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.

World News

Australia

• Detainees at an Australian immigration detention center in Sydney have rioted, burning down nine buildings.  They also threw roof tiles and furniture at firefighters, preventing them from putting the fires out.

Japan

• The Japanese government has declared the 20-km evacuation zone around the Fukushima Daiichi nuclear plant to be a no-go zone.  Anyone breaking the ban can be fined up to 100,000 yen (about $120) and be arrested.

Libya

• The Libyan government responded to threatening talk from NATO by shelling Misrata for several hours.
• Libyan state television is reporting 7 people dead and 18 wounded after NATO airstrikes on the Khallat al-Farjan area of Tripoli.
• The UN's aid chief has rejected offers from the EU to provide military escorts to protect aid deliveries, saying that it would blur the lines between military operations and relief work.

Pakistan

• Admiral Mike Mullen, US Navy, has accused Pakistan's intelligence service of having "a long-standing relationship with the Haqqani network.  Haqqani is supporting, funding, training fighters that are killing Americans and killing coalition partners."  How much of this is accurate, and how much is diplomatic reprisals for Pakistan's expulsion of CIA employees from the country[1] is unclear at this time.

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

• BP has marked the one year anniversary of the Gulf of Mexico oil spill by suing Halliburton and Transocean, seeking $42 million in damages from Halliburton and $38 million from Transocean.  "Halliburton's improper conduct, errors and omissions, including fraud and concealment, caused and/or contributed to the Deepwater Horizon incident," BP said in it's filing.  Analysts do not expect BP to win, and assume the company is trying to force the companies to settle.
• Fiat will be paying $1.27 billion for an additional 16% stake in Chrysler, raising their ownership to 46%.
• The Equal Employment Opportunity Commission has sued Global Horizons and farms in Hawaii and Washington state for subjecting "the claimants to uninhabitable housing, insufficient food and kitchen facilities, inadequate pay, significant gaps in work, visa and certification violations, suspension, deportation, and/or physical violence."  An attorney for the head of global Horizons said the workers were paid "more money than they ever were in Thailand."
• Not to be paranoid, but it turns out that the iPhone stores timestamped latitude and longitude information of everywhere it goes in a hidden file, which is then backed up to the owner's computer when synchronized.  If you acquire a new iPhone, the data files are moved onto the new system.  The researchers who made the discovery have set up a FAQ web site, if you're interested.

Yemen

• The UN Security council has called for restraint and dialog between protesters and authorities in Yemen, but the talks ended with no consensus.  Separately, President Ali Abdullah Saleh has indicated that he is willing to hand over power, but only to "safe hands".  He has left the meaning of "safe hands" rather vague, however.

[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.

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

China

• Paleontologists announced the discovery of a 165 million year old spider with a 15 cm (about 7 inches) legspan.

European Union

• The European Commission has asked for a 4.9% budget increase.  The short version of the response from the UK, Germany, and France has been "no".

Japan

• The Japanese finance ministry has announced that exports are down 2.2% from a year ago in March, mostly due to the earthquakes and tsunami.

Libya

• Libyan rebel leader Mustafa Abdel Jalil met with French President Nicolas Sarkozy in Paris today, with reports indicating that the talks will focus on how to bring about a democratic transition in Libya.
• In the spirit of peaceful democratic transitions, the French government has confirmed that it will send a small team of military officers to advise the Libyan rebels, and has promised to intensify air strikes.
• Libyan foreign minister Abdul Ati al-Obeidi has warned that the French and British plans to send military advisors to Libya will damage chances of peace in the country and prolong the conflict.

Nigeria

• In what is likely to be the first steps towards civil war, General Muhammadu Buhari has challenged the results of the presidential election that he lost.  International observers said that the election was reasonably free and fair, but he claims that his supporters were not allowed to vote in southern Nigeria.

Syria

• 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

• Elisabeth Sladen, an actress most famous (at least to geeks like me) for her role as Sara Jane Smith in the BBC series Doctor Who, passed away yesterday at the age of 63.

