Here, I will take notes while watching the video. I have separated the notes based on the “timeline breakdown” on the Bloomberg article. The notes are below the article. Here is the article.
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Wire: BLOOMBERG News (BN) Date: 2008-06-03 17:55:24
Bernanke, Trichet, Shirakawa on Inflation, Rates, Dollar: Video
June 3 (Bloomberg) — Federal Reserve Chairman Ben S. Bernanke, European
Central Bank President Jean-Claude Trichet, Bank of Japan Governor Masaaki
Shirakawa and Bank of Spain Governor Miguel Fernandez Ordonez speak about the
outlook for inflation risks, monetary policy and global economic growth. They
speak at the International Monetary Conference in Barcelona. Bernanke and
Shirakawa speak via satellite. Josef Ackermann, chief executive officer of
Deutsche Bank AG, moderates. (Source: IMC/Bloomberg)
00:00:00 Bernanke: economic “strain” on markets
00:01:15 Bernanke: U.S. housing, credit markets
00:05:13 Bernanke on regulatory action to curb turmoil
00:06:19 Bernanke: subprime loans, “vulnerable” to oil
00:09:17 Bernanke: growth outlook, risks and demand
00:11:24 Bernanke: inflation risks, commodity prices
00:12:55 Bernanke: Fed mandate, acted “proactively”
00:13:51 Bernanke: “attentive” to weak dollar effect
00:14:49 Bernanke: efforts to boost market liquidity
00:16:45 Ordonez: Spain’s economy, banks and risks
00:27:48 Shirakawa: global economy, inflation pressure
00:29:14 Shirakawa: Japan economy, business sentiment
00:30:25 Shirakawa: exports, economic “resilience”
00:32:04 Shirakawa: inflation risks, growth outlook
00:33:28 Shirakawa: BOJ’s “accommodative” policy
00:34:24 Shirakawa: Japan’s financial markets
00:37:20 Trichet on commodity prices, food costs
00:44:53 Trichet: “firmly focused” on price stability
00:47:49 Trichet: credit crunch, liquidity injection
00:51:44 Trichet on cooperation between central banks
00:53:26 Questions: Trichet on Europe bank supervision
00:59:06 Shirakawa: asset prices and monetary policy
01:02:57 Ordonez discusses Spanish banking system.
01:04:23 Bernanke: assessing asset “bubbles”
01:08:01 Bernanke: need to strengthen financial system
01:16:59 Trichet, Bernanke on oil and trade “shocks”
To watch this report now, click {1 <GO>}. For more Bloomberg audio or
video reports see {AV <GO>}. — Bloomberg Multimedia +44-20-7330-7180 (Chris
Hewitt/Sen)
Running time 01:22:33
Jun/03/2008 17:55 GMT
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Here are my notes:
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00:00:00 Bernanke: economic “strain” on markets - financial markets in US + other industrial countries = strain
- issue: cost and availability of credit
- most discussion of problems are regarding financial instruments
- in retrospect, turmoil has been sometime in the making
- severity of stress apparent in August 2007
- several longer term developments have served as prologue
00:01:15 Bernanke: U.S. housing, credit markets
- housing boom (began in mid 1990s and picked up steam in 2000)
- between 2000-2005, house pricing increased 60%
- starting in 2006, boom turn to bust
- over past two years building activity fallen in half
- broad credit boom (lenders/investors took credit risk even though risk premiums contract)
- explosive growth of subprime credit lending over the past two years
- responsible sumprime lending is good to achieve social goals
- but most of 2005, 2006 subprime credit lending was not responsible lending
- emerging market growth - double edged sword
- PRO: low prices imports help inflation
- PRO: increased demand for US goods help offset
- CON: however, strain on resources has increased commodity prices
- net supply of saving increased
- rapid growth of high saving asian countries
- high profits in oil countries
- led to lower long term interest rates for world
- US received most of these flows
- which = good, provided they invested inflows wisely
- however, it created questionable practices
00:05:13 Bernanke on regulatory action to curb turmoil
- example: new guidance on non-traditional mortgage/real estate lending
- fed reserve encouraged improvements for risk management practice (for derivatives, etc)
- despite these measures, financial companies failed to manage risk properly
00:06:19 Bernanke: subprime loans, “vulnerable” to oil
- housing boom ended because rising prices make buy house unaffordable
- this increase undermined Adjustable Rate Mortgages
- ended the preconception that you can lend more and more as your house appreciates more and more
- when this proved to fail, investors took their money out
- this forced credit rators to downgrade
- this reversed investors sentiment
- this affected Asset Back Securities and a variety of other structured products
- fortunately, most financial companies were in good financial position when it started
- some able to raise new capital
- reveals weaknesses in risk management
00:09:17 Bernanke: growth outlook, risks and demand - functioning of financial markets have improved
- some borrowers, highly rated corporations, retain good access to credit
- some areas generally restricted — real estate
- residential construction retract
- consumer spending has held up
- but face lots of headwinds
- business face rapidly increasing cost of materials
- overall economic growth = slow but position
- activity for current quarter should be relatively weak
- reflecting stimulus
- reduced drag from construction market
- solid demand from abroad
- improved financial markets
- UNTIL housing market (and particularly house prices) shows significant signs in stabilization, growth risk remain to downside
00:11:24 Bernanke: inflation risks, commodity prices
- inflation = high reflect rising commodity prices - futures markets continue to predict (albeit w/ uncertainty) that commodity prices will level out
- prices of number of commodities have continued up even though dollar and expectations has remained stable
- possibility of continued rise in inflation is risk to inflation forecasts - high headline inflation, if sustained, may lead the public to expect higher rates in future (self-fulfilling prophecy)
00:12:55 Bernanke: Fed mandate, acted “proactively”
- fed mandate => max employment with price stability
- to achieve — must support concerns of market’
- fed thinks gradual rate reduction would not have been enough
00:13:51 Bernanke: “attentive” to weak dollar effect
- FED carefully monitor FOREX markets
- FED is attentive to inflation and inflation expectations
00:14:49 Bernanke: efforts to boost market liquidity
- to improve market liquidity
- FED…
- has allowed access to central bank’s liquidity
- help promote ordily resolution of market dislocations
- has coordinated with other central banks to ensure everything is well
- takes the regulatory role to put changes in place to increase transparency and resilience
00:16:45 Ordonez: Spain’s economy, banks and risks - Economic develpments = show some slowdown
- slowdown preceded recent turmoil (in 2005)
- slowdown eroded consumer confidence
- seen signs that credit conditions are tightening
- expect internal demand to continue weakening over 2008
- seeing sharp increases in headline inflation
- spanish economy more vulnerable to second round effects
- how firms and consumers deal with shocks
- should not believe shocks are permanent
- should not believe wage increase demands expect to stop inflation
- fiscal policy in Spain is sound
- Debt to GDP in Spain = ~35%
- pretty good
- Financial Sector in Spain
- impact has been limited (low exposure to main problems)
- STOPPED NOTES ON SPAIN SINCE HE ONLY TALKS ABOUT SPAIN (i’m not interested in Spain but I’m listening)
- Bottom Line: Spain was not affected and they’re alright.
