First Time Jobless Claims, Exchange Mergers, Night Dragons, and Cranky Dictators

First Time Jobless Claims are first on the agenda, and we may be hard pressed to beat last week's note of optimism. As you hopefully recall, we had seasonally adjusted initial jobless claims of 415,000 (which beat expectations by 10,000), with the unadjusted numbers coming in at 459,683 (down 26,633 from the previous week) but an increase in the unadjusted insured employment level to 4,619,319. The analysts are feeling optimistic, though, and are calling for a 412,000 new claims for the week ending 2/5.

Checking the report from the Department of Labor, it seems that once again the analysts were not optimistic enough. The week ending 1/29 had its seasonally adjusted claims revised upwards to 419,000 (not great, but it still beat last week's expectations by 3000). For the week ending 2/5, seasonally adjusted new claims were 383,000, beating expectations by 29,000. The unadjusted first time claims were 438.548, down 21,000 from last week (not bad at all). The seasonally adjusted insured employment level came in at 3,888,000 (down from last week's revised level of 3,935,250), while the unadjusted level came in at 4,579,513 (also down)[1]. Ten states saw initial claims decline by more than 1000, while only 3 saw new claims increase by more than 1000. So that's not bad at all, and the markets should be fairly happy.

Unless there are a lot of disappointing earnings reports, of course.

Meanwhile, there is an exchange arms race going on, with the status of "biggest in the world" going to the victor. It started with the Australian Stock Exchange looking to get approval to be taken over by the Singapore Exchange, a deal that faces substantial political and regulatory hurdles. Now the London Stock Exchange is looking to buy Canada's TMX, Deutsche Boerse is in talks with the NYSE about a merger, and now other exchanges are jumping on the bandwagon. There is no specific word about what a merger of the NYSE with Deutsche Boerse would mean in terms of regulatory impact on listed US securities (or US member firms, since the NYSE is a SRO), but that will be on the list of things that will have to be resolved before any merger can take place.

According to McAfee Inc, Chinese hackers accessed the computer systems of between five and twelve multinational oil and gas companies to steal bidding plans and other proprietary information. The company declined to identify the five companies they have identified as being compromised by the "Night Dragon" attacks, which depended on exploiting public websites and also on infected emails sent to company executives. McAfee states that they have no evidence that the attacks were sponsored by the Chinese government, but they also do not particularly expect the Chinese government to do anything about the hackers.

The Egyptian government, rather cranky about the United States' amazing political face-heel turn, has expressed concern about the US demands for political change in the nation. "When you speak about prompt, immediate, now - as if you are imposing on a great country like Egypt, a great friend that has always maintained the best of relationship with the United States - you are imposing your will on him," said Egyptian Foreign Minister Ahmed About Gheit. And, from the Egyptian perspective, he has a point. After all, we've spent billions of dollars in foreign aid in helping to prop up Mubarak's military dictatorship for thirty years now, so the sudden demands of the US government to allow actual democracy seem rather... disingenuous.

We now have the official rationale behind the North Korean Crazy[2] walkout on the peace talks yesterday. From the Korean Central News Agency of DPRK;s website, "The south Korean side persists in its nuclear and "human rights" rackets against the DPRK, sticking to its anti-reunification 'policy towards the North' and taking a passive approach towards dialogue.... Groundless accusations against compatriots under the pretext of 'human rights issue' and the like are little short of chilling the atmosphere of dialogue." Yes, that's right. According to Kim "Furry Hat of Power" Jong-un, the failure of the conference is due entirely to the South's unreasonable insistence on talking about human rights [3] and their unreasonable refusal to reunite as a single nation under the Furry Hat of Power[4].

[1] Unfortunately, we have no data on how many people are not counted in insured unemployment through returning to work, versus how many are not counted in insured unemployment through losing benefits. It is probably safe to say that all 39,806 people that fell off the count did not get back to work.

[2] "Don't Hate the Artillery, Hate the South" is yet another disappointing single.

[3] "How dare you claim to judge me for starving my people! My Furry Hat of Power needs food!"

[4] "How dare you not want me to starve your own people as well! Look at my Furry Hat of Power and obey me!"

Morning News

We start off the day with the Mortgage Bankers Association's Weekly Application Survey. Not because it's of vast important, mind you (except possibly to people who follow the financial sector), but because it is a bellwether of things to come. And, for the week ending 2/4, things aren't particularly coming. The market composite index declined a seasonally-adjusted 5.5% from the prior week, with the Refinance Index down 7.7% and the Purchase Index down 1.4%. The refinance share of mortgage activity fell to 66.6%, and the average interest rate for a 30-year fixed-rate mortgage rose 32 bps to 5.13%.

In other market driving news, Federal Reserve Chairman Ben Bernanke is going to be testifying before the House Budget committee today, starting at 10 AM. The Street will be watching his remarks closely, hoping for hints about future Fed policy.

In the "how did I miss that category", the Dodd-Frank financial reform law requires government agencies to go through their regulations and remove all references to credit ratings, working on the theory that part of the financial crisis was caused by over-reliance on those ratings. In response to this, the SEC has proposed to strip rating references from the Form S-3[1], replacing the former ratings requirement with alternative requirements. This particular plan is largely considered noncontroversial (although the large rating firms don't like it). What is more likely to be controversial is what impact this requirement to eliminate credit ratings from regulations will have on money market mutual funds. Currently, those funds are required to invest in high-grade securities, and removal of the credit ratings references has been opposed by the industry in the past. Now that Federal law requires it, nobody is quite sure what the SEC will do[2].

