Unemployment reaches 10.2%

The US lost 190,000 jobs in October, bringing the unemployment rate to a 26-year high of 10.2%.  This news sent both the dollar and the Treasurys higher and the index futures down.  The number is higher than expected.

The unemployment rate rose from 9.8 to 10.2 percent in October, and nonfarm payroll employment continued to decline (-190,000), the U.S. Bureau of Labor Statistics reported today. The largest job losses over the month were in construction, manufacturing, and retail trade.

Total nonfarm payroll employment declined by 190,000 in October. In the most recent 3 months, job losses have averaged 188,000 per month, compared with losses averaging 357,000 during the prior 3 months. In contrast, losses averaged 645,000 per month from November 2008 to April 2009. Since December 2007, payroll employment has fallen by 7.3 million.

Construction lost 62,000 jobs while manufacturing shed a thousand less jobs than construction. It was slightly better for retail losing 40,000 jobs. Health care continued to add jobs, giving 29,000 people jobs.

The change in total nonfarm payroll employment for August was revised from 201,000 job losses to 154,000 while that from September was revised from 263,000 to a better 219,000.

Source: BLS

BoE extends QE program

From FT:

The Bank of England’s monetary policy committee voted on Thursday to expand its vast programme of pumping cash into the UK economy by £25bn, in a sign it remains worried about the outlook in spite of incipient signs of recovery.

[T]he addition of a further £25bn to the programme, which is likely to be used mostly to buy government debt, signals a slowing down in the pace of the Bank’s monetary easing. In August, the Bank had opted to expand the programme by £50bn, which has been used up during the past three months.

The governor of the Bank wrote to the chancellor, Alastair Darling to seek approval for expanding the asset purchase facility, which will take the total programme undertaken by the Bank to £200bn. The new money will be spent during the next three months.

FT Alphaville is putting together reactions from analysts. Here’s one from Thomson Reuters strategist Divyang Shah:

The 25bn coupled with the fact that the purchases are going to be paced over 3-months also highlights the low probability that QE will be expanded in the future. But given the way in which the economy has tended to surprise to the downside, the impact of higher unemployment and credit outlook it is never a good idea to write off the potential for further QE completely.

Read the news via FT, or the reactions via FT Alphaville.

Talk of town: Buffett buys Burlington Northern

The Oracle of Omaha buys the remaining 77.4% stake at Burlington Northern it doesn’t already own.  Meanwhile, he dumps some more stocks of Moody’s.

Some feature on the deals:

Bloomberg: Berkshire buys Burlington in Buffett’s biggest deal

BusinessInsider: S&P: Berkshire could lose covered AAA rating due to Burlington Buy

DealJournal: Montana farmers fear a Buffett dictatorship

NYT: Buffett bets big on railroads’ future

Clusterstock: Buffett dumps more Moody’s

FT: Safe signals from Buffett’s train deal

Period table of bloggers

Hat tip to Ritholtz for this. Via The Reformed Broker. This looks awesome… and dorky.

Source: Big Picture

FOMC statement

Following the Fed’s 2-day meeting, the central bank keeps the rate at between 0 and 0.25% while believing that economic activity has continued to show improvements. Other things worth noting are: the reduction in agency debt to be bought, from $200bn to $175bn, due to limited availability, as well as the identification of 3 economic conditions which might affect the decision to raise rates in the future.  For now, the Fed maintains its stance of “exceptionally low levels of federal funds rate for an extended period of time”.

Read the entire FOMC statement:

For immediate release

Information received since the Federal Open Market Committee met in September suggests that economic activity has continued to pick up. Conditions in financial markets were roughly unchanged, on balance, over the intermeeting period. Activity in the housing sector has increased over recent months. Household spending appears to be expanding but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit. Businesses are still cutting back on fixed investment and staffing, though at a slower pace; they continue to make progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will support a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability.

With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time.