00:27:48 Shirakawa: global economy, inflation pressure
- Japan’s economy
- comments on slowing growth on advanced economies
- greater inflation pressures
- difficulty balance act of sustained growth and inflation
00:29:14 Shirakawa: Japan economy, business sentiment
- japan’s economy is slowing due to deteriotation terms of trade from higher import prices
- higher commodity prices
- business sentiment = cautious
- these are expected to stay for some while
- expect to have growth in Japan near potential over 1-2 years
00:30:25 Shirakawa: exports, economic “resilience”
- Japan’s exports will continue to be robust
- Although US slow, more than offset from resource rich countries and emerging economies
- Has also offset weaker terms of trade effects
- Japan’s financial sectors are healthy
00:32:04 Shirakawa: inflation risks, growth outlook
- Core inflation = 1%-1.2% highest in almost 15 years except in 1998
- CPI inflation projection 1.0% for 2008, 2009
- Monitoring how general inflation expectation is changing
- Growth expect to the downside
- Prices expect to the upside
00:33:28 Shirakawa: BOJ’s “accommodative” policy
- Will try to ensure price stability
00:34:24 Shirakawa: Japan’s financial markets
- Japan’s Financial markets are good
- Spreads are tight
- Reason? Low exposure to structured products
- BoJ is good for three reasons (.. left for you to hear on the video)
00:37:20 Trichet on commodity prices, food costs
- capital changing investments instead of investments changing capital
- science and tech making excellent progress - commodity prices — drivers?
- man is accustommming itself with the limited resources and liimited capacities of disposal land
- improving living standards has put pressure in food prices
- china’s diet has doubled in cost
- growth in emerging economies have also pushed up energy prices
- also has prompted alternative fuels - which has helped increased food prices
- pressure of global commodity prices are one of many factors affecting globalization
- a very multidimensional nature of this problem
00:44:53 Trichet: “firmly focused” on price stability - inflation = monetary phenomenon in long term
- monetary policy should stay focused on price stability
- price stability over the medium term is necessary for sustainable growth
00:47:49 Trichet: credit crunch, liquidity injection
- OMO continue to try to smooth the functioning of commercial banks
- avg level of short-term rates has remained close to the minimum rate
00:51:44 Trichet on cooperation between central banks
- intimate cooperate and discussion with US and Swiss National Bank
- could provide, thanks to fed, US dollar liquidity in Europe
- important to understand the shocks and their relations is vital
00:53:26 Questions: Trichet on Europe bank supervision
- discuss: banks NOT too big to fail, but too INTERCONNECTED to fail
- lessons to do from financial sector view + economic policy view?
- Bubbles? How to detect?
— TRICHET—
** too convoluted to understand and type up notes =\
00:59:06 Shirakawa: asset prices and monetary policy
- asset prices contain valuable information for central banks
- in retrospect Japan’s inflation was quite subdued, even during bubble
- when bubble burst, it went down even more
- “we succeeded in maintaining price stability”
- why no deflation spiral? Because BoJ was able to act as a lender of last resort
01:04:23 Bernanke: assessing asset “bubbles”
- the experience of asset bubbles suggests we need to look into these issues
- skeptical about pricking bubbles
- how able to attack only bubbles through?
- how will bubble pop? BOOM? nice slow pop? what are effects on other industries?
- should look into further but doubt monetary policy could be effective
- work towards increasing resilience of financial system
- reduce sensitivity of financial system
- besides supervision and regulation (capital requirements/liquidity/risk management), should look infrastructure, transparency, party risk .. and other examples mentioned
- very central question
- but also very difficult question to resolve in the future
01:08:01 Bernanke: need to strengthen financial system
- financial system needs to be strong and ready to deal with stress
- must have adequate capital, liquity, and risk management systems
- currently, FED Reserve is working with SEC
- thinking about how to go forward
- it will be necessary that all significant institutions have the appropriate strengths to survive the financial stress —DUBLIN question person: extent of concern with weakness of dollar, implications, and increase of oil price
- weakening of dollar has had some inflation impact
- some impact on commodity prices
- main factor = global supply and demand
- many growing countries
- limitations in supply due to inadequate investment, technology, and geopolitical problems
- even though oil go above $130, dollar pretty stable during then
- everything equal, if dollar goes down, commodities go up (to cancel the effects)
- US is significant importer of Oil
- current accont and trade deficit
- extent that oil and other commodities price rise, it will have adverse effects on balance of trade and lower dollar
01:16:59 Trichet, Bernanke on oil and trade “shocks”
- how are your central banks responding to what seems to be a large ongoing trade shock?
- what are reasonable inflation objectives in short and medium term?
