

World View & Market Commentary.
Forest first; Trees second.
Focused on Real & Knowable facts that filter through the "experts" fluff and media hyperbole. Where we've been, what the future may hold and developing a better way forward.
Highlights
The consumer sector got some lift from income growth in March. Personal income in March grew 0.5 percent, following a 0.4 percent gain in February. The latest was a little higher than the median projection for 0.4 percent. Wages & salaries rose a moderate 0.3 percent, softening from 0.4 percent in February.
Consumer spending slowed somewhat in the latest month but was coming off a robust February. Personal consumption expenditures printed at a 0.6 percent rise in March after jumping 0.9 percent the prior month. Analysts had forecast a 0.5 percent gain. The slowing was largely due to a leveling off in durables after the large advance in this component in February. Durables were a little better than many expected as earlier released unit new motor vehicle sales dipped in March. Of course, higher gasoline prices helped boost the nondurables component. Nonetheless, real PCEs managed to gain 0.2 percent, following a 0.5 percent surge in February.
For PCEs in March, strength was led by nondurables (includes gasoline), up 0.9 percent, after a 1.7 percent surge in February. Durables eased to up 0.1 percent, following a 2.1 percent jump the prior month. Services spending advanced 0.5 percent after a 0.4 percent rise the month before.
On the inflation front, the PCE price index continued to be hot, jumping 0.4 percent and matching the February boost. However, the core rate decelerated a bit to a sluggish 0.1 percent rise in March, following a 0.2 percent gain in February. On a year-ago basis, headline PCE inflation worsened to 1.8 percent from 1.6 percent in February. Core PCE price inflation was steady at 0.9 percent on a year-ago basis. The latest core numbers will let the Fed keep arguing that underlying inflation is still soft.
Year on year, personal income growth for March came in 5.3 percent, compared to 5.2 percent in February. PCEs growth posted at a year-ago 4.6 percent, up from 4.5 percent the prior month.
The consumer sector is holding up a little better than expected despite high gasoline prices. The question is whether the price effects are "transitory" as hoped by the Fed. The income gains are at least helping to offset the impact of higher gasoline prices on consumers' budgets.
HighlightsI took the liberty of drawing a big fat trend arrow for your wages (err, I mean employment costs). CPI, of course, is trumped and reality is much higher than advertised. I’m giving this report on wages the benefit of a doubt, but who really knows as the data is so widely warped that trust in the money printing central’s data makes one look like an idiot.
A rise in benefit costs fed an above-trend rise in the employment cost index which however shows no acceleration in wages. The ECI rose a quarterly 0.6 percent in the first quarter vs a run of 0.4 percent gains in prior quarters. Year-on-year, the ECI is up 2.0 percent for no change vs the fourth quarter. Wages rose 0.4 percent, the same pace as the fourth quarter, and are up only 1.6 percent year on year. Benefits jumped 1.1 percent for a 3.0 percent year-on-year increase with health benefits for employers up 3.4 percent. For comparison, the year-on-year rate for the CPI was 2.7 percent in March.
Gold Luring Central-Bank Buyers May Extend Record Rally in PriceApril 29 (Bloomberg) -- Central banks that were net sellers of gold a decade ago are buying the precious metal to reduce their reliance on the dollar as a reserve currency, signaling demand that may extend a record rally in prices.
As developing countries accelerate purchases, gold may reach $2,000 an ounce this year, compared with a record of $1,538.80 yesterday in New York, said Robert McEwen, the chief executive officer of producer U.S. Gold Corp. Euro Pacific Capital’s Michael Pento, who correctly predicted gold’s highs for the past two years, forecast a 2011 high of $1,600.
Prices reached a record 14 times this month on demand from investors seeking an alternative to the dollar after the currency slumped to the lowest since 2009, U.S. debt widened, and the Federal Reserve signaled April 27 that borrowing costs will remain near zero percent for an extended period. The economy in China, the biggest foreign holder of U.S. Treasuries, grew 9.7 percent in the first quarter.
“China is out to have more gold than America, and Russia is aspiring to the same,” McEwen said yesterday in an interview in New York. “When you have debt, you don’t have a lot of flexibility. China wants to show its currency has more backing than the U.S.”
In 2010, central banks became net buyers for the first time in two decades, adding 87 metric tons in official-sector purchases by countries including Bolivia, Sri Lanka and Mauritius, according to World Gold Council data. China, with more than $3 trillion in foreign-currency reserves, plans to set up new funds to invest in precious metals, Century Weekly reported this week. Russia purchased 8 tons of gold in the first quarter.
