Quick Notes for the Day - July 10

A "New Beginning" for GM - "Today marks a new beginning for General Motors, one that will allow every employee, including me, to get back to the business of designing, building and selling great cars and trucks and serving the needs of our customers," said CEO Fritz Henderson.

In his comments, Henderson said the new GM will focus on customers, cars, and culture as a way to regain a foothold and build for the future. Henderson also wants the company to repay loans "much sooner" than the due date with the hope of a new GM IPO as early as next year. Prior to the IPO, the U.S. government would own 60.8%, the Canadian government 11.7%, the United Auto Workers retiree trust 17.5%, and 10% to the old GM bondholders.

Surprisingly, Trade Gap Narrows - Q2 GDP Positive? - The Commerce Department reported Friday morning that the U.S. trade deficit narrowed by 9.8% in May to $25.96 billion which is the lowest deficit since November 1999. The decrease in the deficit was completely unexpected especially when most analysts had predicted the deficit to widen. Exports rose while imports declined in May. The U.S. trade deficit with China narrowed to $17.48 billion in compared with $21.36 bln in the same month last year. The government also revised the deficit in April to $28.8 billion from $29.2 billion.

On this news, Q2 GDP could turn out to be positive due to the downward revision of the deficit in May and June's surprise reading. According to a note from the economic team at RDQ Economics, "The narrowing of the average real trade deficit in the first two months of the quarter versus the first quarter...puts trade on course to add as much as two percentage points to second-quarter real GDP growth. We think that a drop of 0.5% rather than 1.5% in the second quarter is now a central forecast for GDP and there is a significant possibility that real GDP could actually grow slightly in the second quarter, which would further add to our view that the recession ended last quarter."

July Consumer Sentiment Falls - According to the University of Michigan and Reuters survey, U.S. consumer sentiment fell in early July to 64.6 from 70.8 in June. Most economists had expected a only a slight drop in the reading.

Gold, Oil Down, Dollar Up - Continuing in the on-going push-pull of the dollar, the dollar staged a rally today which put pressure on gold and oil. Gold fell about $9 to $907 for a loss of about 2.5% this week. Oil is down about $1.50 to below $59 a barrel, and it is on pace for a weekly loss of 12%.

Analysts Increase Earnings Predictions for BofA - On Friday morning, analysts from J.P. Morgan upwardly revised their 2009 earnings estimates for Bank of America one week before BofA announces its results from the second quarter. For Q2, J.P. Morgan now expects BofA to report earnings of 38 cents a share versus the previous estimate of a loss of 3 cents a share. Full-year 2009 earnings were also revised higher to 78 cents versus 21 cents a share.

The "messy" report will have several one time items and charges but will get a boost from the $4.5 billion gain on the sale of China Construction Bank (CCB), along with a $1.2 billion gain on merchant processing joint venture according to the report. Q2 has been a busy quarter for BofA with several asset sales, debt offerings and restructurings, and stock offerings to raise more than the required capital in wake of the U.S. stress tests.

Quick Notes for the Day - July 9

Jobless Claims Drop to Lowest Since January - First-time claims for state unemployment benefits fell in the latest weekly data, after seasonal adjustment, while continuing claims hit a record high, the Labor Department reported Thursday. The number of initial claims in the week ending July 4 fell 52,000 to 565,000 - the lowest level since January - as the manufacturing layoffs, predominantly automotive, that had been expected have already occurred at some companies, according to the Labor Department, which added that some seasonally expected layoffs may come later or not at all. The four-week average of initial claims fell 10,000 to 606,000. For the week ending June 27, the number of Americans receiving state jobless benefits rose 159,000 to 6.88 million. The four-week moving average of these continuing claims rose 12,000 to a record 6.77 million. The insured unemployment rate, which represents the portion of all workers covered by unemployment insurance who are collecting benefits, rose to 5.1% from 5%.

Mortgage Rates Fall - Lowest Level in 6 Weeks - According to Freddie Mac's weekly survey of conforming mortgage rates, rates fell again this week, with the 30-year fixed-rate mortgage dropping to its lowest level in six weeks. The 30-year fixed-rate mortgage averaged 5.20% for the week ending July 9 versus last week's 5.32% average and 6.37% a year ago. Rates on 15-year fixed-rate mortgages also fell to 4.69% for the week versus 4.77% last week and 5.91% a year ago.