- TRICHET:
- no weaponary to prevent shock
- BERNANKE:
- terms of trade shock (two dimensions)
- 1. change in commodity prices relative to US goods and services
- 2. longer term trade adjustment is the unwinding appreciation of the dollar to restore global balance of current account situation
- effects on living standards, prices and inflation (on short term)
A nice documentary found on Bloomberg today on the rising food prices. If you want to download the video, click the link below. It’s a very interesting video. Approximately 45 minutes long.
The energy player’s comments hint at the fact that OXY is a good company to hold on to. What prevents me from considering any type of transaction with regards to OXY is that his comments are that of an energy trader. If he’s long OXY, how long is he going to hold on to OXY? Probably until crude oil starts its descent from its highs. Which, in my opinion, will be quite soon.
The next several days are critical for energy, and perhaps the overall market. As mentioned previously, Tuesday April 22 marks the expiration of the May oil futures contract. How the commodity closes could provide important insight whether the next stop is $110 per barrel or $125.
Regardless, oil and the equity markets are at a mutually exclusive break point, in my opinion. Hyperbole, you say. Panic, you say. Consider the following: The last $20 per barrel move in oil has added approximately $150 billion to the nation’s annual energy tab, an amount equal to the highly publicized and much anticipated US tax rebate. The problem is that instead of a new TV, it looks like that check is going to go 100% to the fuel bill. Worse, 50% of these funds leave the country to pay for oil imports, a complete economic drag. The velocity of money is significantly reduced via higher energy costs with very little resultant knock-on economic activity. Bottom-line, for the US consumer, higher energy costs can be zero-sum. Moreover, higher US natural gas prices could cost consumers another $50 billion this year and higher costs for oil, gas and coal WILL result in higher electricity prices over the next year, albeit with a delayed impact.
Note that oil prices are actually on track to average $40 per barrel higher in 2008 versus last year, thus costing consumers $300 billion y/y. Of course, these are all the observable “direct” costs. Who knows how much the dramatic increases in energy costs results in higher “indirect” inflation. The point is that there is likely to be much less consumer funds available, particularly for maintaining a household. The change in energy prices will most likely increase the rate of mortgage defaults, as certain homeowners are forced to throw in the towel. It will be interesting to see of the market can continue to rally as the energy impact becomes more pronounced?
The fed faces a significant choice next week. Either cut rates to assist mortgage holders, or fight the oil price increase by keeping firm on rates. Neither prospect is too appealing.
On to oil stocks: One of the purest plays on the higher oil price is Occidental Petroleum (OXY - $85), which this year should produce close to 470,000 barrels per day of high quality and even higher profit margin crude oil. Almost 80% of OXY’s output is oil, with the balance being mainly US natural gas production of 550 million cubic feet (mmcf/d). The company has zero refining (which is a good thing given current poor US margins) and a small chemical arm. At an average oil price of $105 per barrel this year and a gas price of $9, I calculate that OXY could earn $8.50 per share, up a solid 62% from clean, operating earnings of $5.25 per share in 2007. Thus, the stock is now trading at a P/E of 10x 2008 projected EPS. Cash flow could grow an impressive 45% to $11.75 per share versus $8.10 in 2007. Wow! More importantly, I project free cash flow could be over $6 billion this year, or over $7 per share in FCF. Double Wow!. That is after spending $4 billion on growing the business. With only 7% debt-cap, that is a lot of FCF for dividend hikes and stock buybacks (OXY has doubled the dividend over the last five years).
OXY is different from most E&P companies because it has lower capital requirements, which results in much higher FCF, and long life reserves. Reserve life for US oil, which is 75% of total oil reserves, is almost 18 years, which is practically unheard of in the industry. Obviously, if a company runs out of reserves, its earnings and cash flow should be valued less. OXY has long life, which is critical, in my opinion.
OXY is scheduled to report on Wednesday April 24. Consensus is at $1.95. I think they can do closer to $2.00 per share for 1q08. It does not really matter. These are not tech stocks where every penny counts. The point for OXY is that EPS could be up 110% y/y. That is why these stocks are working – the growth in earnings and cash flow is huge. Moreover, EPS are almost certain to be higher in 2q08 given that the oil price averaged only $97 per barrel in 1q08. As we know, it is up another 20% since then. Look, everyone has their favorite exploration and production stock. APA, CHK DVN, EOG are all great names. My point is that they are already up 30% - 50% this year alone. OXY is up only 10% year-to-date, yet OXY almost has more free cash flow than the other names combined (almost, not quite, but the point is the same).
DISCLAIMER: OXY is an interesting idea, not a recommendation. I own the shares, but I know that if the price of oil collapses, so too will OXY’s stock price. Also, ideas may be worth exactly what one paid for them.
The main thing that concerns me is credibility. Anyone could be anyone on the internet. The text below comes in the form of an email to a bearish chartist who has his own blog. I trust that the email guy knows what he is talking about.
I trade energy stocks for a living after having covered the sector for 20 years on the buy and sell-side.
Oil and OIH now reside in an uncharted world. Specifically, SLB actually misses 1q08 EPS by 5% and the y/y was a paltry 10% (versus 63% y/y in 1q07, 82% in 1q06, 38% in 1q05 and 81% in 1q04); yet, the stock explodes higher yesterday propelling the move in OIH.
My fear in looking at your chart on BHI is that this stock is going back to $100.
Consider oil over the past five years. First driven by low inventories, myth now debunked; then lack of spare OPEC capacity, now debunked; then hurricane issues, debunked; then the Iranian issue, now debunked; then it was all about the dollar – Now debunked. Dollar rallies sharply on Friday, gold goes down, but oil soars to new highs. Oil is on its own mission. The move higher sows the seed of its own destruction, but who knows where the point of pain exists.
Aside from housing, the single biggest reason to remain bearish is oil. The commodity may continue to explode higher until it crushes the economy and US, European and Japanese stock markets. WTI oil averaged $72 per barrel last year. This year could/will be $40 per barrel higher – that’s $300 billion in higher oil costs alone to the US consumer, or almost 3x the so-called stimulus package.
