NEW$ TO U(SE)

This is not a surprise. A Japanese government survey of business sentiment published March 23 predicted this tankan result. See my post here.

The Bank of Japan’s tankan survey showed Wednesday that business sentiment among big manufacturing firms in the world’s second-largest economy fell to the lowest level on record.

The business sentiment index for large manufacturers was at negative 58 in the first quarter, down from the negative 24 seen in the fourth quarter of last year.

Consensus expectations were for a reading of minus 55, according to a poll conducted by Reuters.(…)

Meanwhile, business sentiment among large non-manufacturers was at negative 31, far worse than the negative 9 seen in the December quarter.

The last tankan survey, released in December, had showed that confidence among large manufacturers fell at its fastest pace since August 1974, hitting its weakest reading in nearly seven years. See full story on December tankan survey.

The indexes subtract the percentage of respondents saying business conditions are bad from those saying they are good.

The business conditions forecasts for the June quarter weren’t much better than the first-quarter results.

The tankan survey forecast second-quarter business sentiment at negative 51 for large manufacturers, 7 points better than the reading for the first quarter.

Sentiment for large non-manufacturers was tipped at negative 30 for the June quarter, a 1 point improvement from the first quarter.

"Large companies expect some improvement in the June quarter, small companies a further deterioration, which could indicate that the economy is bottoming out soon," said Schuster. (…)

I am watching for micro-info as signs that the macro-economy is, first,  stabilizing and then recovering. Restaurant industry stats can be useful in that regard.

Restaurant operators’ “current situation” has improved somewhat lately but so marginally. Same store sales have not improved, however, only traffic so far. But higher traffic will obviously occur before higher spending per visit.

“Although the index registered its second consecutive monthly gain, each of the RPI’s eight indicators stood below 100 in February, which signifies continued contraction,” said Hudson Riehle, senior vice president of Research and Information Services for the Association. “A majority of restaurant operators reported negative same-store sales and customer traffic levels in February, and their outlook for sales growth in the months ahead remains uncertain.”

The Restaurant Performance Index is based on the responses to the National Restaurant Association’s Restaurant Industry Tracking Survey, which is fielded monthly among restaurant operators nationwide on a variety of indicators including sales, traffic, labor and capital expenditures. The RPI consists of two components – the Current Situation Index and the Expectations Index. (Follow this link to view this month’s report: www.restaurant.org/pdfs/research/index/200902.pdf).

The Restaurant Performance Index is constructed so that the health of the restaurant industry is measured in relation to a steady-state level of 100. Index values above 100 indicate that key industry indicators are in a period of expansion, while index values below 100 represent a period of contraction for key industry indicators.

Data through January 2009, released today by Standard & Poor’s for its S&P;/Case-Shiller1 Home Price Indices, the leading measure of U.S. home prices, shows continued broad based declines in the prices of existing single family homes across the United States, with 13 of the 20 metro areas showing record rates of annual decline, and 14 reporting declines in excess of 10% versus January 2008.

“Home prices, which peaked in mid-2006, continued their decline in 2009,” says David M. Blitzer, Chairman of the Index committee at Standard & Poor’s. “There are very few bright spots that one can see in the data. Most of the nation appears to remain on a downward path, with all of the 20 metro areas reporting annual declines, and nine of the MSA’s falling more than 20% in the last year.

All 20 metro areas are reporting negative monthly and annual rates of change in average home prices.

Scotia Capital’s Na Liu:

■ People’s Bank of China Governor Zhou Xiaochuan said last week that the world’s third largest
economy is recovering. “Overall, the macroeconomic measures have produced
preliminary results, and some leading indicators are pointing to recovery of economic
growth,” Zhou said in an article on the central bank’s website last week. The government
“has taken prompt, decisive, and effective policy measures, demonstrating its superior
system advantage when it comes to making vital policy decisions,” he said.