Looking to the Middle East, Credit Agricole bank is estimating that the current Egyptian crisis is costing the nation $310 million per day. The Egyptian government has not confirmed that specific number, but has acknowledged that it is causing their economy to suffer.

Anyone remember North Korea Crazy[3]? That little nutjob of a nation that got everyone's attention back in November by shelling Yeongpeong Island? Yeah, they're back in the news. Two days of talks ended in failure today when the North and South failed to set an agenda for the talks. Yes, that's right, it took them two days to work out that they couldn't even work out what they were going to talk about. The final collapse happened when the North Korean delegates all stood up and walked out of the conference.

Also, North Korea is accusing Japan of gearing up to reinvade Korea. This is probably just celebrating the fact that Kim Jong-un is now wearing his big-boy Furry Hat of Dictatorial Authority[4].

[1] "The Form what now?" The Form S-3 is a SEC form that (quoting from the SEC's website) "allows a company with less than $75 million in public float to register primary offerings of its securities". The company has to meet certain specific eligibility requirements, but if it qualifies it can go through a simplified registration process for an IPO.

[2] There is also some legitimate concern that this action will harm investor confidence in money market funds. Most investors like knowing that there is an objective standard for "high quality".

[3] "People See Me Shellin', They Hatin'" was a disappointment on the charts, easily pushed out of the top ten by Tunisia's "Takin' Bank", Yemen's "Steppin' Down (2013 Brutal Dictatorship Remix)" and Mubarak's "Don't Cry For Me, Egypt (You Know I'll Never Leave You)".

[4] Not a joke. Really. Follow the link.

Wrapping up 2010

Well, that's it. From a trading perspective, 2010 is dust and ashes. So, how did the year do?

The Dow closed at 11,577.51, up 1029.00 (9.75%) from 12/31/2009. The NASDAQ closed at 2652.87, up 359.95 (15.7%) from 12/31/2009. The S&P 500 closed at 1257.67, up 131.07 (11.63%) from 12/31/2009. Meanwhile, the 10 Year Treasury Yield Index closed at 33.05, down 5.04 (-13.23%). We won't know until January 7th how unemployment ended up for December, but it was at 10% at the end of December 2009 and last month's figures don't give us much hope that things will be better for this year[1].

The Center for Economics and Business Research is predicting doom for 2011, though. they predict that Spain and Italy will have to refinance around 400 billion euros of bonds in Q2 2011, triggering a new sovereign debt crisis in the European Union. This will weaken the euro further, causing the stronger economies of the EU[2] to consider abandoning the currency. This, plus their considered opinion that the nations wit weaker economies[3] will fail to take any meaningful steps towards becoming competitive, will destroy the euro as we know it. "We give [the euro] only a one in five chance of surviving in its present form for 10 years. If the euro doesn't break up, this could be the year when it weakens substantially toward parity with the dollar."

North Korea is learning to "Bend it like Beckham". The North Korean version presumably involves kneecapping the opposing team's goalie the night before the big game, accusing the kneecapped goalie of having provoked the attack, and then swearing to wage sacred war on anyone who attempts to press charges. Also, only the actual members of the soccer team get to eat; everyone else is encouraged by the Glorious Coach to embrace the "Let's Eat Two Meals Per Day Campaign" while they hunt rats and consider cannibalism[4].

China's President Hu Jintao announced his nation's 12th Five-Year Program, which aims to adopt a "proactive" fiscal policy and a "prudent' monetary policy. They will continue the "one country, two systems" policy with regards to Hong Kong[5]. They still also do not desire to replace the United States as the world's sole economic and political superpower. Really. Just ask them.

And on that note, have a happy new year!

[1] Even if they look better, they may not be better. Remember, if you give up on finding a job, you don't count as unemployed anymore.

[2] *cough*Germany*cough**cough*

[3] *cough*PIIGS*cough**cough*

[4] That may have gone to a darker place than I intended...

[5] That is, they're still a repressive Communist dictatorship. But Hong Kong can continue to be a collection of capitalist running dogs just so long as they produce a lot of wealth for China as a whole and specifically for the Party officials.

Lucky Chinese PIIGS, Sacred (Crazy) War, And World Stocks

Anyone remember this quote from Monday? "Despite concerns from Friday, North Korea has not felt "any need to retaliate against every despicable provocation", and did not end up reigniting the shooting part of the as-yet unresolved Korean Conflict." Well, it's been three days and Pyongyang has apparently decided to change their minds on the subject. Now, Kim Yong-chun (the North Korean Minister of Armed Forces) is on record as saying that "to counter the enemy's intentional drive to push the situation to the brink of war, our revolutionary forces are making preparations to begin a sacred war at any moment necessary based on nuclear deterrent."[1]

China, which must be getting increasingly tired of North Korea[2], confirmed yesterday's report that it stands ready to bail out the PIIGS. Or, in the words of Foreign Ministry spokeswoman Jiang Yu from yesterday's press conference, "China-EU economic and trade cooperation is featured by mutual benefit, win-win outcome and sound development momentum. The two sides agree that in the context of slow recovery of the world economy and existence of many uncertainties and unstable factors, the two should strengthen cooperation for stable and healthy development of the two economies as well as strong, sustainable and balanced growth of the world economy."

And finally, in the (hopefully) good news category, the MSCI world equity index hit its highest level since September 2008 and is up nearly 10% just in 2010.

[1] Security analysts are pretty sure they don't actually have any way to launch the "nuclear deterrent".

[2] And which still doesn't want to replace the United States as the world's sole military and economic superpower. Really. Trust them.