The problem with shorting energy stocks is that fundamentals do favor the pure producers (not so the refiners or big oil).
I am glad we are able to make the connection as I have truly enjoyed your comments, which often exactly capture the mood of the markets.
The next several days are critical for oil and energy stocks. The May futures contract expires on Tuesday April 22. Crude needs a rest, but if it does not pull back at expiration, certain producing stocks are going to break-out to even higher highs. The reason is that the operating leverage for some of these companies is HUGE. The key is to focus on companies with high quality production assets, long reserve lives, AND low marginal tax rates. APA, CHK and OXY are three of the best examples. You have posted on APA, and the chart does look extended, but at $116 oil and $10 gas, the earnings and cash flow is there to back it up. I am not long APA at $140. I am quite long OXY and CHK. The former is perhaps the single best equity play on oil and the latter = one of the best plays on natural gas. I will explain more on these two names in a later missive.
The huge difference between energy, housing and tech “bubbles” is that the energy companies actually have real EPS, cash flows and improvements in net asset value. The numbers at $100 + oil are staggering. For the industry, it is not about the % change in commodity price, it is about the absolute number.
I have been out of the OIH for the last year, after catching big runs in 2004 and 2005. The reason is that despite a great oil price, revenue and EPS growth RATE is slowing for the service sector, which I consider to be a key driver. I admit that I don’t understand the move in SLB on Friday, unless it was option expiration.
On the short side, the higher crude goes the worse it is for the refiners (VLO, SUN, MRO, TSO etc). Product demand in the US is negative, which has killed margins. Also, big oil is quite vulnerable at these levels. As a pair-trade to the producers, it looks worthwhile to be short XOM, with smaller shorts in BP, COP and CVX. The market does not yet know how bad refining earnings will be for the big boys until 1q08 EPS reports next week. Also, if crude going higher cracks the stock market, I project it will take down the big index names like XOM and CVX. The risk for me is that the reverse is also true. Lastly, if oil goes much higher, government is going to be forced to get involved. The window for me is that the so-called market pundits have not started picking up on how devastating the financial flows are for the global consumer at $120 oil.
The math is pretty easy because the US consumes 7.5 billion barrels of oil and oil products each year.
In sum, I have been involved in stocks for almost 30 years and this is the most dynamic, intellectually challenging period I have ever experienced. I will be back with more details on certain names, but in the mean-time, please take a look at the charts on OXY, CHK, XOM, COP and CVX. I value your insights on this sector.
Who knew statistics, a number heavy discipline, could be made visually appealing to the eyes. What’s interesting about these two videos are the profound and amazing trends that Hans Rosling shows us. His program, Gapminder World, shows the trends that have occured over the past century such as plotting Fertility Rate vs. Life Expectancy over time, GDP/capita vs. Child Mortality Rate over time, and showing the correlation between GDP/capita and CO2 Emissions.
Also, Hans Rosling shows us the trends of the distribution of income within countries and between countries in the world over the past century.
From the information presented here, it seems like Healthcare sector would do tremendously well in the long-term. Higher life-expectancy on a global scale means higher demand for healthcare services. In the second video, projections to 2050 illustrate nearly every country to have life expectancy rates equivalent to developed nations today.
In addition, as many of us already know, China’s income per capita seems to be catching up with the United States. I wonder how long it will take until China can catch up to United States. Will China be able to sustain the growth rate it has experienced over the past three decades? Economists think not.
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Source: http://www.ted.com/talks/view/id/92
Filmed on Feb, 2006
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Source: http://www.ted.com/index.php/talks/view/id/140
Filmed on Mar, 2007
EBAY play failed. That’s unfortunate. They didn’t miss earnings and, in fact, beat it. We’ll see tomorrow how everyone thinks after hearing their CC and reading over their report.
On other news, here’s a summary of the Fed’s “Summary of Commentary on Current Economic Conditions by Federal Reserve District”. Enjoy…
… “Commonly known as the Beige Book, this report is published eight times per year. Each Federal
Reserve Bank gathers anecdotal information on current economic conditions in its District through
reports from Bank and Branch directors and interviews with key business contacts, economists, market
experts, and other sources. The Beige Book summarizes this information by District and sector. An
overall summary of the twelve district reports is prepared by a designated Federal Reserve Bank on a
rotating basis.”
U.S. Federal Reserve April Beige Book Summary (Text)
2008-04-16 14:03 (New York)
April 16 (Bloomberg) — The following is the summary
text of the Federal Reserve Board’s Summary of Commentary
on Current Economic Conditions, also known as the Beige
Book.
Current Economic Conditions by Federal Reserve District
Summary
Prepared at the Federal Reserve Bank of New York and based on
information collected on or before April 7, 2008. This
document summarizes comments received from businesses and
other contacts outside the Federal Reserve and is not a
commentary on the views of Federal Reserve officials.
Reports from the twelve Federal Reserve Districts indicate
that economic conditions have weakened since the last report.
Nine Districts noted slowing in the pace of economic activity,
while the remaining three–Boston, Cleveland, and Richmond–
described activity as mixed or steady.
Consumer spending was characterized as softening across most
of the country, with some Districts reporting year-over-year
declines in retail and/or auto sales. In contrast, tourism was
generally described as strong, with a number of Districts
noting particular strength in foreign visitors. Reports on
nonfinancial services varied by District: demand for
transportation services was generally characterized as weak,
while business and health services continued to expand; other
service industries were said to be mixed. Trends in
manufacturing also varied across Districts. Reports on real
estate and construction were generally anemic for the
residential sector; activity in the commercial sector has
slowed. Financial institutions in many Districts indicated
some deceleration in consumer loan demand, tightening in
lending standards, and deterioration in asset quality. Most
Districts reported improved conditions in the agricultural
sector and robust activity in the energy industry.
