July 8, 2011
"If ever a president seems to have learned nothing from the times he's living in, Barack Obama is it." Holman Jenkins
The bloom is falling off the rose today as they payroll report was a major disappointment for the second month in a row. The non-farm private payrolls came in at 57K versus expectations of 110K. The unemployment rate ticked up from 9.1% to 9.2%, above the consensus of 9.1%. These results are opposite of the strong ADP numbers yesterday, and continue to highlight the ADP numbers as unreliable indicators of the government figures. Equities are poised to give back most of yesterday’s big gains. Oil, US equities, and European equities are all soft this morning.
Yesterday retail comps for June were released, and the numbers were quite strong after a soft May. Chain store comps were up on average 6.5% vs. expectations of a 4.9% increase. Of the 25 specialty retailers we track, 20 beat estimates for the month.
In Washington the deadline for raising the debt ceiling is now less than a month away. The President, who voted against raising the ceiling while a Senator, has been pushing for a deal with tax increases on individuals and corporations. Congress has been pushing hard for spending cuts without tax increases. Both sides are sitting down now, and based upon the public commentary of the two sides, it appears each is now willing to budge a bit on their faux non-negotiable points. I’m pretty sure that if both parties weren’t already in campaign mode this deal would have been done by now with a lot less fanfare.
Much has been made of the Administration examining the 14th Amendment as a way for the President to bypass Congress and exceed the debt ceiling without Congressional Approval. Again, I’m sure this is more posturing and doubt it ever comes to fruition. It seems that lately the bark of politicians has gotten much louder while the bite remains the same.
Moody’s downgraded Portugal’s credit rating yesterday to junk status, and borrowing costs for European banks such as Banco Santander and Banco Espirito Santo rose significantly. It appears the ECB will be chasing problems with the PIIGS for the next few years.
Bloomberg is reporting that Bank of America, Citigroup, JP Morgan and Wells Fargo are close to a deal that could cost an additional $20 billion for improper foreclosure activity. I hate to be cynical about the banks, mostly because it’s too easy, but let’s see how that works. First, they lend money to unqualified borrowers, then sell the loans to buyers unaware of what they are buying. The borrowers default, pushing the banks and economy to the edge of a cliff. The government gives the banks money to stay afloat and continue paying bonuses. The banks foreclose on the mortgage, but someone realizes that in an effort to save time they never did the paperwork properly and thus can’t legally foreclose on the property. In some cases the homeowner is already out of his home, in other cases they are able to stay because the true owner can’t be located. To make amends, the banks are giving $20 billion back to the government. No one at the bank loses their job, no one goes to jail, and the taxpayer continues to write the checks (see debt ceiling discussion above). Did I miss something?
Buried deep in the Federal Reserves’ website, there is a report showing that on December 9, 2008, Goldman Sachs took the biggest single loan from the Feds’ open-market operations. The loan, $15 billion, came from a program whose details had been secret until yesterday, when they were released in response to a Freedom of Information Act request by Bloomberg. Lehman borrowed $18 billion over the four month period just before their collapse in 2008. The entire report can be viewed at http://www.federalreserve.gov/monetarypolicy/bst_tranche.htm.
I watched a great 4th of July show earlier in the week. Here’s another one courtesy of the NYPD:
Have a great weekend. Earnings kicks off next week.