"Economists are pessimists: they've predicted 8 of the last 3 depressions."
--Barry Asmus

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The information presented in this blog and its individual articles is provided for informational use only and should not be considered investment advice or an offer for a particular security. The contents reflect the views and opinions of the individual writer as of the date the article was written and do not necessarily represent the views of the individual writer on the current date. They also do not in any way, shape, or form represent the views of the Firm Never-To-Be-Named. Any such views are subject to change at any time based upon market or other conditions and The Great Redoubt and its individual writers disclaim any responsibility to update such views. These views should not be relied on as investment advice, and because investment decisions for any security are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any contributor to The Great Redoubt. Neither The Great Redoubt nor any individual author can be held responsible for any direct or incidental loss incurred by applying any of the information offered. Please consult your tax or financial advisor for additional information concerning your specific situation.

Friday, April 22, 2011

The Markets Are Closed Today

It's a market holiday. The bond markets are closed. The equity markets are closed. It isn't a settlement day.

For many people, it's also a religious holiday.

So, if you find yourself getting ready to call your broker today - particularly if you find yourself getting ready to call your broker to sell something or to demand to know why something hasn't settled yet - stop and think.

Then put that phone down. It'll wait until Monday. And even if it can't, since everything is closed, it pretty much will have to.

Thursday, April 21, 2011

World News

South Korea
  • South Korea has sent a warship to the Arabian Sea after the Hanjin Tianjin, a 75,000 ton South Korean freighter, lost contact after emitting a distress call.  It is believed to have been seized by pirates, who have already seized the Italian Rosalia D'Amato.
United States

[1] For the shooting death of two civilians by one CIA contractor, and for civilian deaths caused by US drone attacks along the Pakistan-Afghanistan border.

The Philadelphia Fed Survey

"I once spent a year in Philadelphia.  I think it was on a Sunday."
--W. C. Fields
The Philadelphia Fed Survey is a survey of business conditions in the Philadelphia Federal Reserve District, and is considered to be a bellwether of business conditions throughout the US.
Last month, that bellwether tolled in a General Business Conditions Index level of 43.4, the highest reading since January 1984.  Continuing their trend of pessimism regarding this index, however, the Econoday-surveyed analysts are expecting it to contract to a level of 36.0.  Are they right?  Let's turn to the Philadelphia Federal Reserve to find out.
The April 2011 Business Outlook Survey reveals that, if anything, the analysts weren't pessimistic enough.  The General Business Conditions Index dropped precipitously, coming in at 18.5.  So yeah, Philadelphia-area businesses suddenly aren't particularly optimistic about the current business climate.

First Time Jobless Claims

If it's Thursday, it's time for unemployment!
Last week, as you hopefully remember, the news for the week ending 4/9 was terrible.  First time claims came in at 412,000, missing expectations by 22,000.  The unadjusted number of initial claims increased 92,836 to a level of 443,503, the state program insured unemployment level came in for 4/2 at 3,680,000[1], and the total number of people claiming UI benefits in all programs was 8,517,545.
For the week ending 4/16, the Econoday-surveyed analysts are feeling optimistic.  they are calling for 390,000 new claims.  Is their confidence justified?  Let's have a look.
According to the US Department of Labor's weekly claims report, their confidence is not justified.  Claims for the week ending 4/9 were revised upwards to 416,000 (making last week's results even worse), and initial claims for the week ending 4/16 came in at 403,000 - missing expectations by 13,000.  On the other hand, the unadjusted initial claims figure for 4/16 has come in at 380.668, a decline of 62,835.  So that isn't too bad.
The state program insured unemployment level was revised upwards to 3,702,000 for the week ending 4/2, and has come in at 3,695,000 for the week ending 4/9.  The report calls that a decline of 7000, which is true but (in my opinion) misleading.  Everyone would have reacted to last week's reported 3,680,000 level, after all, and this week's level is up 15,000 from that figure.  But that's just my opinion.
Finally, the total number of people claiming UI benefits has come in at 8,229,810.
The takeaway?  We missed expectations.  Not as badly as last week, but badly.  This may very well put a damper on this last trading day of the short trading week.
[1]  One of the few bright spots, since that was down from the week ending 3/26.

Wednesday, April 20, 2011

Existing Home Sales

This is the counterpart to yesterday's New Home Sales, and the market loves the heck out of it for similar reasons.  Home sales of any sort have that broad pattern trickle-down impact, causing people to throw money to the banks and mortgage companies, and then spend on durable goods.
Existing home sales were weak in February, coming in at an annual rate of 4.88 million.  The Econoday-surveyed analysts are optimistic about March, predicting an annual rate of 5.0 million sales.  For the actual results we turn to the National Association of Realtors and their press release, from which we learn that the analysts weren't optimistic enough.  February's annual rate was revised upwards to 4.92 million, and March comes in at a seasonally-adjusted annual rate of 5.1 million.

World News

European Union
  • A draft law was passed by Syrian authorities overnight to end the nation's 48 year "state of emergency".  In celebration, Syria's political security division arrested opposition leader Mahmoud Issa by dragging him from his house at midnight.
United Kingdom
United States

MBA Weekly Applications Survey

Continuing the trend started with yesterday's release of the housing starts, we kick off the morning with the MBA Weekly Applications Survey.  If you recall last week, things weren't all that great for the week ending 4/8.  The Market Composite Index declined 6.7%, mostly on refinancing activity, and the average interest rate for a 30-year fixed-rate mortgage increased to 4.98%.
Will this week be better?  Let's open up the press release and have a look.  For the week ending 4/15, the Market Composite Index increased 5.3%, with the Refinance Index increasing 2.7% and the Purchase Index increasing 10.0%.  Refinancing dropped to 58.5% of total mortgage applications, and adjustable-rate mortgages increased to 6.5% of total applications.  Finally, the average contract interest rate for a 30-year fixed-rate mortgage decreased to 4.83%.
What's the takeaway?  Overall mortgage applications are up for the week, driven by strong growth in new mortgage applications.  That strongly points to increased home sales for the week (a trend we've seen for all of April), which means good news for existing home sales and new home sales.

