"Our Children and Grandchildren are not merely statistics towards which we can be indifferent" JFK

Tuesday, November 30, 2010

Consumer Confidence up however Home Prices are Falling, So Let's Go Shopping (Michael Pento)

CNBC and the market was giddy with a better than expected Consumer Confidence number that clocked in at 54.1. WOW! That must be uber good. Well...

Consumer Confidence readings during 82-83 recession were 58 to 88. During the 90-91 recession, consumer confidence readings came in between 58 to 100 and during the 2001 recession, readings were two times today's uber good number (85 to 118).

Tuesday, November 30, 2010
By: Michael Pento

Yes, we are all now fully aware that the consumer is back. Confidence is up and spending has increased. The Conference Board, a private research group, said its index of consumer confidence increased to 54.1 in November, from a revised 49.9 in October, which was first reported as 50.2.

But data released today from The S and P/ Case-Shiller Home Price Indices should dampen shoppers’ enthusiasm. The U.S. National Home Price Index fell 2% in the third quarter of 2010. On a national basis, home prices are 1.5% lower than their year ago levels and 15 out of the 20 cities measured were down over the last 12 months. On a monthly basis, 18 cities posted declines from August, compared to 15 month-on-month drops in August and just eight in the July report. Home prices are headed lower because of tight credit, high unemployment rates and a huge backlog of foreclosure properties.

On a separate note, the recent move higher in the dollar index reveals little about the true strength of our currency. The DXY is up .4% today mostly on Euro weakness. However, the price of gold surging $20 an ounce clearly illustrates the true direction of the dollar. Saying the dollar is gaining purchasing power today is akin to believing someone falling off a cliff at 90mph is actually flying, just because his buddy is dropping at 95mph and will therefore will hit the ground first.

Free money and a massive increase in government debt have managed to temporarily levitate the serotonin levels in consumers’ brains. But interest rates will soon soar either due to the free market or courtesy of the Fed. Then the party ends. If you don’t believe me ask the Greeks and the Irish how they became insolvent in a matter of a few days. It wasn’t because the amount of debt suddenly surged but because the interest payment on that debt suddenly skyrocketed.

Michael Pento, Senior Economist at Euro Pacific Capital is a well-established specialist in the “Austrian School” of economics. He is a regular guest on CNBC, Bloomberg, Fox Business, and other national media outlets and his market analysis can be read in most major financial publications, including the Wall Street Journal. Prior to joining Euro Pacific, Michael worked for a boutique investment advisory firm to create ETFs and UITs that were sold throughout Wall Street. Earlier in his career, he worked on the floor of the NYSE.

S&P/Case-Shiller national home price index shows a slip in home prices (Diana Olick)

The S and P/Case-Shiller national home price index shows a slip in home prices. CNBC's Diana Olick has the details.

Fact: Home prices lag home sales. It happens on the way up and on the way down. Today's S&P Case Shiller home price report just confirmed what we've seen from umpteen other reports in the past few months, that home prices are taking a double dip. We knew it would happen.

"I would guess that by the end of today I would hear lots of double-dip forecasts and a few I told you so's. Things are rotten," opines S&P's David Blitzer. Full article on Diana Olick's Blog

Monday, November 29, 2010

Obama proposes 2 year wage freeze, $2 bil savings, budget deficit balanced in 7,000 years

President Obama noted that "small businesses
and families are tightening their belts," and the government should too. Excluding unfunded social security & medicare unfunded liabilities &
the off balance sheet losses of Fannie and
Freddie, the President's alleged $2 billion
FY 2011 savings will have the deficit
wiped out in 7,000 years.

WASHINGTON (AP) — President Barack Obama on Monday proposed a two-year freeze of the salaries of some 2 million federal workers, trying to seize the deficit-cutting initiative from Republicans with a sudden, dramatic stroke. Though signaling White House concern over record deficits, the freeze would make only a tiny dent in annual deficits or the nation's $14 trillion debt.

"Small businesses and families are tightening their belts," Obama said in brief remarks at the White House. "The government should, too." The administration said the plan was designed to save more than $5 billion over the first two years.

The proposal, which must be approved by Congress, would not apply to the military, but it would affect all others on the Executive Branch payroll. It would not affect members of Congress or their staffs, defense contractors, postal workers or federal court judges and workers.

Obama's move was an attempt to get in front of Republican plans to slash federal pay and the workforce next year, when they will flex more legislative muscle than now. It came a day ahead of Obama's meeting at the White House with both Republicans and Democratic leaders — his first with Republicans since the midterm elections — and two days before the deadline for recommendations by his deficit-reduction commission.