A Day Full Of GDP Is Like A Day Full Of Sunshine

And today? Today has plenty of sunshine.

Great Britain reported it's final Q3 2010 GDP results about 4 hours ago. The first revision had put them at 0.8% growth for the quarter (with 2.8% growth from Q3 2009 to Q3 2010). Going into the day, analysts were expecting no change to the final revision. The final results, while not bad, did not quite live up to that expectation. Growth for the quarter was revised down to 0.7%, while year over year growth was revised downward to 2.7%. Mildly disappointing, but not (on its own, anyway) a source of soul-crushing despair.

US GDP is up next. The first revision put us at 2.5% growth for Q3 2010, with the price index[1] up 2.3%. The Street is feeling quite optimistic this morning, and is looking for the final revision to put us at 3.0% growth for Q3 with no change to the price index. Our results are slightly sunnier than Great Britain's, with the final revision of Q3 GDP revised upwards 2.6% and the price index revised downwards to 2.1%. Most of the GDP increase is credited to a "sharp deceleration in imports and an acceleration in private inventory investment".

The funny thing here? These results seem to have pushed the futures down. Go figure.

The next big domestic economic measure due out today is existing home sales for November 2010. If you recall, October's sales were a depressing 4.43 million units (down 2.2% from September's 4.53 million units and missing expectations). Expectations are a little tamer (but still optimistic), with a consensus estimate for 4.75 million sales. The actual numbers aren't due out until 10 AM EST, though, so we have no idea (yet) how realistic that is.

In the news, South Korea is continuing their largest peacetime military exercise ever. Mostly as a way of making President Lee Myung-bak look tough after what was commonly perceived as a "weak"[2] response to the shelling of Yeonpyeong Island. There has been no specific response to this from North Korea, to the shock of everyone and the disappointment of connoisseurs of fine crazy.

There was a three hour strike in Greece against the 2011 austerity measures about to be implemented by their parliament. So far, the strikers have managed not to murder anyone.

Speaking of the PIIGS, China[3] is coming to their rescue. They have struck a deal with Portugal to buy 4-5 billion euros of Portuguese sovereign debt. At least, that's what has been reported in the Jornal de Negocios. The euro is up in ecstatic jubilation on the news.

Closer to home, the Financial Report of the United States is out (you can choose to read either the 12 page Citizen's Guide or the 268 page full report), and it shows that the budget deficit has increased by 65.9% from FY 2009 to FY 2010 (in 2009 it was "only" a $1,253.7 billion deficit for the year, while in 2010 the deficit has increased to $2,080.3 billion).

And, wrapping up the GDP day, New Zealand's GDP is due out at 4:45 PM EST.

[1] Yet another measure of inflation.

[2] "Weak", because the word "sissy" rarely makes its way into Reuters. Although that's pretty much how the South Korean people looked at his response.

[3] Still not wanting to replace the United States as the sole superpower of the world - just ask them - and still tired of being treated like they're solely responsible for holding North Korea's leash.

Face Morphology, Budget Fail, and Repo 105

It's a short trading week going into Christmas, and there's plenty of odd little things happening in the news.

Right off the bat, UBS is in the news. Not for $17.2 billion in losses, or for $50 billion in mortgage writedowns, or for rolling over and releasing depositor information to the IRS (this time), or for the possibility that they will crush the Swiss economy. No, this time it's all about their dress code, and it includes highlights such as:

• "Leave, if possible, your outfit suspended in open air for two days after wearing. The fibers will gain rest and you will prolong the life span of your clothes."
• "At the neck, the shirt must be of sufficient magnitude to leave a space of at least one finger... The neck shirts must exceed approximately about 1 to 1.5 centimeter above the jacked collar..."
• "Don't wear the tie if it's not adapted to the morphology of the face."
• "Hands - do not have false nails and fancy colored nails"
• "Hair - don't have split ends"

Yes. It's nice to know they're focusing on what's important in this era of rising mistrust of financial institutions.

Despite concerns from Friday, North Korea has not felt "any need to retaliate against every despicable provocation", and did not end up reigniting the shooting part of the as-yet unresolved Korean Conflict. South Korean financial markets remain calm but concerned, but the cost of insuring South Korean sovereign debt is up 10%.

The United States still does not have a budget. The Senate is going to try and pass a temporary funding measure to get the government through to March 4, 2011, when it will be someone else's problem.

Ernst & Young LLC are about get sued by the New York State Attorney General's office over the collapse of Lehman Brothers. Why? Because Ernst & Young apparently advised them to use an accounting technique (Repo 105), which allowed them to hide $50 billion in liabilities. How? It would enter into repurchase agreements in which it would take (say) $100 in short term loans for each $105 in bonds it sold. Now, normal repurchase agreements are treated as collateralized short-term loans for accounting purchases (which is what they are). These "repo 105" repurchase agreements, because they're "sold" at a loss, get to be treated as actual sales on the books. So, they would sell under repo 105 just before the end of the quarter, take the "proceeds" of the "sales" to pay down debt, report that their end of quarter balance sheets looked pretty good, and then borrow money a bunch of money to buy the bonds back. It's not illegal, but the New York AG feels it was distinctly fraudulent.

Forecast Is for "Bad Craziness"

That's right. We're having one of those news days that cries out for the mad prose stylings of Hunter S. Thompson himself.

Unfortunately, you'll have to settle for me.

