Daily Market Commentary for March 13, 2012

The Federal Reserve is fighting a subpoena for Fed chairman Ben Bernanke to testify in a civil lawsuit challenging Bank of America's takeover of Merrill Lynch & Co in 2008 (read more at Millennium-Traders.Com)
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Commerce Department on Tuesday reported that retail sales climbed the fastest in five months in February, as rising gasoline prices weren’t enough to choke off U.S. consumers’ demand for cars, clothing and other goods. The report said sales rose a seasonally adjusted 1.1% to $407.8 billion last month, with January’s retail sales revised higher to show a 0.6% advance instead of the 0.4% initially reported. December sales were upwardly revised to show a 0.3% gain instead of a previously reported flat performance and excluding autos, sales for February climbed 0.9%. February’s sales climbed a strong but less impressive 0.6%, excluding autos as well as sales at gasoline stations. Monthly gasoline sales jumped 3.3%, the best advance since March, with average gas prices 20 cents a gallon higher at the pump than in January, gasoline stations had a banner month. The Energy Information Administration is expected to knock off $629 from the average natural-gas heating bill this winter, being a reason why consumers may have continued to spend despite the increased pressure at the pump was the unusually warm weather. For the second consecutive month, building materials, garden equipment and supplies dealers saw a 1.4% gain. Sales at clothing and clothing accessory stores climbed 1.8% to a 15-month high as Americans bought spring clothes early. Sales at dealers of motor vehicles and parts bounced back from a January decline to advance 1.6%. February sales data showed furniture and home-furnishing stores with a 1.2% drop, the worst month since April 2011, while department stores’ sales rose 1.5%, the best monthly gain since November 2010. Compared to February 2010, retail sales overall rose 6.5% and excluding autos and gas, retail sales were 5.8% stronger. Retail sales aren’t adjusted for price, so with inflation running at around 3%, volumes are up about 3.5% compared to the same month of the prior year.

In January, business inventories climbed as car dealers correctly anticipated a strong pickup in demand, as reported by the Commerce Department on Tuesday. Inventories rose a seasonally adjusted 0.7% to $1.57 trillion, the largest increase since October. December’s inventories were revised higher to show a 0.6% increase from the 0.4% previously reported. The ratio of inventories to sales at the end of January remained at 1.27. The growth in January’s inventories was driven by a 2.6% surge in motor vehicle and parts stockpiles, which helped set the stage for the 1.6% gain in sales of cars and parts for February. Retail inventories grew 1.1%, but growth was 0.4% excluding autos. Rising inventories are usually viewed as a good sign for the economy, as they suggest companies are stockpiling goods in anticipation of selling them at a future date.

U.S. Trade Representative Ron Kirk announced Tuesday that the U.S. has requested talks with China at the World Trade Organization about China's export restrictions on certain rare-earth minerals. The talks are the first step in a WTO dispute settlement process and if the matter is not resolved in 60 days, the U.S. can ask the WTO to set up a dispute settlement panel. Additionally, the European Union and Japan asked for talks with China on the rare minerals, tungsten and molybdenum. "China continues to make its export restrains more restrictive, resulting in massive distortions and harmful disruptions in supply chains for these minerals throughout the global marketplace," Kirk said in a statement. China lost a similar WTO case on its export limits on magnesium and zinc, in January. The Obama administration has recently taken a tougher stance with China on economic issues.

The Labor Department on Tuesday reported job openings at U.S. workplaces declined to 3.46 million in January from 3.54 million in December. Job openings rose 21% compared with the prior year with private openings having increased 23% to 3.11 million and government openings rose to 352,000 from 325,000. When the recession began in December 2007, there were nearly 4.3 million jobs open. In January, with nearly 12.76 million unemployed people, there were nearly 3.7 potential job seekers for each opening, roughly the same as in December. In January of 2011, there were about 13.92 million unemployed people - about 4.9 potential seekers per opening. The number of separations, such as quits and layoffs, fell slightly in January to 3.94 million from 4.02 million in December. Total number of hires decreased to 4.16 million from 4.19 million.