The president said the economy and federal spending were at the top of the agenda for Tuesday's meeting, one he said he hoped "will mark a first step towards a new and productive working relationship" between the two parties. Because of GOP midterm gains, "we now have a shared responsibility to deliver for the American people on the issues that define not only these times but our future," Obama said.

House Republican leader John Boehner of Ohio, on track to become House speaker in January, said he was pleased with the president's announcement.

"Republicans and Democrats don't have to wait until January to cut spending and stop all the tax hikes. We can — and should — start right now," Boehner said in a statement. He also suggested that Obama was taking a page from the GOP playbook.

The freeze would take effect on Jan. 1, assuming the lame-duck Congress approves the move by the end of this year. The 2012 pay freeze will be included by Obama as part of his fiscal 2012 budget submission to Congress, due early next year. AP Article

If a family of four applied the same factor
(representative of a $2 bil savings vs
$14 trillion of debt) on their $75,000
household debt, an American family would
reduce their debt burden by $10.71.
(Hey kids, we are debt free in 9012)

National Associaiton of Realtors: Commercial Real Estate Markets Stabilizing

It appears REITS are not responding well
to the "stabilizing" commercial real estate
industry. SPG, PSA and BXP all down over
$1.30 while IYR is down $.60+. Maybe...
just maybe, the REITS are ahead of themselves!

National Association of Realtors
Washington, DC, November 29, 2010

Commercial real estate markets are flattening out, with modestly improving fundamentals expected in 2011, according to the National Association of Realtors®

Lawrence Yun, NAR chief economist, said commercial real estate sectors appear to be stabilizing. "The basic fundamental of rising commercial leasing demand, resulting from a steadily improving economy, means overall vacancy rates have already peaked or will soon top out," he said. "The outlook for the office and industrial markets has moderated with modestly declining vacancy rates expected as 2011 progresses, while the retail sector should hold fairly steady. Still, high vacancy rates imply falling rents."

Yun anticipates a rise in household formation from an improving economy, which will increase demand for housing, both ownership and rental. "Multifamily housing is the one commercial sector that has held on relatively well in the past year, and can expect the best performance in 2011," he added.

"Apartment rents could rise by 1 to 2 percent in 2011, after having fallen in 2009 and no growth in 2010," Yun said. "This rent rise therefore could start to force up broader consumer prices as well." He noted that the housing shelter cost of primary rent, and owner's rental equivalence, is the biggest component in the Consumer Price Index, accounting for 32 percent of its total weight.

The Society of Industrial and Office Realtors®, in its SIOR Commercial Real Estate Index, an attitudinal survey of more than 400 local market experts, shows vacancy rates are slowly improving, but rents continue to be soft with elevated levels of subleasing space on the market.

The SIOR index, measuring the impact of 10 variables, rose 1.6 percentage points to 42.6 in the third quarter, but remains well below a level of 100 that represents a balanced marketplace. This is the fourth straight quarterly improvement following almost three years of decline.

The last time the commercial market was in equilibrium at the 100 level was in the third quarter of 2007; the index now matches where it was at the beginning of 2009. Fifty-nine percent of respondents expect improvements in the office and industrial sectors in the current quarter.

Commercial real estate development continues at stagnant levels with little investment activity, but is beginning to pick up in many parts of the country.

NAR's latest COMMERCIAL REAL ESTATE OUTLOOK offers projections for four major commercial sectors and analyzes quarterly data in the office, industrial, retail and multifamily markets. Historic data were provided by CBRE Econometric Advisors.

Office Markets
Vacancy rates in the office sector, where a large volume of sublease space remains on the market, are forecast to decline from 16.7 percent in the current quarter to 16.4 percent in the fourth quarter of 2011, but with very little change during in the first half of the year.

The markets with the lowest office vacancy rates currently are New York City and Honolulu, with vacancies around 9 percent. All other monitored markets have double-digit vacancy rates.

Annual office rent is expected to decline 1.8 percent this year, and then slip another 1.6 percent in 2011. In 57 markets tracked, net absorption of office space, which includes the leasing of new space coming on the market as well as space in existing properties, should be a negative 3.7 million square feet this year and then a positive 16.4 million in 2011.

Industrial Markets
Industrial vacancy rates are projected to decline from 13.9 percent currently to 13.2 percent in the closing quarter of 2011.

At present, the areas with the lowest industrial vacancy rates are Los Angeles, Salt Lake City and Kansas City, with vacancies in the 8 to 10 percent range.