■ One of the “leading indicators” Mr. Zhou saw must be bank loans, the fuel for China’s
economic growth for years. Based on various bank sources, we estimate that total yuan
loan addition will amount to RMB700 billion in March. Although this is smaller than
January’s RMB1.6 trillion and February’s RMB1.1 trillion, it is still a massive number. Our
readers should know that the huge bank loans we have seen in recent months are the
foundation for our overweight call for the global raw materials sectors from a China
perspective.

■ As we have pointed out numerous times, the main drag for the Chinese economy into the
current recession (by Chinese standards) is not declining exports, it is the declining property
market. Therefore, any sign of turning for the property market warrants close scrutiny.

■ Since mid-February, home sales in major cities have posted strong gains. On an month-over month (MOM) basis, February home sales in Guangzhou, Shanghai, Beijing, Tianjin,
Chongqing, and Chengdu were up 44%, 38%, 24%, 87%, 73%, and 60%, respectively.

■ And the sales gains extended into March. Although data are not available yet, anecdotal
evidence suggests that sentiment continued to improve. In Shanghai, a key home exhibition
drew a record 130,000 visitors. In Beijing, buyers lined up very early for a few new
offerings, a scene that had not been seen for more than a year.

■ Although the property market is showing life in terms of sales, we do caution that it is still
too early for the sector to positively contribute to China’s raw materials demand. For the
time being, major developers are not buying new land or developing new land into new
projects. Their major objective in the near term is still to clear inventory. In the first two
months of 2009, official statistics show that land sales were down 30% year over year
(YOY), new land development down 15.5% YOY, and new home starts down 14.8% YOY.
These data, together with still weak home pricing, indicate the destocking process is not over
for the property sector yet. New investment in the property sector, as well as raw material
demand from this sector, is unlikely to rebound any time soon.

■ Of course, the ongoing destocking is still the first step in the right direction. In seven major
Chinese cities, the residential inventory has dropped for 12 consecutive weeks, down 8.6%
from its peak. Today’s destocking clears the way for tomorrow’s new project developments.

Weekly retail sales picked up 1.1% during the last week of March after declining during the previous 2 weeks:

The International Council of Shopping Centers and Goldman Sachs Retail Chain Store Sales Index increased 1.1% in the week to March 28 from its level a week before, on a seasonally-adjusted, comparable store basis.
On a year-on-year basis, retailers saw sales decline by 0.2% in the latest week.

For the 4 full weeks in March, Chain store same-store-sales rose 0.2% from the previous 4-week period, nothing to write home about but nevertheless a sign that consumer spending is not falling apart amid the gloom and doom.

Could it be that President Obama has just pulled a “Reagan”?

On August 5th 1981, President Reagan fired 11,345 air traffic controllers who were illegally on strike. By this extraordinary action, he showed everybody that, with the Nation in peril,  he meant business and the US government would not be used and abused.

President Obama is facing an even worst crisis. The US auto industry is technically bankrupt while the financial system is falling apart. Both industries have received but still desperately need government financial assistance at enormous cost to the taxpayer. Yet, some of these company management and boards continue to act arrogantly, playing smart and not-so-smart politics in the hope of saving their jobs even if it mortgages the country’s future for generations to come.

Monday morning, President Obama said: “Enough! The Nation is in peril and time has come to show who is in charge here!”.

GM is the ultimate example of how not to manage a company. Over more than 30 years, this company has accumulated more management mistakes and strategy blunders that can be printed in a business case textbook. Management teams after management teams have been oblivious to the real world and thoroughly mismanaged this company with the continuous blind and miserable blessing of the board of directors. Now that they come, again, begging for more money to cover their failures, with a business plan aimed and designed essentially for congressional eyes, they finally meet their Reagan or, shall we now say, their Obama.

We are in the eye of the storm and things must change, now! It is time to show who is in charge. It is time to show that the US government will no longer be used and abused by companies “too big to fail”. The United States is too big and too strong to fail and Obama’s administration will see to it!