Labor markets were mostly described as weakening since the
last report, though a few Districts reported ongoing shortages
of skilled workers and some Districts noted wage pressures.
Increases in input costs were widespread, accompanied by
somewhat smaller rises in selling prices.
Consumer Spending and Tourism
Consumer spending weakened in most, but not all, Districts
since the last report. In particular, automobile sales were
generally reported to be flat or declining. Vehicle sales were
described as unchanged or falling in the Philadelphia,
Cleveland, Atlanta, and Dallas Districts and were
characterized as weak in the Richmond, Atlanta, Chicago, and
San Francisco Districts. However, Kansas City reported that
auto sales rebounded in March, though they remained lower than
a year earlier. Non-auto retailers reported that sales were
sluggish or declining in ten Districts. Elsewhere, Boston
noted mixed sales trends, and New York reported a modest
pickup since the last report. Chicago, San Francisco, and, to
a lesser extent, Philadelphia noted relative strength in
demand for luxury goods.
Retail inventories were generally reported to be steady or
rising. Automobile inventories were said to be accumulating in
the Philadelphia and Atlanta Districts. Among non-auto
retailers, despite weakness in sales, only a few reported any
notable inventory accumulation; Atlanta cited some increase in
inventories, while the Richmond and San Francisco Districts
noted that some inventory accumulation has prompted retailers
to cancel orders.
Despite the general weakness in consumer spending, tourism was
generally described as robust, with that strength, in a number
of instances, attributed to international visitors. The
Boston, New York, Atlanta, Minneapolis, and Kansas City
Districts reported strong tourism activity, while the Richmond
and Chicago Districts described that sector as mixed, with
pockets of strength. San Francisco indicated mixed but
generally weak tourism activity. Reports from Boston, Atlanta,
Chicago, and Minneapolis specifically cited foreign visitors
as a source of strength.
Nonfinancial Services
Activity in the service sector was mixed across Districts and
across industries since the last report. Looking at the
service sector in broad terms, Boston, Richmond, and
Minneapolis reported some revenue growth; New York and St.
Louis noted some softening; and San Francisco saw some
deceleration. A number of Districts reported weakness in
transportation services: New York, Philadelphia, Cleveland,
Atlanta, and Dallas described shipping and freight activity as
sluggish or weakening, with New York attributing the softening
to declining import volume at the port. Richmond ports also
noted weakening in imports but robust export activity. There
were scattered reports of continued expansion in some other
service industries, such as business services (Boston,
Philadelphia, St. Louis, Minneapolis) and health care
(Chicago, San Francisco).
Manufacturing
Manufacturing activity was varied, with some Districts
reporting a slight increase in activity, some indicating
weaker activity, and several noting that activity was mixed or
had held steady. Chicago, Boston, and Richmond reported that
activity was rising, but not substantially, while New York,
Kansas City, Philadelphia and Dallas all reported that
activity had weakened. St. Louis and Cleveland said that
activity had held steady, while Atlanta, Minneapolis and San
Francisco saw activity as mixed.
Demand was reported as strong for aerospace, aircraft, and
defense goods, as well as for steel and food. Automakers
increased production modestly in the Cleveland and Chicago
Districts, but vehicle production declined in the Atlanta
district. The Philadelphia District found that that demand for
metals and machinery had increased. Many Districts cited
strong exports generally. Most Districts saw a continued slide
in the demand for goods related to residential construction.
Excess capacity led to production declines in the high-tech
industry in the Dallas District, and Chicago reported weak
demand for heavy equipment. Uncertainty about economic
conditions is leading to a varied, but generally subdued,
outlook for manufacturers.
Real Estate and Construction
Housing markets and home construction remained sluggish
throughout most of the nation, though there were few signs of
any quickening in the pace of deterioration. Ongoing weakness
in housing markets, in general, was reported in almost all
Districts. Sales activity was generally reported to be
declining in the Boston, New York, Philadelphia, Atlanta, St.
Louis, Minneapolis, Dallas and San Francisco Districts, while
Kansas City and Chicago noted slack demand and excess
inventories. On the other hand, the Cleveland District saw
some pickup in activity, while Richmond and Atlanta reported
some pockets of improvement; Boston, Atlanta, and Chicago
cited some recent pickup in traffic or buyer inquiries. New
residential construction was reported to have remained at
depressed levels, and none of the Districts reported any
pickup since the last report.
Declines or downward pressures in selling prices were
specifically reported in the Boston, New York, Philadelphia,
Richmond, Atlanta, Chicago, Minneapolis, Kansas City, and San
Francisco Districts. In particular, New York and San Francisco
noted some incipient price declines in areas that had
previously shown resilience–respectively, New York City and
the Pacific Northwest, as well as Utah. On the other hand, the
Cleveland District noted some stabilization in home prices. Commercial real estate markets were generally reported to be
steady or softening in most areas. Weaker conditions in the
rental market were reported in eight Districts: New York,
Philadelphia, Richmond, Atlanta, Chicago, St. Louis,
Minneapolis, and San Francisco. On the other hand, the leasing
market was found to be steady in Boston, Kansas City and
Dallas. Reports on commercial development were mixed with
activity having weakened in the Philadelphia, Atlanta, and San
Francisco Districts, but having increased in the Cleveland,
Chicago, and Kansas City Districts. St. Louis characterized
commercial construction as strong. However, sales of
commercial properties were generally indicated to be sluggish,
while prices were said to be under downward pressure. The
Boston, Philadelphia, Minneapolis, Kansas City, Dallas, and
San Francisco Districts all reported weakness in commercial
real estate sales and prices.
Banking and Finance
Banks reported mixed trends in lending activity, with fairly
widespread slowing in the consumer segment but some
stabilization, at low levels, in residential mortgage
activity. Overall lending activity was reported to have
increased in the Philadelphia, Richmond and St. Louis
Districts, but to have declined in the New York, Chicago,
Kansas City and San Francisco Districts. Dallas described
lending activity as steady but soft. Lending activity for new
home mortgages, though generally characterized as sluggish,
was reported to have stabilized in the New York, Cleveland,
Chicago, and San Francisco Districts. Consumer loan demand,
however, weakened in a number of Districts: New York, Atlanta,
Chicago, and Kansas City.