So let's get this party started right by inviting in the Crown Prince of Crazy himself, the Dear Leader Kim Jong Il and the People's Glorious Revolutionary Atomic Mushroom Brigade! South Korea has announced that they will be conducting a live fire artillery drill on Yeonpyeong Island from December 18-21. The response from North Korea Crazy? A neopolitan ice cream of insanity, offering three distinct flavors for the price of one. They are now accusing the south of attempting to "kick up hysteria of war of aggression against the DPRK"[1], they have put forward the claim that the reason the south is doing this is to undermine "the progress made in the June 15 era of reunification" and to derail "the dialogue and cooperation between the north and the south", and they are warning[2] that the live-fire exercise "will play out a more serious situation than on November 23 in terms of the strength and scope of the strike"[3].

There is some speculation that all of this is just a way to improve the north's position when negotiations begin again. Rather like the way a small child attempts to improve his position regarding the acquisition of a toy by pitching a tantrum. Only with high explosives. And death.

China, which is no doubt banging its collective head on its collective desk over the antics of its crazy eastern neighbor, has hit a 28-month high for consumer inflation. It's up 5.1% from November 2009 (mostly on food prices), about 210 bps higher than the 3% target they had for 2010 and 110 bps higher than their 2011 goal. This, of course, is considered an omen of rising reserve requirements and interest rates[4].

Spinning the globe around to Europe, Moody's has cut Ireland's credit rating from Aa2 to Baa1, putting them on the same level as Russia and Lithuania. That's still investment grade, but you almost have to throw the air quotes when you say that. Meanwhile, on day two of the EU summit to create a permanent financial safety net for the euro zone, leaders refused temporary steps such as increasing the size of the EU bailout fund or using the bailout fund to buy bonds. European traders pouted and demanded that the summit offer more short term guarantees, and possibly milk and cookies before bed.

On the positive side for Europe - or, at, for the two-time would be rulers of Europe - the Ifo Business Climate Germany is out. The business climate index, the business situation index, and the business expectations index are all showing an across-the-board 60 bps improvement. So, overall, businesses are doing well and expecting to continue to do well in Germany.

Closer to home, the House passed the tax "compromise" on a 277-148 vote. The IMF Managing Director is pleased, although I'm not certain why Reuters felt the need to bring his opinion into the article[5]. In possibly unrelated news, Senate Democrats also threw in the towel on passing a budget, and agreed to a temporary funding measure.

So that's some of what's driving the markets around. Fear and madness and bad craziness. And four witches.

[1] No, really. That's the official English translation.

[2] "Warning" as the word is defined in North Korea, means "kicking someone in the teeth out of nowhere, and then threatening them with a switchblade if they try to punch back".

[3] For good measure, they also threw a diplomatic bone to the US: "The state of armistice is persisting on the Korean Peninsula and danger of war is not defused there because of the U.S. hostile policy toward the DPRL and its wild ambition for aggression."

[4] And you don't even need to visit Delphi on the seventh of the month for that one.

[5] Although the CIA World Factbook confirms that our public debt as a percentage of GDP is actually 30 bps higher than Spain's, so maybe we should be courting the IMF's good graces now...

Jobless Claims! Also, News!

Last week, we had some depressingly bad results for first time jobless claims - 425,000 were anticipated, and we actually had 436,000. Well, it's new jobless claims day again, and the Street is going for optimism. The consensus is that for the week ending 12/4, we will only see 425,000 new claims.

While we wait for the results, let's check the news.

Futures are up, partly on optimism about the jobless claims expectations and partly on general excitement that 2010 is almost over. No, that doesn't (just) mean that traders are looking to the future and wishing away the last few months of lackluster performance. No, it's also driven by the fact that with only 16 trading days left in the year, underperforming fund managers will be under pressure to snap up stocks with solid fundamentals and good performance. When (if) this happens, the sudden spike in demand will lift market prices.

Debate on the Bush income tax "compromise" deal should hit the Senate by Friday. Senate Majority Leader Harry Reid thinks it's pretty much a done deal, and Republicans believe that the Democrats should "...get together and look at the overall bill and realize this is the presentation on the table." In preliminary statements, the rank and file Democrats do not seem impressed. If it passes, look for the equity markets to have a little party (yay! lower taxes!) and the bond markets to sell off more Treasuries (aiee! increasing Federal debt!).

Looking to Europe, the Bank of England (in a move that surprised no one) voted to keep in place the 0.5% interest rate and 200 billion pounds of quantitative easing they've had in place since February. The response from the European markets was to shrug, watch Fitch Rating downgrade Ireland's sovereign debt (BBB+, down from A+), and then go ahead and hit a 26-month high on optimism about the US economy.

China and North Korea reached a consensus on North Korea Crazy's Yeongpyeong Island Tour. What was that consensus? That they "agree on the need to resolve the situation." The world can now breathe a sigh of relief.

Now, back to the first time jobless claims results. On the up side, the week ending 12/4 saw only 421,000 new claims - better than expected and better than the previous week. On the down side, the prior week figures were revised upwards to 438,000 new claims - which is not so good.

Super Diplomatic Ministerial Ninja Team, Sanjo!

So. What seems like it's going to push the markets around tomorrow?

First off, we have a compromise on the expiring "Bush tax cuts". Let's see here. The Republicans get an across-the-board two-year renewal of the tax cuts, a 2% employee payroll tax cut, extended breaks on dividend and capital gains taxes, and a 35% estate tax with a $5 million personal exemption. The Democrats get... well, they get a 13-month extension on unemployment benefits. And I guess they get to not be presented as the grinch that raised taxes on 96.9% of the American people for Christmas.[1]

I think we have to call this a win for the Republicans.

The European Central Bank still isn't bowing to pressure to conform to rumors and rain euros from the heavens. Or, as the Prime Minister of Luxembourg put it, "We don't have any new decision to announce to you."