China’s Gold Reserves
China, which has just 1.6 percent of its reserves in gold, may invest more than $1 trillion in bullion, Pento said. “China wants to be an international player, and they need to own more gold than they currently have.”
The U.S. Treasury Department projects the government could reach its debt ceiling of $14.3 trillion as soon as mid-May and run out of options for avoiding default by early July. The Fed has kept its benchmark rate between zero percent and 0.25 percent since December 2008 to help stimulate the economy, driving the dollar down 11 percent against a basket of six major currencies during the past year.
“Until monetary policy changes, you’re going to continue to see gold go up,” said Michael Cuggino, who helps manage $12 billion at Permanent Portfolio Funds in San Francisco.
“Ultimately the best thing we can do to create strong fundamentals for the dollar in the medium term is first, keep inflation low, which maintains the buying power of the dollar, and second, create a stronger economy,” Fed Chairman Ben S. Bernanke said on April 27.
Goldman Sachs, JPMorgan Among 16 Banks Probed by EU Over CDSApril 29 (Bloomberg) -- Goldman Sachs Group Inc., JPMorgan Chase & Co. and 14 other investment banks face a European Union antitrust probe into credit-default swaps for companies and sovereign debt.
The European Commission is investigating whether 16 bank dealers, including Citigroup Inc. and Deutsche Bank AG, colluded by giving market information to Markit, a financial information provider. Regulators will also examine whether nine of the firms struck unfair deals with ICE Clear Europe, a clearinghouse for derivatives, shutting out competitors.
“Lack of transparency in markets can lead to abusive behavior and facilitate violations of competition rules,” Joaquin Almunia, the EU’s competition commissioner, said in an e-mailed statement. “I hope our investigation will contribute to a better functioning of financial markets.”
Global regulators have sought to toughen regulation of credit-default swaps, saying the trades helped fuel the financial crisis. The EU’s probe into the CDS market adds to separate investigations in the U.K. and U.S into whether banks colluded to manipulate the London interbank offered rate.
Possible Collusion
Bank of America Corp., Barclays Plc, BNP Paribas SA, Commerzbank AG, Credit Suisse Group AG, HSBC Holdings Plc, Morgan Stanley, Royal Bank of Scotland Group Plc, UBS AG, Wells Fargo & Co., Credit Agricole SA and Societe Generale SA will also be investigated for possible collusion in giving “most of the pricing, indices and other essential daily data only to Markit.”
The commission said this “may have the effect of foreclosing the access to the valuable raw data by other information service providers.” It said some of the clauses in Markit’s licence and distribution agreements “could be abusive and impede the development of competition in the market for the provision of CDS information.”
The EU will also separately investigate credit default swap clearing agreements struck by ICE Clear Europe with Bank of America, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan, Morgan Stanley and UBS.
‘Behaved Badly’
“What we are looking at is whether the main players in the market have behaved badly, have entered into anti-competitive agreements or abused a possible dominant position,” Amelia Torres, a commission spokeswoman, told reporters in Brussels today.
Highlights
Initial jobless claims are definitely on the rise and it may not be auto related. Initial claims jumped 25,000 in the April 23 week to 429,000 which is nearly 40,000 above expectations (prior week revised 1,000 higher to 404,000). The Labor Department said layoffs in the auto sector were isolated and not a major factor. The four-week average rose a steep 9,250 to 408,500 and is nearly 15,000 above the month-ago level. Initial claims were on a convincing downward trend, but no longer with this month's data pointing to trouble for the April employment report.
Highlights
The economy slowed during the first quarter of 2011. However, the detail shows moderate forward momentum. First quarter GDP growth eased to a 1.8 percent annualized pace, following a 3.1 percent boost in the fourth quarter. First quarter growth came in lower than the median projection for 2.0 percent.
The softer growth in the first quarter was largely due to a sharp upturn in imports, a deceleration in personal consumption, a larger decrease in federal government spending, and decelerations in nonresidential fixed investment and in exports that were partly offset by a sharp upturn in private inventory investment.
Nonetheless, relative strength was seen in personal spending, investment in equipment & software, and inventory investment. Exports also continued to rise although not as rapidly as earlier. PCEs rose an annualized 2.7 percent, following 4.0 percent in the fourth quarter. Equipment & software improved to 11.6 percent from 7.7 percent the prior quarter. Inventories rose a moderate but stronger $43.8 billion, compared to $16.2 billion in the fourth quarter. Exports gained 4.9 percent in the first quarter, following 8.6 percent in the previous quarter.