Credit quality was reported to have deteriorated, on balance,
since the last report. Increased delinquency rates were noted
by New York, Philadelphia, and Cleveland, while Kansas City
reported that loan quality remained lower than a year ago. Widespread tightening in credit standards was reported,
especially on residential and commercial real estate loans. In
general, banks were reported to be tightening credit standards
in the New York, Cleveland, Atlanta, Chicago, Kansas City,
Dallas and San Francisco Districts. In addition, Boston noted
that standards remain tight on commercial mortgages, while
Philadelphia indicated that banks are limiting lending in this
category. Richmond indicated tighter standards on residential
mortgages.
Agriculture and Natural Resources
Agricultural reports were generally upbeat, with most
respondents citing improved growing conditions and favorable
pricing. Although drought conditions continued to persist in
some areas of the Atlanta and Richmond Districts, soil
moisture was adequate for spring planting, in part, due to
increases in precipitation in March and early April. Reports
from the Chicago, Kansas City, and St. Louis Districts
indicated that cool temperatures, dry conditions, or flooding
toward the end of March damaged some winter crops and delayed
field preparations for spring plantings. Farmers in the
Chicago, Kansas City, Minneapolis, and St. Louis Districts all
reported plans to shift production away from corn toward
soybeans in 2008, in part, because of favorable soybean prices
and elevated corn production costs. Some farms in the San
Francisco District expressed concern over prolonged drought
conditions and pending cuts in water deliveries. Dairy and
livestock producers in the Chicago, Dallas, Kansas City, and
San Francisco Districts expressed concern that increased feed
costs had reduced margins.
Districts reporting on energy continued to see robust levels
of activity and steady to increasing prices. In the Dallas
District, drilling remained strong and natural gas production
has continued to increase. In the Minneapolis District,
expansion of the mining industry was underway, while oil and
gas exploration remained robust. In general, contacts
contended that increased demand for energy was expected to
continue to boost activity and prices.
Labor Markets
Despite some variation across Districts, employment levels
appeared to be little changed, on balance, from recent months.
Some weakening in the job market was reported in the New York,
Atlanta, Chicago, St. Louis, and Minneapolis Districts.
Cleveland reported flat employment levels, while Richmond
indicated mixed trends. Boston and Kansas City indicated
modest increases in employment, with some deceleration
indicated in the latter. Firms in the Philadelphia, Atlanta,
and Minneapolis Districts reported layoffs, reductions in work
hours, or hiring freezes in response to current or expected
slowing in economic activity.
Despite the general softening in their markets overall,
Atlanta and Chicago noted scattered shortages of skilled
workers in various service industries. Dallas reported
relatively tight labor market conditions overall and cited
shortages of managers and engineers, as well as farm workers.
Staffing and temp agencies reported mixed trends in labor
demand: New York, Richmond, and Chicago reported some
softening, whereas Cleveland and Dallas note some pickup. In
the financial services industry, some weakening in employment
trends was reported in the New York, Chicago and St. Louis
Districts, and San Francisco noted job losses in firms
servicing the real estate industry.
Prices
Business contacts across all Districts continued to report
increases in input costs and output prices. In particular,
price increases were consistently reported for food products,
fuel and energy products, and many raw materials. More
specifically, increases in the price of chemicals, metals,
plastics and other petroleum-based products were commonly
cited. Most manufacturers have or are planning to increase
prices in response to rising input costs, while the response
of service firms has been more mixed, in part due to
differences in competitive pressures. On balance, input costs
have risen more rapidly than output prices, putting pressure
on margins for many firms. Most Districts reported little
change in retail price inflation, though Richmond and San
Francisco noted some moderation. Most business contacts
reported that wages were unchanged or were increasing
moderately in all Districts. Business contacts in the Atlanta,
Chicago, Cleveland, Dallas, Philadelphia, and San Francisco
Districts indicated that there has been some upward wage
pressure for skilled labor in some sectors that continue to
experience shortages.
SOURCE: Federal Reserve Board {FRBA <GO>}.
–Editors: Terry Barrett
To contact the reporter on this story:
Alex Tanzi in Washington at +1-202-624-1959 or atanzi@bloomberg.net
To contact the editor responsible for this story:
Marco Babic at +65-6212-1886 or mbabic@bloomberg.net
Goldman Sachs and Wells Fargo warn ‘delusional’ investors on stocks
By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 1:58am BST 15/04/2008
Wall Street faces the growing risk of an equities bloodbath in coming months as the credit crunch spreads to the wider economy and earnings crumble, according to a pair of grim reports issued by Goldman Sachs and Wells Fargo.
David Kostin, the chief US investment guru for Goldman Sachs, expects the S&P 500 index of Wall Street equities to plummet a further 15pc over the “near term” as companies scramble to lower their outlook for this year.
“Although only a few firms have reported first quarter results, early signs are awful. We expect a swath of lowered profit guidance,” he said in a research note published today, entitled ‘Fasten Seatbelts’.
Mr Kostin, who replaced the ever-bullish Abby Cohen as chief strategist in December, expects the S&P index to reach 1,160, which would amount to a fall of 27pc from the bull market peak of 1,576 in September and enter the annals as a relatively severe bear market.
Goldman Sachs was the only major investment bank on Wall Street to turn a profit from the credit crunch, taking out huge “short” positions on sub-prime mortgage bonds before they went into a tailspin.
The firm’s daily trading notes are one of the most closely watched sources in global finance.
Scott Anderson, chief economist at Wells Fargo, is equally pessimistic, describing the bullish views of some market players as “bordering on delusional”.
“The equity markets have not yet priced in a prolonged downturn in economic growth in my opinion. We are still in the early stages of the credit crunch. Earnings estimates for the second half of the year are likely still far too high,” he said.