Tuesday, April 19, 2011

Regional and State Employment and Unemployment (Monthly) News Release

The latest Regional and State Employment and Unemployment news release (http://www.bls.gov/news.release/pdf/laus.pdf) was issued today by the Bureau of Labor Statistics. Highlights are below.

In March 34 states reported over-the-month unemployment rate decreases, 7 had increases, and 9 states and the District of Columbia had no change. Nonfarm payroll employment increased in 38 states and decreased in 12 states and the district.

News releases archives: http://www.bls.gov/schedule/archives/all_nr.htm
To subscribe or unsubscribe to BLS news releases please visit http://www.bls.gov/bls/list.htm
For help, email news_service@bls.gov

World News

United States
[1]  Remember them?  Leaked US diplomatic cables.  Huge debates over national security vs. free speech?
[2]  The definition of "the rich" is rather nebulous right now, with President Obama describing the targets of the tax hikes as "folks like myself who can afford to pay a little bit more."  There also appears to be no specific definition of what "a little bit more" means.

Housing Starts

Housing starts are big economic news.  They represent actual new construction beginning for residential units.  The markets like this a lot, because of the overall impact this can mean to the economy.  New homes hopefully mean new home sales, which means the single largest expense that the average consumer takes on.  And that expense is the gift that keeps on giving to the economy, because it becomes an ongoing income stream for banks and mortgage companies (or a source of large cash injections if the mortgages are packaged and sold as CMOs).  They also provide a trickle-down effect - new homes require new carpet or tile or hardwood laminates, new appliances, paint or wallpaper, furniture, and so forth.
February wasn't that good a month for housing starts (although, really, what would you expect?), with only 479,000 new homes beginning construction and 517,000 new construction permits issued.  The Econoday-surveyed analysts are expecting better things for March, calling for 525,000 new starts.
To find out how we actually did for March, we turn to a joint press release from the US Census Bureau and the US Department of Housing and Urban Development.  The release indicates that new housing starts came in at a seasonally adjusted 549,000, substantially better than February, but still below the March 2010 results.  422,000 of those starts were single-family homes.  594,000 new building permits were issued (405k of which were for single-family homes), and 509,000 privately-owned homes were completed (374k of which were single-family units).

Monday, April 18, 2011

Chinese Reverse Merger Companies

These have been in the news recently,  but what the heck is a Chinese reverse merger company?
To answer that, let's start off with what a reverse merger is.  Investopedia defines a "reverse merger" as "a type of merger used by private companies to become publically traded without resorting to an initial public offering.  Initially, the private company buys enough shares to control a publicly traded company.  The private company's shareholder then uses their shares in the private company to exchange for shares in the public company.  At this point, the private company has effectively become a publicly traded one."
So, yes.  In a reverse merger, the private company buys a public company, hollows it out, and wears it around like a suit  The strategy makes the private company the emerald cockroach wasp of the business world.  A Chinese reverse merger company, then, is just a Chinese company that has gone public in the US markets by hollowing out a US company - typically something Over-The-Counter or that has one of the smaller exchanges as a home exchange[1] - and then wearing it around.
Now, why are people concerned about this?  BusinessWeek had a pretty good article on the subject back in March, but here's the reasons in a nutshell:  this reverse merger process circumvents the SEC requirements for taking a company public in the United States.  Instead of meeting minimum shareholder and asset requirements, and filing all of the appropriate regulatory forms, they just need to get the merger approved.  As a result, they manage to combine all of the risks of a penny stock and a speculative private placement.
But wait!  There's more!  In addition, most of these companies operate as shell companies.  There might be a US address, but the entire company is still in China, significantly restricting the ability of the SEC to compel them to conform to US securities laws and regulations, or to enforce fines and arbitration against them.
As a result, since December, the SEC has been investigating a number of these firms for stock fraud, and the indications are that this will expand into a widespread investigation of pretty much every Chinese reverse merger.
[1]  Although some companies, such as China BAK Battery, have managed to get onto the American Stock Exchange and the NASDAQ.

Statement of Treasury Assistant Secretary for Financial Markets Mary Miller on Credit Rating Agency Announcements Today

Treasury Welcomes S&P Affirmation of AAA Rating, Moody's View of Recent Fiscal Announcements by Both Parties as a Positive 'Turning Point' for US; Stresses Need for Action on Debt and Deficits
WASHINGTON – The U.S. Department of the Treasury today released the following statement from Assistant Secretary for Financial Markets Mary Miller on announcements by Standard and Poor's (S&P) and Moody's today:
"This morning, S&P affirmed the AAA rating of the U.S., but emphasized the importance of timely bipartisan cooperation and action on fiscal reform.  In addition, Moody's commented today that 'we view the changed parameters of the debate, with broadly similar goals as to government debt levels, as a turning point that is positive for the long-term fiscal position of the U.S. federal government.'
"As the President said last week, addressing the current fiscal situation is well within our capacity as a country.  He has initiated a bipartisan process that will allow us to make progress on a balanced approach to restoring fiscal responsibility.  The U.S. economy is strengthening as it emerges from the recent recession. Both political parties now agree that it is time to begin bringing down deficits as a share of GDP.
"S&P assumes that the U.S. will enact 'a comprehensive budgetary consolidation program – combined with meaningful steps toward implementation by 2013,' but we believe S&P's negative outlook underestimates the ability of America's leaders to come together to address the difficult fiscal challenges facing the nation."​

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