European markets are expected to collectively throw themselves on the floor, kick their feet, cry and scream "I hate you ECB" until the bank gives in.

The Super Diplomatic Ministerial Ninja Team, consisting of Secretary of State Clinton, Foreign Minister Maehara, and Foreign Minister Sung-hwan, have officially urged China to "shape North Korea's behavior". There is no word on when the People's Glorious Revolutionary Atomic Mushroom Brigade will issue an official response.

There's the massive PR storm called "Operation Broken Trust" going on right now. I doubt that this will have any significant impact on the markets, though. It'll result in a few sexy show trials, a lot of trials that nobody will care about unless they were directly involved, and the remaining frauds remembering to cover their trails better.

[1] No matter which way you lean politically, you have to acknowledge that the Republicans were going to filibuster to death any bill that didn't extend the Bush tax cuts for everyone, and then blame the Democrats for "making them do it". Where did I get the 96.9% figure? IRS data. In 2008 (the most recently compiled year), there were 142,450,569 individual tax returns filed. 138,074,910 of those returns were for adjusted gross incomes below $200,000. The rest is simple math.

Interestingly enough, the same simple math reveals that this 96.9% of the income tax filing households paid 72.7% of the total income taxes that were actually collected by the IRS. The remaining 3.1% paid 27.3% of the total. That's a topic for a different time, but it's something to consider the next time someone says the rich (i.e. those making more than $200,000) aren't "paying their fair share".

What's Going On This Morning?

Much of it is the "same old same old". The 85 billion euro Irish bailout isn't giving anyone in Europe any comfort. Sovereign bond investors are demanding an increasing premium to hold Spanish and Italian debt, because (in the words of Everett Brown, IDEAglobal European bond strategists) "Spain is almost too big to be bailed out whereas Italy is too big to be bailed out." Italian and Spanish bond yields are up, the euro is down, European equities are weak, and US Treasury prices are up.

North Korea Crazy [1] isn't making things any better as it announces construction of a uranium enrichment plant. But rest assured, the nation that shelled Yeongpyeong Island last week and then declared the US and South Korea to be "arch criminals disturbing peace and security" (for the crime of, y'know, calling Kim Jong-il a raging nutbar), will use it entirely for peaceful purposes. Oddly enough, their new mushroom cultivation technologies have not calmed anyone's concern.

Closer to home, the Street is watching with keen interest the "negotiations" between President Obama and the new Republican Congressional majority over whether or not to extend the Bush-era tax cuts. The president wants to extend them for the middle class [2], as he feels that the loss of some $700 billion in tax revenue would have a negative impact on the Federal budget. Meanwhile the Republicans want to extend them for everyone and then cut spending [3] to prevent the negative impact on the Federal budget.

[1] "BANG! There It Is" still in the top 10 a week after release.
[2] No word yet on how "middle class" will be defined.
[3] No word yet on what actual spending they would cut. Except probably NPR, which they seem to believe is staffed by Nazis.

Articles cited:
Euro debt contagion keeps markets uneasy (http://www.reuters.com/article/idUSTRE69K04L20101130)
DPRK says to actively develop nuclear capability for peaceful use (http://news.xinhuanet.com/english2010/world/2010-11/30/c_13628272.htm)
US-S. Korea Wholly to Blame for Escalated Tension and Danger of War (http://www.kcna.co.jp/index-e.htm)
New Mushroom Cultivation Technologies Developed (http://www.kcna.co.jp/index-e.htm)
Obama, Republicans in tax face-off at White House (http://www.reuters.com/article/idUSTRE6A44K020101130)

No Metrics. Just Despair.

You know the drill by now. Doom and gloom. PIIGS rooting up the European economy. North Korea Crazy is crazy [1]. WikiLeaks...

Wait, what?

Yeah. Apparently WikiLeaks is getting a share of the blame for today's poor market performance. Why? Well, the cables they've released make us (and by us I mean the United States) look like a massive collection of tools. Although I suspect that this is not really a surprise to many other nations.

Looking to the rest of the week, we've got the S&P Case-Shiller HPI (tracking home price changes) and Consumer Confidence (expected to rise from 50.2 to 52.0) tomorrow. We then start off December with a bang on Wednesday by reviewing the ADP Employment Report, Productivity and Costs (productivity expected to be up 50 bps with unit labor costs rising only 10 bps), the ISM Manufacturing Index (expected to rise from 56.9 to 57.0), and Construction Spending (where the analysts are expecting a 90 bps drop). Thursday gets the weekly first time jobless claims report (looking for an 18k increase in claims) and the Pending Home Sales Index. Friday wraps up with the Employment Situation (where analysts are looking for a 17k increase in nonfarm payrolls and a 10 bps increase in the unemployment rate).

So, Metrics. Hooray, metrics!

[1] The cover of their new album:

PIIGS! What's The Matter With PIIGS Today?

PIIGS!
What the devil's wrong with these PIIGS today?
PIIGS!
Who could guess the they would turn out that way!
Why can't they be like we were,
Perfect in every way?
What's the matter with PIIGS?
What's the matter with PIIGS?
What's the matter with PIIGS today?[1]

Plenty. That's what.

The European Union and the IMF have given up on getting Greece to abide by the timetable it originally agreed to when it borrowed 43% of its GDP. Originally, they were going to get 6 years to repay 110 billion euros in loans. Now, the EU and the IMF are getting ready to push it back to 11 years. Somehow, Paul Thompson (the IMF official in charge of the Greek bailout) believes that

"This (the extension) would give markets the signal: 'Don't worry about the repayment of the 110 billion euros, this is not going to affect your claims'."

