implementing a rescue plan and on settling on a final budget.

As far as monetary policy is concerned he said that zero interest rates would not be “appropriate” and that there are “drawbacks” to such a policy. He did, however, acknowledge the obvious, that the economic trend remains “downward.” While he did not give any specifics as to his ideal interest rate target, he did suggest that the bank could lower rates below the current 1.5% mark. Nonetheless, despite the difference in approach taken by the Federal Reserve and the ECB, central banks are not in a “race,” he noted.

Ultimately, he has confidence in the experts that say that deflation will not hit the Euro-Area.

We could see the Euro rally as the news of this interview disseminates among the public. As dwarfed expectations of deflation loosen the notion of a zero-interest rate policy, those seeking yield may send their money to Europe and hence prop up the 16-nation currency.

– LG

Filed under: Global Economics, World, , , , , , , , , , , , , , , , ,

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