United States

• Spot gold hit a high of $1,505.21 per ounce at 5:42 AM EDT, driven by news that Greece may have to restructure its debt and S&P's threat to downgrade the credit rating of the United States.
• The Federal Trade Commission has asked federal courts "to temporarily halt the allegedly deceptive tactics of 10 operations using fake news websites to market acai berry weight-loss products."  The FTC states that the websites "are meant to appear as if they belong to legitimate news-gathering organizations, but in reality the sites are simply advertisements."
• Wildfires in Texas have burned more than one million acres of the state in the past two weeks, and now cover over 100,000 acres.  The flames are now near Fort Worth.
• PFC Bradley Manning, arrested in May 2010 and held in solitary confinement since that time on charges of passing restricted material to WikiLeaks, is to be moved to a military prison in Kansas.
• Toyota has announced that it will cut production at its North American plants by 70% through June 3, due to parts shortages.  Employees have been asked to work only four-hour shifts during the period, but will remain on the payroll.  The company also announced that it will operate factories in China at 30% to 50% capacity.
• In response to videos showing unsanitary conditions and possibly illegal and inhumane treatment of animals in factory farms, the Iowa legislature is considering a bill which would make it a crime to produce, distribute or possess video or photos taken without permission at an agricultural facility.  Yes, that's right - their response to unsanitary conditions and inhumane treatment on farms is to make it illegal to tell anyone about the conditions or treatment.
• In the first use of Michigan's new emergency powers, Emergency Manager Joseph Harris has stripped the elected officials of Benton Harbor of all decision-making powers.
• The US Justice Department has intervened in a lawsuit filed against the Berkeley County Detention Center by the ACLU, which alleges that the prison does not allow prisoners access to any books except the King James translation of the Bible.

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.

Regional and State Employment and Unemployment (Monthly) News Release

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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.
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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.

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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
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World News

Cuba

• The Cuban Communist Party congress has approved an economic reform that will allow individuals to buy and sell their homes for the first time since 1959.  Details have not yet been announced, and President Raul Castro has also warned that the concentration of property will not be allowed.

Japan

• Workers at the Fukushima reactor have begun to remove 25,000 tons of radioactive water from the basement of a reactor building, which should give workers access to carry out repairs to coolant systems.  TEPCO is optimistic that the crisis should be under control by the end of the year.

Libya

• The UN reports that the Libyan government has promised humanitarian aid workers access to areas under its control.

Nigeria

• Some 16,000 people have fled their homes in northern Nigeria after riots prompted by the reelection of President Goodluk Jonathan.  President Jonathan was declared victor with 57% of the vote, and international observers have said that the vote was reasonably free and fair.

Syria

• The US State Department, in the wake of a recent WikiLeaks[1] revelation that the US has secretly funded Syrian opposition groups, has taken steps to assure the Syrian government that they are not working to undermine them.  "Trying to promote a transformation to a more democratic process in this society is not undermining necessarily the existing government," said a State Department spokesman.
• Syrian securty forces used automatic weapons to "disperse" an anti-government protest in Homs.

Ukraine

• Efforts to raise 740 million euros to build a new containment shield around the Chernobyl nuclear poweer plant have fallen short, with only 550 million euros raised.

United States

• That horrible plummeting sound from yesterday was the reaction of the US equity markets to Standard & Poor's issuing a negative outlook on the US credit rating.  They haven't actually cut the rating yet, but they did say that there is at least a one-in-three chance that they will unless the US finds a way to substantially cut its budget deficit within two years.
• Both sides in the ongoing Washington budget battle are now using the Standard & Poor's US credit outlook as ammunition.  The Republicans are calling for deep spending cuts and making permanent the Bush tax cuts, while the Democrats are calling for somewhat less severe spending cuts and increased taxes on "the rich"[2].
• An anonymous source is reporting that the US Treasury is looking at selling a "big chunk" of its 33% stake in GM in either summer or fall of this year.  The Treasury, which lost money on the IPO late last year, would need to sell it's remaining 500 million shares at $53 per share in order to break even 9according to the Wall Street Journal).  In related news, as of yesterday the one-year high for GM was $39.48.
• Arizona Governor Jan Brewer has vetoed a bill that would require presidential candidates to prove US citizenship before getting on the state's ballot.  "I do not support designating one person as the gatekeeper to the ballot for a candidate, which could lead to arbitrary or politically motivated decisions," said the governor in a statement.  The Republican backers of the bill insist that the bill is not aimed at President Obama.

[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).

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

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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