President Obama planned this perfectly. Last week, he summoned banks executives to a private meeting. This week, he flatly rejects GM’s and Chrysler’s “business recovery plan”, fired GM’s CEO, and showed creditors and the UAW that they better be serious in negotiations because he is. Obviously, this is also meant to prove bankers that he was serious last week and that he will not hesitate to act decisively and forcefully if banks do not behave like they should when the nation is in peril. Banks need to lend and be serious about it. Banks need to give a break to mortgage holders and be serious about it. Banks need to cleanse their balance sheets and be serious about it.

It is also not a simple coincidence that this is happening just before the G20 meeting. President Obama is showing the world that he is firmly in charge of his country and that the United States will not be used and abused. He means business, tough business if need be.

Seems like a potential watershed event to me.

Credit market indicators are still showing market tightness but are not worsening.

The British Bankers’ Association reported that the three-month dollar Libor rates were fixed at 1.2075%, down from Friday’s 1.22%. The dollar LIBOR was at 1.31% just 10 days ago – so this is some improvement.
The LIBOR peaked at 4.81875% on Oct. 10th, and hit a cycle low of 1.0825% on Jan. 14th.
There has been improvement in theA2P2 spread. This has declined to 0.92. This is far below the record (for this cycle) of 5.86 after Thanksgiving, but still above the normal spread.
This is the spread between high and low quality 30 day nonfinancial commercial paper.

Meanwhile the TED spread is holding steady at 108.7. This is the difference between the interbank rate for three month loans and the three month Treasury. The peak was 463 on Oct 10th and a normal spread is around 50 bps.
The TED spread has been relatively flat for months (and is being impacted by the Fed and other Central Banks).

From CalculatedRisk

Not surprisingly, IT shipments through global distribution channels deteriorated further in the March quarter. On a worldwide basis, we estimate a 19.4% decline versus last year and a seasonally weak 19.0% decline versus last quarter. Double-digit currency headwinds and a steeper-than-normal decline in ASPs exacerbated the weak economic backdrop. On a constant currency basis, we estimate global IT shipments to be down 12% to 13%.

No region was spared. North American shipments through distribution are forecast to decline by 18.1% compared with last year, while European and Asian shipments are estimated to decline by 26.7% and 10.2%, respectively. The European and Asian declines are much less on a constant currency basis.

No customer segment was spared. Shipments through SMB oriented resellers, surprisingly, fared worst, with an estimated decline of 19.1% versus last year. Until the past six months, SMB outperformed large account sales. The Public sector fared best, declining by an estimated 6.7% versus last year.

Demand trends weaken further back in the supply chain. Shipments for EMS, power semiconductors, and PC-centric semis are forecast to decline by 18%, 37%, and 32%, respectively. An increase in component inventory days at year end help to explain the steeper decline in component and semiconductor shipments. Weak economic conditions, tight credit, and double-digit currency headwinds are likely to translate into double-digit declines in IT sell-through for the remainder of 2009.

Raymond James & Associates

The government-bond market this week will have the chance to respond to the Federal Reserve’s Treasury buybacks unfettered by the effects of looming, hefty supply.

Last week, the Treasury offered $98 billion in new securities. This week, the issuance calendar goes quiet. And the Fed is scheduled to buy Treasury securities three times in the coming week under its plan to purchase as much as $300 billion in government debt over the next six months. That, plus Friday’s much-anticipated payrolls report, should make for a stronger week for U.S. government debt.

Still, the market isn’t expected to break new ground, though yields should drift to the low end of their ranges.

This week "will be a rare week when the Fed is actually taking out supply, rather than the Treasury dumping in supply," said Chris Ahrens, an interest-rate strategist at UBS Securities. "The absence of supply combined with continued weak economic data and Fed buying will be supportive to Treasury prices."