Mr Anderson said investors should pay attention when the International Monetary Fund cuts its global growth forecast for 2008 three times in less than five months. The Fund has put the odds of a world recession at 25pc and predicted $945bn in losses from the credit debacle spread across banks, hedge funds, pension funds, and insurers.
“Even more alarming, the IMF estimates that only a quarter of these potential losses have been recognized,” he said.
“Rarely do we ever see such uncertainty surrounding the economic and financial outlook. The forecasts for GDP growth in the second quarter of 2008 are currently all over the map. If you feel you must wade into equities at the present time, I would suggest spreading your bets widely,” he said.
Goldman Sachs said the key for equities will be the full-year guidance offered by companies rather than first quarter profits. It cited the example of Bed Bath & Beyond, where the stock fell sharply last week after the firm said the earnings prospects for 2008 would be around 16pc below consensus estimates.
Mr Kostin said investors often “look through” downturns, preparing for the sunny uplands that lie on the other side as the cycle recovers. But the pattern in this bear market has been a series of earnings shocks precipitating sudden share price falls.
The implication is that investment funds have been caught badly off guard by the severity of the economic slump and are scrambling to catch up with reality.
AP Consumer Confidence Falls to New Low Friday April 11, 3:46 am ET By Jeannine Aversa, AP Economics Writer
Confidence Sinks to Lowest on Records Going Back to 2002 As Fear Tightens Hold on Consumers WASHINGTON (AP) — Americans’ confidence in the economy fell to a new low, dragged down by worries about mounting job losses, record-high home foreclosures and zooming energy prices.
According to the RBC Cash Index, confidence dropped to a mark of 29.5 in April, down from 33.1 in March. The new reading was the worst since the index began in 2002. It marked the fourth month in a row where confidence has fallen to an all-time low.
“Consumers are very pessimistic,” said Mark Vitner, economist at Wachovia. “There are not a lot of happy campers out there.”
Over the past year, consumer confidence has deteriorated significantly. Worsening problems in housing, harder-to-get credit, financial turmoil on Wall Street and lofty energy prices have put people in a much more gloomy mind-set. Last April, confidence stood at 85.4. The index is based on results from the international polling firm Ipsos.
All the economy’s problems are taking a toll on President Bush’s approval ratings, too. The public’s approval rating on his economic stewardship fell to a low of 27 percent, according to a separate Associated Press-Ipsos poll. Bush’s overall job-approval rating dipped to 28 percent, also an all-time low, the poll said.
Many economists believe the country has tipped into its first recession since 2001. Federal Reserve Chairman Ben Bernanke for the first time acknowledged last week that a recession was possible. It was a rare public utterance of the “r” word by a Fed chief.
“Consumer sentiment is tracking at levels we think are consistent with a mild recession at this point,” said Brian Bethune, economist at Global Insight.
A measure looking at consumer’s feelings about current economic conditions slipped to a 54.6 in April, from 54.7 in March. The new reading was the lowest in six years of records.
Rising unemployment and job losses are making people more uneasy.
The government reported last week, that employers slashed 80,000 jobs in March, the most in five years and the third straight month where the nation’s payrolls were cut. The unemployment rate jumped from 4.8 percent to 5.1 percent, the highest since the aftermath of the devastating Gulf Coast hurricanes.
Another factor blamed for eroding consumer confidence is high gasoline prices, which are socking people’s wallets and pocketbooks. That’s squeezing already strained budgets and leaving people with less money to spend on other things.
“Much of the angst we’re seeing from consumers is `Gosh, I’m working harder and harder, and all I’m doing is paying for my basic necessities. I don’t have anything left to have any fun,’” Vitner said.
Gasoline prices, which have set a string of records in recent weeks, climbed to a new record of $3.357 a gallon on Thursday, according to AAA and the Oil Price Information Service.
Anxiety also has grown as people wonder if there is any relief in sight for the troubled housing market. With the housing collapse, many people have watched their single-biggest asset — their home — drop in value. That has made them feel less wealthy and less inclined to spend.
Against the backdrop of all these concerns, another measure tracking individuals’ sentiments about the economy and their own financial standing over the next six months fell deeper into negative territory. This gauge dropped to a negative 48.3 in April, down from a negative 41.6 in March. The new reading was the worst on record.
A measure on consumers feelings about employment conditions fell to 97 in April, from 99.2 in March. The new reading was the lowest since early October 2003. Another gauge of attitudes about investing, including comfort in making major purchases, declined to 56.4 in April, from 56.7 in March. The new figure was the lowest on records going back to 2002.
Economists keep close tabs on confidence barometers for clues about consumer spending, a major shaper of overall economic activity.
Cautious shoppers gave most retailers their most dismal March in 13 years, according to sales figures reported by major retailers on Thursday. J.C. Penney Co., Gap Inc., and Limited Brands Inc. were among the merchants hit by a sharp drop in sales.
The RBC consumer confidence index was based on the responses from 1,005 adults surveyed Monday through Wednesday about their attitudes on personal finance and the economy. Results of the survey had a margin of sampling error of plus or minus 3 percentage points. The overall confidence index is benchmarked to a reading of 100 in January 2002, when Ipsos started the survey.
Pointing to the overall confidence reading of 29.5 in April, T.J. Marta, a fixed-income strategist at RBC Capital Markets, said: “What confidence? There is no confidence. It’s like 1929.”
To catch up on four/five days of no Bloomberg, I spent lots of time at Bloomberg today. Now I’m convinced the market is going to fall. The evidence is in the options activity and the charts that I have posted. Of course, it should be said that the evidence displayed before you are biased. I do not post weak evidence or bullish-looking-screenshots because I have already taken those into account. I am convinced the market will fall because the overall picture is bearish.
Looking at the S&P500 chart, we can see it’s near resistance. Also notice the declining volume. This signals that the trend is losing momentum.