Weakness included a drop in government purchases (down 5.2 percent), nonresidential structures (down 21.7 percent, residential structures (down 4.1 percent), and imports (up 4.4 percent).
Final sales of domestic product posted at a sluggish 0.8 percent in the first quarter, compared to 6.7 percent the prior quarter. Final sales to domestic purchasers (takes out net exports) slowed to a 0.9 percent increase from a 3.2 percent rise in the fourth quarter. Deceleration in both was primarily due to a sharper drop in government purchases and a fall in structures investment-especially nonresidential but also residential.
Economy-wide inflation picked up with the GDP price index jumping _ percent from a modest 0.4 percent rise in the fourth quarter. Analysts had forecast 2.2 percent.
Year-on-year, real GDP in the first quarter is up 2.3 percent, compared to 2.8 percent in the fourth quarter.
Economy-wide inflation picked up with the GDP price index jumping 1.9 percent from a modest 0.4 percent rise in the fourth quarter. Analysts had forecast 2.2 percent.
Overall, the headline number was disappointing as were the final sales figures. But key components-consumer spending, equipment investment, and inventory investment-are maintaining forward momentum.
Gundersen Postulates Unit 3 Explosion May Have Been Prompt Criticality in Fuel Pool
Again, to me we have a deadly serious situation in which a corporate special interest has been stonewalling the public. Not only that, the captured governments of Japan and the United States have failed to act in humanity’s best interest. At least I can give the Soviet Union far superior grades from that standpoint for the way that they quickly produced an all-out effort to contain the radiation of Chernobyl. Looking at both incidents now in hindsight, it is clear to me that the Russians lacked this special interest capture and thus the government was able to act. Sure would be nice to learn this lesson, it’s the same lesson we should have learned following the BP oil spill.
Have a great morning, carry on my wayward sons, and enjoy the “Fed” lip flappin’!
Highlights
S&P Case Shiller data are mixed in what is probably a good sign for home prices which have been in a long and damaging slide. Seasonally adjusted data for the composite 10 index show a 0.2 percent decline for February, less steep than the 0.3 percent and 0.4 percent declines of the two prior months. These are three-month moving averages which indicates that February showed little change. Year-on-year contraction, however, is deepening, to minus 2.6 percent vs. minus 2.2 percent in January and minus 1.4 percent in December. Unadjusted data, which is widely looked at in this report, show a 1.1 percent monthly slide that reflects weather issues.
Biggest Banks Beating Estimates Can’t Hide 13% Drop in Revenue
April 26 (Bloomberg) -- The biggest percentage drop in quarterly revenue in three years, driven by lower lending and reduced fees, is damping investor appetite for shares of the six largest U.S. banks.
Net revenue at the six lenders -- Bank of America Corp., JPMorgan Chase & Co., Citigroup Inc., Wells Fargo & Co., Goldman Sachs Group Inc. and Morgan Stanley -- fell 13.3 percent in the first quarter from a year earlier, according to data compiled by Bloomberg. Pretax pre-provision profits, which exclude taxes, loan-loss provisions and one-time items and are considered a better gauge of profitability than earnings, slid 40.2 percent.
While five of the banks beat analysts’ estimates, and JPMorgan and Wells Fargo reported record quarterly earnings, anemic revenue and a steady drop in pre-provision profits have kept investors at bay. Since JPMorgan reported earnings on April 13 with a 67 percent rise in net income to $5.6 billion, the KBW Bank Index of the 24 largest U.S. banks has fallen 3.5 percent as the Standard & Poor’s 500 Index climbed 1.6 percent.
“You’re seeing people backing off of exposure to this space because of the lack of loan growth and poor revenue growth,” said Paul Miller, a former examiner for the Federal Reserve Bank of Philadelphia and an analyst for FBR Capital Markets in Arlington, Virginia. “It’s not a sell-off -- it’s more of a slow drift down. These stocks are going to trade very weak” until their loan books and revenue start to grow.
Fairewinds Calls for the Nuclear Regulatory Commission to Delay Licensing Until Fukushima Lessons Are Evaluated
From my perspective the regulators are broken, the housing market is broken, the banks are broken, the United States is broke, the rest of the developed world is broke, and what we call “markets” are completely and totally broken. Oh, and don’t forget Broke Back Bucky, he’s broken too…