Natural Gas Inventories Rise - Natural gas inventories rose 75 billion cubic feet in the week ended July 3 to reach 2,796 billion cubic feet, the EIA reported Thursday. Natural gas futures rose 6.8 cents (2.1%) to $3.421 per million BTU. At the current level, inventories were 601 billion cubic feet higher than last year at this time and 452 billion cubic feet above the five-year average.

Fed Buys $3 Billion in Treasurys - The Federal Reserve bought $2.999 billion in Treasurys maturing between 2010 and 2011 on Thursday, the second of two buyback operations this week.

Dollar Falls, Gold, Oil Up - The dollar fell this morning after the jobless claims data showed some improvement, and on the news, gold and oil moved higher initially. Gold has continued to trade higher this morning (up about $5 to $914) on the weaker dollar, but oil has now pared its gains, and it is sitting virtually for the day at $60.

Quick Notes & Articles for the Day - July 8

Global Recession is Ending - IMF - The global economy is beginning to pull out of recession but the recovery is expected to be sluggish, according to the latest economic update from the International Monetary Fund (IMF) released Wednesday. The IMF raised its forecast for growth in 2010 to a 2.5% rate, which is higher than the 1.9% growth rate forecast in April. There is much less concern about systemic failure in the financial system. A gradual recovery in the U.S. seems on track, the IMF said. Japan is stabilizing after a dismal first quarter. Growth in the euro-area is expected to strengthen more slowly than elsewhere. Inflation pressures remain low, the agency said. Risks for sustained deflation are small.

Loan Growth in China Rises - New loans surged to 1.53 trillion Chinese yuan ($223.9 billion) in June, a dramatic increase from 664.5 billion yuan in May, the People's Bank of China reported on its Web site on Wednesday. This brings aggregate new lending in 2009 to 7.37 trillion yuan, up 201% year-over-year from the first half of 2008.

Gold, Oil Fall - Gold fell Wednesday morning to $916 which is the lowest level in two months as other commodities dropped as well reducing the metal's "hedge" against inflation. A stronger dollar, increased gasoline inventories, and predicted stagnate demand sent oil prices down for a sixth straight day to below $62 a barrel.

GE Works on "Smart Grid" Technology - General Electric said it reached a strategic agreement for an undisclosed price with privately held smart grid technology firm Tendril. Tendril and GE plan to "develop an integrated and interoperable system that will enhance GE's demand responsive appliances capability to communicate over metering and broadband networks," the companies said.

Articles

We Have 248 Million Reasons to Expect Recovery - By William Pesek - Bloomberg - "What in the world are Indonesians thinking? It’s hard not to wonder when the nation’s consumer- confidence index in June rose to its highest in more than four years. As the global economy reels, folks in Asia’s third-most- populous nation are brimming with optimism and poised to increase spending..." "As odd as it sounds, Milton Friedman, were he still alive, would probably find more to like in Indonesia than in America."

Quick Notes for the Day - July 6

June ISM Rises - The service sectors contracted at a slower pace in June, the Institute for Supply Management (ISM) reported Monday. The ISM nonmanufacturing index rose more than expected to 47.0% from 44.0% in May. Anthony Nieves, chair of the ISM services survey, said the report was "encouraging." The business activity index rose to 49.8% in June from 42.4% in the previous month. New orders rose to 48.6% from 44.4%. The employment index rose to 43.4% from 39.0%. Inflation pressures picked up. The price index rose to 53.7% from 46.9% in the previous month.

Crude Oil Falls on Inventories, Rogue Trader, Economic Data - Crude oil dropped more than 3% on Monday to $64.50. The fall has been due to increased inventories, weaker than expected demand, the realization of the "rogue trader," and economic data that has pointed to a slow recovery.

Recently, oil traded as high as $73 when a rogue trader bid up the oil futures more than $3 in one day. Following that news, oil has slid. Oil inventories continue to remain high, demand has not picked back up as quick as expected by some analysts (many believe that consumers continue to drive fewer miles than in years past), and some economic data that points to a slow recovery.

Gold Drops - As the dollar strengthened against other currencies and oil fell, gold futures dropped. Gold as seen as a hedge against inflation, and the declining price of oil takes quite a bit of steam out of the inflation worries. The June ISM data does show some improvement in employment and inflation though, so gold should not be completely discarded as an investment according to most analysts.

Judge Approves Plan to Sell GM's Assets - A U.S. federal judge has approved the sale of General Motors assets to a new government-run company which should help speed the company's exit from bankruptcy proceedings, The Wall Street Journal reported Monday.