In these circumstances, the Federal Reserve will continue to employ a wide range of tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. The amount of agency debt purchases, while somewhat less than the previously announced maximum of $200 billion, is consistent with the recent path of purchases and reflects the limited availability of agency debt. In order to promote a smooth transition in markets, the Committee will gradually slow the pace of its purchases of both agency debt and agency mortgage-backed securities and anticipates that these transactions will be executed by the end of the first quarter of 2010. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

Source: Fed

Stanley Works to buy Black & Decker

From WSJ:

Stanley Works and Black & Decker Corp. agreed to a $4.5billion all-stock deal that combines two iconic U.S. hand-tool and power-tool makers whose fortunes have faded amid a collapse in the housing market and a broader industrial slowdown.

Stanley is the smaller company, based on sales and employees, but will be the acquirer in the deal, which comes amid a slow period in deal making.

The deal holds a 22% premium for Black & Decker shareholders, who will own 49.5% of the company, while Stanley holders will have the rest. Black & Decker shareholders are receiving 1.275 shares of Stanley for each share of Black & Decker. Black & Decker shares closed Monday at $47.34. Stanley shares closed at $45.15.

The two companies are a tad close to my heart because of our business.

Source: WSJ

Another rate hike from the Australian central bank

While investors await for the Fed’s decision on Wednesday whether to keep the rate at the historic lows or even change the wording of its policy stance via its minutes, the Australian central bank again moved in conjunction with developments in the global economy by raising its key rate by another 25 basis points in just 1 month.  This brings Australia’s cash rate to 3.5%.

The Reserve Bank’s move reflects concerns that inflationary pressures are beginning to build and fears that a residential property bubble could be forming.

By world standards, Australia’s economy has performed solidly during the global downturn, skirting recession by recording only one quarter of contraction.

The Australian government this week upgraded its economic growth forecast for the 12 months to next June to 1.5 per cent, a turnround on the 0.5 per cent contraction predicted only six months ago.

Canberra this week also forecast that unemployment would peak at 6.75 per cent, down from a previous estimate of 8.5 per cent, and predicted that budget deficits and government borrowings would be lower than it expected in May.

This isn’t much of a headline in the sense that it isn’t much of a market mover.  We wait for the Fed’s minutes on Wed and the ECB and BoE’s on Thursday.

Source: FT

Roubini knows how to parteh

It felt strange seeing Roubini partying with the chicks and with a wide grin on his face but well, it happened:

With a hot, Gwyneth-Paltrow-look-alike chick

Now isn't that smile precious... and rare

 

Another chick... who looks drunk

And another... oh wait, this isn't a chick.

Photos courtesy of Gawker. ht to Clusterstock.

 

 

The effects of World Cup: Before, during, and after

FT Alphaville has this interesting post citing a study by BofA/ML on the effects of World Cup in retail sales, consumption, tourism, and industrial production.  As expected, the first three go up during the month when the WC is being held while going back to pretty much where they were prior to the WC.  That’s when visitors leave and significantly slow down on their purchases and/or consumption.  Meanwhile, as the effect of World Cup mania spread all throughout, people become less productive as they begin to work less and talk more about what happened during the previous night’s match.

Here are the charts:

The post closes by saying this:

The analysts also argued that the World Cup “remains one of the under-researched topics in South African macro”. We agree — so please do let us know if you see any interesting research on the topic in the run-up to and aftermath of the tournament.

I second the motion.

Source: FT Alphaville

Roubini warns of worsening carry trade bubble

Roubini has another eye opener on the situation of the carry trade, with the dollar serving as the currency of choice given the zero to even negative interest rates that are in place.

Certainly it has been helped by a wave of liquidity from near-zero interest rates and quantitative easing. But a more important factor fuelling this asset bubble is the weakness of the US dollar, driven by the mother of all carry trades. The US dollar has become the major funding currency of carry trades as the Fed has kept interest rates on hold and is expected to do so for a long time. Investors who are shorting the US dollar to buy on a highly leveraged basis higher-yielding assets and other global assets are not just borrowing at zero interest rates in dollar terms; they are borrowing at very negative interest rates – as low as negative 10 or 20 per cent annualised – as the fall in the US dollar leads to massive capital gains on short dollar positions.