The following is the text of the announcement made by the Federal Open Market Committee Tuesday: “Information received since the Federal Open Market Committee met in January suggests that the economy has been expanding moderately. Labor market conditions have improved further; the unemployment rate has declined notably in recent months but remains elevated. Household spending and business fixed investment have continued to advance. The housing sector remains depressed. Inflation has been subdued in recent months, although prices of crude oil and gasoline have increased lately. Longer-term inflation expectations have remained stable. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects moderate economic growth over coming quarters and consequently anticipates that the unemployment rate will decline gradually toward levels that the Committee judges to be consistent with its dual mandate. Strains in global financial markets have eased, though they continue to pose significant downside risks to the economic outlook. The recent increase in oil and gasoline prices will push up inflation temporarily, but the Committee anticipates that subsequently inflation will run at or below the rate that it judges most consistent with its dual mandate. To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014. The Committee also decided to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in a context of price stability. Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Sarah Bloom Raskin; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who does not anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate through late 2014.” The following is the text of the announcement made by the Federal Open Market Committee Tuesday: “Information received since the Federal Open Market Committee met in January suggests that the economy has been expanding moderately. Labor market conditions have improved further; the unemployment rate has declined notably in recent months but remains elevated. Household spending and business fixed investment have continued to advance. The housing sector remains depressed. Inflation has been subdued in recent months, although prices of crude oil and gasoline have increased lately. Longer-term inflation expectations have remained stable. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects moderate economic growth over coming quarters and consequently anticipates that the unemployment rate will decline gradually toward levels that the Committee judges to be consistent with its dual mandate. Strains in global financial markets have eased, though they continue to pose significant downside risks to the economic outlook. The recent increase in oil and gasoline prices will push up inflation temporarily, but the Committee anticipates that subsequently inflation will run at or below the rate that it judges most consistent with its dual mandate. To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014. The Committee also decided to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in a context of price stability. Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Sarah Bloom Raskin; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who does not anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate through late 2014.”


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Daily Market Commentary for March 6, 2012

The White House announced Tuesday that the Federal Housing Administration will cut fees for homeowners with FHA-backed mortgages seeking to refinance, under a new plan to expand the effectiveness of an existing refinance program.
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http://www.millennium-traders.com/news/newscommentary.aspx

According to a European Union statement on Tuesday, six of the world's most powerful nations have agreed to jointly resume talks with Iran over that nation's controversial nuclear development program. Catherine Ashton, EU foreign affairs adviser said that she has accepted Tehran's invitation to resume negotiations, and plans to represent the interests of the United States, the United Kingdom, France, Germany, China and the Russian Federation at the summit. "We hope that Iran will now enter into a sustained process of constructive dialogue which will deliver real progress in resolving the international community's long-standing concerns on its nuclear program," Ashton said in a statement. The time and location of the talks have yet to be determined.

The financial disarray in Greece continues to rattle investor nerves ahead of a Thursday deadline for private investors to voluntarily offer up Greek government bonds in a debt swap that will cut the value of their holdings by more than half. In a recent memo from the Institute for International Finance, the firm who helped negotiate the terms of the bond swap, reportedly warned that a so-called hard default by Greece could cause at least 1 trillion euros ($1.32 trillion) in damage to the euro-zone economy. A failed debt swap would potentially void the second bailout for Greece by the European Union and the International Monetary Fund while reigniting fears of a potentially chaotic default as early as March 20, at which time the country faces a 14.5 billion euro bond redemption. Germany’s Deutsche Bank, French bank BNP Paribas and Commerzbank - including the 12 members of the steering committee of private investors that helped negotiate the Greek deal - stated on Monday that they would participate. Under the swap, investors would exchange existing Greek bonds for new debt worth 46.5% of the face value of the old paper which consists of bonds with maturities of up to two years worth the equivalent of 15% of the face value of the old bonds with the remaining 31.5% to come via new, long-dated Greek bonds. According to the terms of the tender offer circulated by the Greek government, unless at least 75% of bond holdings are tendered for the swap, the deal would likely be canceled. The bond swap is part and parcel of a broader rescue agreement with Greece’s creditors that will see the country receive a 130 billion euro rescue from the EU and the IMF, which must be convinced that the nation can make headway in bringing its public debt down from about 160% of gross domestic product currently to nearly 120% by 2020.

Extending losses to a third day as concerns about the global economy flared up, gold futures ended lower Tuesday with gold for April delivery $31.80 or 1.9%, to settle at $1,672.10 an ounce on the Comex division of the New York Mercantile Exchange. The settlement brought gold to its lowest finish in nearly six weeks. Other metals followed gold lower, with May copper off 3.2% at $3.74 per pound.

Lehman Brothers Holdings Inc. emerges from bankruptcy on Tuesday by beginning to pay creditors - starting April 17th - as stipulated in a plan approved by the bankruptcy court on December 6, 2011. You should not however, think of Lehman Brothers Holdings emergence from Chapter 11 of the U.S. Bankruptcy Code as a turning point. Creditors who are unwilling to wait until April, can sell their claims to others before March 18. Estimates are that Lehman bondholders will initially get $10 billion and $65 billion in all however, Lehman reported $639 billion in assets when it filed Chapter 11 in September 2008; reported $613 in liabilities and nearly $155 billion in bond debt. As indentured trustees who sold the bonds, Citigroup Inc. and Bank of New York Mellon Corp. were the biggest creditors with a combined $138 billion. Japan’s Aozora Bank Ltd. was owed $463 million. Aozora, a company exposed to Bernie Madoff’s Ponzi scheme, held Lehman unsecured debt. The biggest bankruptcy in U.S. history and the biggest Wall Street failure continues its slow-drip distribution of assets to the companies and people it owed. The legal expenses for Lehman bankruptcy as of January 31 2012 stood at nearly $1.6 billion . A majority of the bills have been split between the two mega firms working on the case, Weil Gotshal & Manges and Alvarez & Marsal.


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