Looking at major index ETFs (i.e., SPY, QQQQ, IWM), I see large put activity.
Looking at some active SPY May options contracts Trade Summaries for today, I see large put positions being taken indicating SPY may head as far down as 128 by the end of May expirations.
I will reiterate. US Market’s will fall! =) .. Here’s Alan Greenspan’s commentary on the economy (I coloured the parts I think are important):
Greenspan Says U.S. Home Prices May Stabilize Later This Year
2008-04-07 22:32 (New York)
By Scott Lanman and Lily Nonomiya
April 8 (Bloomberg) — Former Federal Reserve Chairman Alan
Greenspan said the drop in U.S. home prices will probably end
“well before” early next year as the number of houses on the
market diminishes, aiding an economic rebound. “It will not be until early 2009 that we will get close to
having eliminated most of this” home inventory, Greenspan told
a conference in Tokyo today sponsored by Deutsche Bank AG and
co-hosted by Bloomberg LP. “But it is very likely that home
prices will stabilize well before that.”
The health of the U.S. housing market is tied to broader
financial markets that rely on bundling mortgages to sell as
securities, Greenspan said. His successor, Fed Chairman Ben S.
Bernanke, and other Fed officials have highlighted declining
home prices as a major economic risk that may further hurt
household wealth and consumer spending.
“Once the markets start to stabilize, especially if the
real economies don’t go into a severe recession,” then “we can
expect a recovery to begin to take place,” Greenspan, 82, said
via satellite from Washington. “It will be slow, it will be
hesitant.”
He said the extent of damage stemming from the collapse of
the subprime-mortgage market won’t be known for months. “Have we reached a point where prices are stable? We
cannot know that for a couple of months,” Greenspan said. “It
looks as though we’re going to get a very large rate of
liquidation, but not until the second half of this year.”
Inflation Contained
The yield on the 10-year Treasury note fell 2 basis points
to 3.52 percent as of 11:25 a.m. in Tokyo, according to bond
broker Cantor Fitzgerald LP.
Greenspan said inflation will be contained during the
current slowdown before picking up as the world economy recovers. “It’s difficult to imagine any major breakout of inflation
as economic slack continues to increase,” he said. “What we
will see is gradually rising inflationary pressures that will
probably be subdued during the current period of slack, but that
will surely reemerge when economies pick up.”
Greenspan spoke via satellite from Bloomberg Television’s
studio in Washington, answering questions from Peter Hooper,
chief economist at the securities unit of Deutsche Bank, which
hired Greenspan as a consultant in August.
Greenspan, who retired in 2006 after 18 years as the U.S.
central-bank chief, has come under increasing criticism for his
policies as last year’s subprime-loan meltdown spread into a
broader financial crisis. One recent book, “Greenspan’s
Bubbles” by money manager William Fleckenstein, argues the
former Fed chief helped inflate stock and home prices.
Left to Bernanke
In response to the bursting of the Internet and technology
bubble and the Sept. 11 terrorist attacks, Greenspan lowered the
Fed’s key rate in 2001 from 6.5 percent to 1.75 percent, then
reduced it further in 2003 to 1 percent, a 45-year low.
He left the rate there for a year before starting to raise
borrowing costs in quarter-point increments, leaving it Bernanke
to decide when to stop. Some Fed critics, such as Bear Stearns
Cos. economist John Ryding, say rates were too low for too long,
encouraging the easy credit that helped inflate a housing bubble
and has now returned to burn investors.
Greenspan, who published his memoir “The Age of
Turbulence” in September, has taken to defending his legacy in
newspaper opinion articles.
Yesterday, in a Financial Times piece headlined “The Fed
is blameless on the property bubble,” Greenspan wrote that the
evidence is “very fragile” that Fed interest-rate policy added
to the U.S. bubble and that “it is not credible that regulators
would have been able to prevent the subprime debacle.”
Worst Credit Crisis
Greenspan said today that “the current credit crisis is
the most wrenching in the last half century and possibly more.”
Such remarks echo the assessments of economists including
those at the International Monetary Fund, and may add to
pressure on policy makers to strengthen their response to the
credit crunch. Fed officials last week acknowledged that capital
markets remain distressed even after the fastest interest-rate
cuts in two decades, and may be rethinking their aversion to
acting against asset-price bubbles.
After last month’s near-collapse of Bear Stearns,
Minneapolis Fed Bank President Gary Stern — the longest-serving
policy maker — said on March 27 that it’s possible “to build
support” for practices “designed to prevent excesses.”
Greenspan, in yesterday’s FT piece, reiterated his doubts
about taking a more active role in leaning against asset bubbles.
At least 14 banks and securities firms have sought cash
from outside investors in the past year after more than $230
billion of global markdowns and losses caused by the collapse of
the U.S. subprime mortgage market, Bloomberg data show.
Bernanke, 54, told Congress last week that the U.S. economy
may contract in the first half of 2008 and for the first time
acknowledged the chance of a recession.
Later today, the Fed releases minutes of its March 18
interest-rate decision and any other conference calls in
February and the first half of March. The Federal Open Market
Committee that day lowered its benchmark rate by 0.75 percentage
point to 2.25 percent, capping 3 points of cuts since September.
–With reporting by Toru Fujioka and Jason Clenfield in Tokyo,
Craig Torres in Washington and Vivien Lou Chen in San Francisco.
Editors: Russell Ward, David Tweed
To contact the reporters on this story:
Scott Lanman in Washington at +1-202-624-1934 or
slanman@bloomberg.net;
Lily Nonomiya in Tokyo at +81-3-3201-3423 or
lnonomiya@bloomberg.net
To contact the editor responsible for this story:
David Tweed at +81-3-3201-2494 or
dtweed@bloomberg.net.
I'm currently focusing on summer school and other time consuming initiatives. Content posting frequency will drastically be reduced if compared historically.
This blog is still under construction (along with my website). To give an estimate, I would say this website (and blog) is around 20% complete. More content coming soon.