I'm going to segue off into my own sordid past for a few moments, and reveal that I spent 9 months working as a credit card collector[2] for a (different) company not-to-be-named.

What does this have to do with anything? Well, when we set up a payment program that extended out the amount of time the debtor had to make payment in full, that was good for the collector. We got bonus points for "saving" the debt each month for the duration of the program.

But, when the program was over, we fully expected them to be in debt still. Because all it did was delay the problem.

Now, I know that this is inductive reasoning and potentially flawed. There are differences between household debt and sovereign debt[3]. But I don't think that, in this case, they're all that different.

Meanwhile, Ireland is set to sign the loan papers for an 85 billion euro bailout. Tens of thousands of Irish took to the streets to protest this, and it is fully expected that this will mark the end of Prime Minister Brian Cowen (of the increasingly appropriately named Fianna Fail party). As Prime Minister, that is. The protests aren't that violent yet. Not like Greece, where protesters showed their displeasure with the bailout by murdering three bank workers who had nothing to do with it.

Oh, and in non-PIIGS news, the apologetic North Korean government has put surface-to-surface missiles on the coast of the Yellow Sea.

"We will deliver a brutal military blow on any provocation which violates our territorial waters," KCNA said.

For purposes of understanding North Korean press releases, "provocation" is defined as:

-noun

1. anything looking at us
2. anything that the crazy man in the seat of power thinks might be looking at us
3. having a bigger dick than the crazy man in the seat of power
4. being something that the crazy man in the seat of power thinks might have a bigger dick than him
5. breathing

So, yeah. I don't think there's really anything left to say about this that hasn't already been said.

[1] I now owe Lee Adams an apology as well.
[2] Feel free to hate me now.
[3] Truly staggering dollar amounts, for one thing.

Reason And Restraint On The Korean Peninsula

Right off the bat, there's the whole North Korea thing getting worse and worse. At a memorial service for the two South Korean marines killed in the North Korean attack, a thousand South Korean marine veterans burned pictures of Kim Jong-il while chanting: "It's time for action. Time for retaliation. Let's hit the presidential palace in Pyongyang."

So, yeah. Angry calls for retaliation. I can't really say I blame the South Korean people, in the wake of what happened. I mean, if Quebec had just shelled Detroit, I'm sure I'd want to see some retaliation myself. But at least the South Korean government is looking for a diplomatic solution first, right?

"All Marines, including Marines on service and reserve Marines, will avenge the two at any cost, keeping today's anger and hostility in mind," said Lieutenant General Yoo Nak Joon, commander of the South Korean Marine Corps.

"We will put our feelings of rage and animosity in our bones and take our revenge on North Korea."

Ah. But that's the Marine Corps. Perhaps the civilian government...

"There is the possibility that North Korea may do some unexpected action, so please perfectly prepare against it through cooperation with the Korea-U.S. joint force." (South Korean President Lee Myung-bak)

Well, at least there's some good news. North Korea apparently expressed regret for the civilian deaths. In this regard, a spokesman for the Committee for the Peaceful Reunification of Korea released a statement on Friday.

The recent military provocation by the puppet group is a product of the deliberate and premeditated plot hatched by it to save its smear confrontational campaign from total bankruptcy, tarnish the daily rising might of the DPRK, scuttle the efforts for improving the north-south relations and tide over the domestic and international isolation and crisis, it points out, and says:

The group perpetrated the recent provocation prompted by a sinister calculation that in case the DPRK did not make any reaction it would take it as "a tacit recognition" of the illegal "northern limit line" and make it a fait accompli and in case the DPRK took a military counter-action, it would use it as a pretext for kicking up anti-DPRK smear campaign.

I give up. Watch for the Asian markets to tank on Monday.

What's Happening Today? And Why Am I Tired?

Lots, as long as you're not looking for economic measures.

We've got a short trading day today - the equity markets close at 1 PM, and the bond markets at 2 PM.

It's Black Friday, so the Street will probably be holding its collective breath over the weekend to see how retail sales performed (or didn't, if the U of M's projections from Wednesday are any indicator).

The international markets are down over fears that Ireland will destroy the euro, that Portugal will destroy the euro if Ireland doesn't (Portugal is saying they're just fine, really, thanks for asking; it's almost exactly the language that Ireland was using as late as November 15, so surely we have no reason to be alarmed whatsoever), and that Kim Jong-Il and the North Korean Crazy [1] - who is, in his inimitably barking-mad fashion insisting that it is South Korea and the United States pushing towards war, pay no attention to my random artillery fire thank you very much - will destroy the Asian marketplace and part of Asia in the process.

Oh, and that morning fatigue you're feeling? It's probably due to L-tryptophan, an essential amino acid that cannot be synthesized by humans but is found in moderately large quantities in turkey meat (0.24 grams/100 grams of turkey, equal to chicken and 0.01 gram higher than beef). Most likely, you ate a lot of carbohydrates (stuffing and mashed potatoes and sweet potatoes) along with your turkey. All of those carbohydrates promote insulin secretion, which stimulates the uptake of many amino acids (l-tryptophan is not among them) into your muscles. This leaves you with more of the l-tryptophan in your blood. L-tryptophan converts into serotonin in your brain stem, which then turns into melatonin in your pineal gland. Melatonin promotes sleep, and now you have larger than normal quantities of melatonin in your brain.

Or, maybe, you just hit Black Friday this morning. Same end result, although the turkey made you less likely to have to kidney punch someone's grandmother over a toaster.

[1] With their latest release "Why Ya Gotta Make Me Hit Ya Baby?"