The ruling allows the sale to proceed despite the arguments from bondholders and product-liability claimants. One of the main issues was that without the current plan, GM would have faced a liquidation scenario that would had been "a disastrous result for GM's creditors, its employees, the suppliers who depend on GM for their own existence, and the communities in which GM operates. In the event of liquidation, creditors now trying to increase their incremental recoveries would get nothing." The ruling was signed Sunday by Judge Robert E. Gerber of the U.S. Bankruptcy Court for the Southern District of New York.

With the case finished, the government-brokered restructuring of GM can now take place. GM will move Chevrolet, Cadillac, Buick and GMC to a new company. Ownership of the company has been "sticky" to say the least with the US government owning 61% (loaned the company more than $50 billion), the Canadian government owning 12% (also loaned the company money to stay afloat), the UAW retiree healthcare trust owning 17.5%, and unsecured bondholders owning 10%.

4th of July

"We are in the very midst of revolution, the most complete, unexpected, and remarkable of any in the history of the world." - John Adams in a letter to a friend in 1776

As we celebrate today with family and friends, let us not forget the trials and tribulations of our great country over the last 233 years and the men that started us on this journey. The parades, the fireworks, the cookouts, etc. are a great time, but take a moment to reflect on being an American.

Happy 4th of July to all.

Making History - By Peggy Noonan - The Wall Street Journal - "Monday, July 1, was heavy and hot, and a full-scale summer storm passed through the city late in the morning. John Dickinson of Pennsylvania rose to speak. He knew he was endangering the respect in which he was broadly held, his 'popularity,' but he once again counseled caution: Slow down, separation from Britain is 'premature,' to declare independence now would be 'to brave the storm in a skiff made of paper.' When he sat down, 'all was silent except for the rain that had begun spattering against the windows.'"

A Fresh Fourth - The New York Times - "It’s tempting to seek a kind of refuge in the Saturday-ness of this Fourth, to let the meaning of the holiday slip a little in the interest of a relaxing day in the backyard or at the beach. And since there is no proper ceremony for observing the Fourth — not much ritual besides a parade and some looking skyward after dusk — it’s left to each of us to decide just what to do about it."

Quick Notes for the Day - July 3

Office Closed for July 4th - Rollins Financial Counseling, Inc. and Rollins & Associates, P.C. will be closed on Friday, July 3rd in observance of the July 4th holiday. We will reopen on Monday, July 6th for normal business hours.

Additionally, the stock market will be closed on Friday, and all banks will be closed on Saturday, July 4th.

GM Gets Offer for Opel from Beijing Auto - GM said on Friday morning that it's received a proposal from China's Beijing Automotive for its European Adam Opel unit. A spokeswoman from GM also said that they are in talks with RHJ, a Belgian industrial holding company, about a separate potential deal for Opel.

GM signed a memorandum of understanding with Magna International, a Canadian company, over a proposed deal for Magna to take a majority of the European business in May, but they are still busy trying to workout all of the issues. The memorandum was non-exclusive, so GM has been able to discuss potential deals with other companies wishing to purchase the unit. Reuters reported Thursday that Magna's board is due to meet early next week to approve the business plan for the acquisition of Opel.

China to Invest $1.5 Billion in Canadian Mine Company - The state-run China Investment Corp (CIC) is investing $1.5 billion Teck Cominco which will give the CIC a 17% equity stake with 6.7% voting interest in the company. The miner said the deal will have a "very positive effect" on its balance sheet and give it a deeper understanding of China, its top consumer. CIC plans to be a "long-term passive financial investor" and hold the stake for at least one year with the understanding that it will not sell it to any other rival or material customer of Teck.

Tuesday's Jump in Oil Prices Blamed on Rogue Trader - Unauthorized trading in oil futures by a single employee resulted in a nearly $10 million loss for brokerage PVM Oil Futures and is being blamed for a dramatic spike in futures prices earlier this week, according to news reports.

"As a result of a series of unauthorized trades, substantial volumes of futures contracts were held by PVM. When this was discovered, the positions were closed in an orderly fashion," PVM Managing Director Robin Bieber told The Wall Street Journal. Bieber told The Journal that the company had met its margin call and was conducting business "as normal."

A broker at PVM's London office was said to have purchased between 7 million to 10 million barrels of ICE Brent crude futures early Tuesday. Brent crude futures on the ICE exchange, as well as crude futures at the NYMEX, jumped more than 2% within a minute early Tuesday. The spike drove ICE Brent to an eight-month high of $73.50.