People’s sense of the value at risk (VAR) of their aggregate portfolios ought, instead, to have been increasing due to a rising correlation of the risks between different asset classes, all of which are driven by this common monetary policy and the carry trade. In effect, it has become one big common trade – you short the dollar to buy any global risky assets.

The reckless US policy that is feeding these carry trades is forcing other countries to follow its easy monetary policy. Near-zero policy rates and quantitative easing were already in place in the UK, eurozone, Japan, Sweden and other advanced economies, but the dollar weakness is making this global monetary easing worse. Central banks in Asia and Latin America are worried about dollar weakness and are aggressively intervening to stop excessive currency appreciation. This is keeping short-term rates lower than is desirable. Central banks may also be forced to lower interest rates through domestic open market operations. Some central banks, concerned about the hot money driving up their currencies, as in Brazil, are imposing controls on capital inflows. Either way, the carry trade bubble will get worse: if there is no forex intervention and foreign currencies appreciate, the negative borrowing cost of the carry trade becomes more negative. If intervention or open market operations control currency appreciation, the ensuing domestic monetary easing feeds an asset bubble in these economies. So the perfectly correlated bubble across all global asset classes gets bigger by the day.

But one day this bubble will burst, leading to the biggest co-ordinated asset bust ever: if factors lead the dollar to reverse and suddenly appreciate – as was seen in previous reversals, such as the yen-funded carry trade – the leveraged carry trade will have to be suddenly closed as investors cover their dollar shorts. A stampede will occur as closing long leveraged risky asset positions across all asset classes funded by dollar shorts triggers a co-ordinated collapse of all those risky assets – equities, commodities, emerging market asset classes and credit instruments.

Good stuff.

Read the rest via FT.

PSE hit by SEC rule reversal

I briefly heard about the story of Benguet Corp, a gold mining company in the Philippines, and the supposed suspension of trading for the stock following failure to disclose receiving default notices from some creditors.  There wasn’t much issue, at least for me, when I heard it but surely investors who were trading/owning the stock did suffer a huge blow as the stock lost a quarter of its value a few days after the news broke.

But hearing the following story is shameful:

Now, it looks as if all that excitement was needless or premature. A day before the trading halt was to take effect, the Securities and Exchange Commission reversed the stock exchange order, a move that took the market by surprise.

…

The bigger casualty could be the country’s stock exchange itself. The confusing episode adds to long-standing investor concerns about political risk, corruption and regulatory uncertainty that have kept one of Asia’s first stock markets, founded in 1927, one of the smallest in the region.

The conflicting actions taken by the SEC and stock exchange are not helpful to the Philippines “which is already being bypassed by many foreign investors who are keener to go into other faster-growing economies in Asia”, according to Luz Lorenzo, south east Asia economist at ATR Kim Eng Securities, a regional stock brokerage.

And perhaps why the Philippine stock market never interested me much: (emphasis mine)

Regulatory uncertainty and the small trading volume, which makes getting in and out of listed stocks quite costly, also worry many investors, says Ms Lorenzo. The Philippine’s daily market turnover only reached $70m (€47m, £42m) last year, equivalent to only 14 per cent of Thailand’s turnover and 18 per cent of Malaysia’s.

Que horror.

Source: FT

CIT finally gets there. Bankruptcy.

This has been a long ongoing story.  But well, like most things, it came to an end.  Business lender CIT has filed for bankruptcy on Sunday despite some efforts to rescue it.

In a statement, CIT said it had asked the bankruptcy court to quickly confirm its prepackaged bankruptcy plan, which has broad support from its debt holders and on Friday received backing from Carl Icahn, the billionaire investor.

Mr Icahn, who had been critical of the CIT plans, has agreed to provide a $1bn line of credit. The company said it would aim to emerge from bankruptcy by the end of the year.

But the futures seem to be pointing to a positive start, which kind of tells us it isn’t necessarily a worrying issue as we once thought.  Maybe the creditor support calmed the nerves?

Source: FT