Mr. Ahrens pointed to a range of 0.85% to 1.03% for the two-year yield, 2.50% to 3% for the 10-year and 3.40% to 3.75% for the long bond. Breaking out of those ranges to lower yields would require another step down in economic activity, Mr. Ahrens said, or better inflation numbers, which would spur buying of long-end Treasurys.

On Friday afternoon, the benchmark 10-year note was down 7/32 point, or $2.1875 per $1,000 face value, at 99 29/32. Its yield rose to 2.761% from 2.735% Thursday, as yields move inversely to prices. The 30-year bond was up 19/32 point to yield 3.617%.

Jim Sarni, a senior portfolio manager at Payden & Rygel in Los Angeles, noted that market participants are skeptical of making any longer-term investment decisions given the uncertainty surrounding possible new government policies to stimulate the economy. "Markets are in a very stagnant mood," he said.

This week, the data highlight will be Friday’s nonfarm-payrolls report, with economists looking for more weakness. Economists surveyed by Dow Jones Newswires expect the economy to have lost 671,000 jobs in March after losing 651,000 last month, and the jobless rate to rise to 8.5% from 8.1%. The week also offers another look at the U.S. manufacturing and services sector; both are expected to remain weak.

Mr. Ahrens also said he wouldn’t be surprised to see more investment-grade issuance in the coming week, given the stock market’s better tone, which could jostle Treasury prices. He noted a pattern of greater corporate issuance of late in weeks devoid of Treasury auctions. During periods of heavy corporate issuance, Treasurys come under pressure as banks hedge pending deals. When the deals price, though, Treasury prices tend to rise.

So far this year, Treasurys have lost 1.74% as of March 26, 2009, according to Barclays Capital U.S. Treasuries Index. Mortgage-backed securities, including fixed-rate and hybrid adustable-rate mortgages, on the other hand, are up 2.03%. Agencies are down 0.47%. Municipal bonds have gained 3.84% year-to-date, according to Barclays Municipal Bond Index. Barclays U.S. Corporate Index is down 2.22% year-to-date, and its high yield index is up by 5.98%.

Last week, the Fed bought a total of $15 billion Treasurys in the two-, three-, seven- and 10-year sectors. The first of this week’s buybacks, on Monday, will focus on longer-term Treasurys, those maturing from 2026 to 2039. Wednesday’s purchasing will be of debt maturing in 2012 to 2013, and Thursday’s will cover 2013 to 2016.

Investors will be focused on whether the Fed will buy mostly on-the-run securities, as it did last week, and how much it will dedicate to each issue. The goal of buying is to keep rates low and help the economy by coaxing consumer borrowing rates down.

WSJ

Defaults on home mortgages insured by the Federal Housing Administration in February increased from a year earlier.

A spokesman for the FHA said 7.5% of FHA loans were "seriously delinquent" at the end of February, up from 6.2% a year earlier. Seriously delinquent includes loans that are 90 days or more overdue, in the foreclosure process or in bankruptcy.

Since the collapse of the subprime mortgage market in 2007, most home loans for people who can’t afford a sizable down payment are flowing to the FHA. The agency, which is part of the U.S. Department of Housing and Urban Development, insures mortgage lenders against the risk of defaults on home mortgages that meet its standards. FHA-insured loans are available on loans with down payments as small as 3.5% of the home’s value.

The FHA’s share of the U.S. mortgage market soared to nearly a third of loans originated in last year’s fourth quarter from about 2% in 2006 as a whole, according to Inside Mortgage Finance, a trade publication. That is increasing the risk to taxpayers if the FHA’s reserves prove inadequate to cover default losses.

As of January, the cities with the highest FHA default rates in January were Punta Gorda, Fla., at 18%; Detroit, 15.6%; Flint, Mich., 15.1%; Fort Myers-Cape Coral, Fla., 15%, and Elkhart-Goshen, Ind., 12.1%, according to a HUD report.

Foreclosed FHA homes owned by HUD totaled 39,687 in January, up 22% from a year earl