Korea? PIIGS? Bah! We Have Data!

The futures are up this morning (S&P +3.60/+0.31%, NASDAQ +4.00/+0.19%, Dow +29.00/+0.26% as of 7:59 AM ET). And why are they up? North Korea Crazy [1] is still crazy, and now we're sending the USS George Washington to "join exercises" in the Yellow Sea. (That's an aircraft carrier, if you're wondering.) The Irish government is still on the brink of collapse over whether or not to borrow all the euros [2]; they're getting ready to announce an austerity plan that will save some 15 billion euros over four years [3]. Everybody in Ireland seems to hate this plan.

Now, since we know nothing has changed substantially from yesterday, why are the futures up?

Because, silly, that was yesterday and today is another day. A day filled with economic measures to distract the domestic economy from the possibility that the Korean War (and we are still at war with North Korea) will heat back up, and from the possibility that Ireland could set off a cascading economic Götterdämmerung.

Right now we've got Durable Goods Orders, Personal Income and Outlays, and Jobless Claims to contend with.

Durable Goods Orders are huge. They are new orders placed with domestic manufacturers for delivery of factory hard goods. They represent production and economic growth, because they represent our nation's industrial capacity at work. Positive numbers make people happy. Negative numbers make The Bernank print more money [4]. And the projections aren't that good right now. In September, we saw a 3.3% growth in new orders. Right now, the Street is looking for a 0.1% decrease in new orders. That's not great, but it isn't terrible.

Personal Income and Outlays is, well, a series of measures looking at personal income. And personal outlays. (Whaddya want? It's self-defining!) Did the average wage earner make more or less money? Did that average wage earner spend more or less money? Oh, and did inflation (in the form of core personal consumption expenditures, aka PCE, which has been the Fed's measure of inflation since 2000[5]) go up or down? It's huge because, as I've said before, consumer spending drives GDP. And this measure? This measure is consumer spending.

September saw a 0.1% decrease in personal income, and a 0.2% increase in consumer spending. For October, the Street is looking for a 0.4% increase in personal income, and a 0.5% increase in consumer spending. Yes, they are expecting to see the rate you spend money at increase faster than the amount you earn.

Finally, for the moment, we have New Jobless Claims. For the week ending 11/13, we had 439k new claims. Now, for the week ending 11/20, we're looking for 435k new claims.

And how did the numbers shape up?

Well, the durable goods orders report can be read at http://www.census.gov/manufacturing/m3/adv/pdf/durgd.pdf, the personal income and outlays report at http://www.bea.gov/newsreleases/national/pi/pinewsrelease.htm, and new jobless claims at http://www.dol.gov/opa/media/press/eta/ui/current.htm.

The durable goods orders were, in a word, bad. They were down, as expected. What wasn't expected was for them to be down 33 times more than expected (that's a 3.3% decrease, in other words). There was no joy in Mudville, as the poem goes. Mighty Casey has struck out.

Personal income and outlays came in simultaneously slightly better and slightly worse than expected. Personal income was up 0.5%, marginally beating expectations. consumer spending came in at 0.4%, marginally missing expectations. PCE was up 0.4% as well but, since the Street never attempts to predict that figure, it neither exceeded nor missed expectations.

New jobless claims came in better than expected. Rather than the anticipated 435k new claims, we're only looking at 407k. Good news there, as it continues a trend of decreasing jobless claims.

So, that's where we are as of right now. I'll be back in an hour with Consumer Sentiment and New Home Sales.

[1] Their new release "U Lookin' We Shootin'" is all over the international charts, with Pyongyang blaming the South for driving the peninsula to the brink of war through "reckless military action".
[2] Or, at least, 65 billion of them. Although no final figure has been agreed to.
[3] That's about 10 billion in spending cuts - mostly from unemployment benefits and state payrolls. Another 5 billion will come from property taxes and a dramatic increase in personal income tax. But not corporate income tax. That would be foolish.
[4] http://www.youtube.com/watch?v=PTUY16CkS-k
[5] Possibly since it has been lagging behind CPI by about 1/3 since 1992, so it makes inflation measures look better. But I'm cynical.

Fed Bearish On 2011 & Insider Trading Probes Continue

Let's take a break from the latest round of North Korean Crazy [1] and, instead, look at the US and the sort of domestic crazy we can get up to.
First off, it turns out that the Federal Reserve is in the process of downgrading the future. They had an unscheduled video conference meeting on 10/15 and a regular meeting back 11/2-11/3.

You can read the minutes at http://www.federalreserve.gov/monetarypolicy/fomcminutes20101103.htm, but here's the highlights. They've revised their 2011 predictions for GDP downwards from between 3.5% and 4.2% to between 3.0% and 3.6%. They're also expecting unemployment to remain near 9.0% through most of 2011 and still be over 8.0% by the end of 2012. So not much good news there.

If you're following the excitement over the insider trading probes, there are some new developments. Janus Capital Group and Wellington Management Co have been asked for information related to the insider trading investigations that made the news on Sunday and Monday. Wellington has been asked for documents from "federal officials". Janus has filed a form 8-K (you can read it at http://www.sec.gov/Archives/edgar/data/1065865/000110465910059711/a10-21753_18k.htm) to cover their Regulation FD Disclosures. The filing states: "Janus Capital Group Inc. ("Janus") has received an inquiry regarding the recently disclosed insider trading investigation on Wall Street calling for general information and intends to cooperate fully with that inquiry. Janus does not intend to provide any further updates concerning this matter unless and until required by applicable law."

The Wall Street Journal reports that MFS Investment Management of Boston has also been contacted, but they have declined comment.

"Fed pondered radical steps amid weaker outlook" (http://www.reuters.com/article/idUSTRE6AI2AQ20101123)

"Fund firms asked for documents by authorities" (http://www.reuters.com/article/idUSTRE6AL4DT20101123)

[1] With their number one hit single "Shellin' UR Hood"

Existing Home Sales

North Korea hasn't managed to start shelling any islands off the coast of the United States but, based on how the markets are reacting, they may as well have. Fortunately, North Korea's actions today don't really have any impact on home sales in the US from last month. Unfortunately, even if the numbers are good, nobody will really care.

Existing home sales are exciting for the markets. They mean loans are being taken out. They mean the housing market isn't totally dead yet. They mean big ticked durable goods orders (really, has anyone ever really liked the appliances the house comes with?). They mean sales at hardware stores. They mean a thousand little trickle-down impacts on GDP that join together like the rushing of mighty waters to drive the economic engines of our nation and propel our GDP to undreamed-of heights [1].

Unless the numbers are bad. Then sad broker is sad.

Now, I think I've said it a dozen times already this week {2], but in September there were 4,530,000 existing homes sold (a 10.0% increase from August's sales). The smart guys in the expensive suits who look at this sort of thing are expecting only 4,500,000 sales for October. Are they right?

Well, no. Sad broker is sad.

The official information is on the website of the National Association of Realtors, at http://www.realtor.org/press_room/news_releases/2010/11/october_retreat. In a nutshell, we hit only 4,430,000 existing home sales (a 2.2% decline from September).

So, not as good as expected. Not as bad as 200 artillery shells landing near your home, but still not great.

[1] Which, historically speaking, results in an unsustainable housing bubble that bursts and destroys the world economy. But who wants to learn from history?
[2] Three times actually. Counting this one. But who's counting.

What In The World Is Happening this Morning?

Well, right off the bat the futures are down. The credit for this goes first and foremost to the Dear Leader Kim Jong-il and his ever-so-subtle market manipulating strategies. To whit, North Korea has shelled Yeongyeong, a South Korean island about 75 miles west of Seoul. So far two soldiers have been confirmed dead and 17 more wounded, and three civilians have been injured. And by shelling, I mean "...at least 200 North Korean shells hit Yeonpyeong". North Korea has claimed that South Korea started the fight by shelling them first; South Korea did confirm it was "...conducting military drills in the area beforehand but had fired west, not north." There's nothing quite like the prospects of a war that never actually ended flaring back up to ruin everyone's day.

Racing the sun westward we come to Ireland, where Prime Minister Brian Cowen has been forced to come to terms with the fact that his nations is two steps from wandering into Europe with a dirty rag, smearing it on Germany's windshield, and then asking for spare change for "cleaning" it. Part of his coalition government is in negotiations with the European Union and the International Monetary Fund to borrow something like 60% of Ireland's GDP as a bailout. The rest of his government is demanding that he sacrifice his own life that his blood may renew the fertility of the land, or at least that he resign immediately or face a vote of no confidence.

"North Korea shells South in fiercest attack in decades" (http://www.reuters.com/article/idUSTRE6AM0YS20101123)
"Korea tensions weigh on stock futures" (http://www.reuters.com/article/idUSTRE69O1D320101123)

But enough of these foreigners! How are things looking close to home?

Gross Domestic Product is the theme of the hour - or it would be, had the "Dear Leader" not decided to present his son and heir-apparent - the Brilliant Comrade Kim Jong-un - with a bouncing baby resumption of hostilities for no reason anyone can work out (that doesn't involve the sort of megalomaniacal insanity possessed by the dictator of North Korea). Gross Domestic Product is, of course, private consumption plus gross investments plus government spending plus exports minus imports, which is a fancy way of saying it is value of all goods and services produced within a country in a year. The Street savors the sweet, sweet scent of GDP like nothing else because it is the single clearest picture available to tell us how the economy is doing. Is GDP increasing? Let us rejoice! Is GDP failing? Let us offer a fatted calf on the alter of John Maynard Keynes, and look to stimulus to save us!

Last month the initial estimates for Q3 2010 GDP, and the Q3 2010 GDP price index (AKA yet another way to estimate inflation) were released. These figures go through an interesting process of initial estimates the first month, then preliminary revision results the second month, and then final revision results the final month. So whatever we announce today still won't be the final for-real GDP for Q3. But still, the Street loves it some GDP figures, so here we go:

The initial Q3 estimate for GDP was 2.0%, with the GDP price index at 2.3%. In the pre-release hype, analysts were looking for the GDP to be revised upwards to 2.4%, with the price index remaining unchanged at 2.3%. The announcement was due out 20 minutes ago, so how did we do?

The actual release from the Bureau of Economic Analysis may be read at http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm. GDP was revised upwards to 2.5% for Q3, with the price index remaining unchanged at 2.3%. Of that:
* real personal consumption expenditures increased 2.8% in Q3 (an accelerating increase from Q2's 2.2% increase)
* real exports of goods and services increased 6.3% in Q3 (slowing from Q2's 9.1% increase)
* real imports of goods and services increased 16.8% in Q3 (slowing from Q2's 33.5% increase)
* real federal government expenditures and gross investments increased 8.9% in Q3 (slowing from Q2's 9.1% increase)

Good news? Yes. Good enough to overcome the North Korean Crazy Train? Probably not.

At 10, we're looking at Existing Home Sales. We had 4,530,000 units sold in September. The Street is expecting that to pull back a little; they really only expect to see 4,500,000 units sold in October.