Annual industrial rent is likely to fall 4.0 percent this year, and decline another 3.4 percent in 2011. Net absorption of industrial space in 58 markets tracked should be a negative 25.1 million square feet this year and a positive 134.0 million in 2011.

Retail Markets
Retail vacancy rates are expected to change little, declining from 13.1 percent in the fourth quarter of this year to 13.0 percent in the fourth quarter of 2011.

Markets with the lowest retail vacancy rates currently include San Francisco; Orange County, Calif.; and Honolulu, with vacancies in the 7 to 8 percent range.

Average retail rent is seen to drop 3.4 percent in 2010 but largely stabilize next year, slipping 0.3 percent in 2011. Net absorption of retail space in 53 tracked markets is projected to be a negative 0.5 million square feet this year and then a positive 5.0 million in 2011.

Multifamily Markets
The apartment rental market - multifamily housing - is expected to get a boost from growth in household formation. Multifamily vacancy rates are forecast to decline from 6.4 percent in the current quarter to 5.8 percent in the fourth quarter of 2011.

Areas with the lowest multifamily vacancy rates presently are San Jose, Calif.; Miami; Boston; and Portland, Ore., with vacancies in a range around 4 percent.

Average apartment rent is likely to rise 0.2 percent this year and another 1.4 percent in 2011. Multifamily net absorption should be 85,200 units in 59 tracked metro areas this year, and another 147,000 in 2011. NAR Report and Link to site

America's arrogant attitude on austerity, "not on our watch," just pass it along to the grandchildren

CNBC and every other media outlet is giddy with Black Friday shopping results, as citizens of Ireland are facing significant austerity measures as a trade off from their banking industry and government bailout.

While CNBC shares satellite images of cars parked in a retail mall lot, our neighbors in Ireland are experiencing thousands of public-sector jobs, rising taxes, cutting welfare and retirement benefits, and decreasing the minimum wage. Specifically, Ireland will be cutting 25,000 public sector jobs (10% of current workforce). Ireland accepts $113 billion bailout package 

The Irish are also faced with tax increases. One Dublin newspaper, the Irish Independent, estimated that the cost of the measures for a typical middle-class family earning $67,000 a year would be about $5,800 a year.

An older man placed blame for the crisis on the Cowen government, for failing to rein in the runaway property speculation that left Ireland’s banks with a mountain of bad debt now borne by the taxpayers. “The government has robbed us,” he said. “They’ve destroyed the country that we’ve built up over a number of years. They’ve just destroyed it.” Demonstrators in Ireland Protest Austerity Plan

While Ireland readies 25,000 public sector job cuts along with cutting retirement benefits and reducing minimum wages, President Obama announced today his plan to freeze federal government wages for 2 years which will allegedly save $2 billion during the current fiscal year.

The United States has an unprecedented $14 trillion of debt which does not include the unfunded social security and Medicare obligations nor the off balance sheet losses of Fannie and Freddie. Our grandchildren are faced with shouldering the greatest amount of debt on their shoulders of any generation and our President proposes a pay freeze.

In addition, congress is back in session to begin their horse trading on extending the Bush tax cuts. Did I mention job cuts, tax increases and a reduction of existing government programs and minimum wages in Ireland?

The arrogance and irresponsibility of America regarding fiscal responsibility is detestable. How dare the prior and current generation continue their self centered, consumptive and selfish way of life at the expense of our grandchildren. Our elected "representatives" continue to display their fiscal ineptness and many in America will stand in line for hours at the crack of dawn to purchase an electronic gadget.

What will it take for America to take action on behalf of grandchildren so the grandkids are not standing in line for hours at the crack of dawn for a loaf of bread?

Sunday, November 28, 2010

Recent spending trends as well as some consumer attitudes are not particularly encouraging (Gallup)

It will be most interesting to see if CNBC will apply a positive spin on the recent consumer spending data results from Gallup. Unfortunately, Gallup shares a similar CNBC cheerleader perspective on the recently released initial jobless claims.

Both focus on the seasonally adjusted figure versus noting a 55,000 increase in non-seasonally adjusted claims. One can pretend all they want with government adjusted figures, however the reality is 55,000 more people filed initial jobless claims and we as consumers do not seasonally adjust our checkbook balance.

PRINCETON, NJ -- Self-reported daily consumer spending in stores, restaurants, gas stations, and online averaged $66 per day in the week ending Nov. 21 -- not much different than the $69 of the same week in 2009 -- but below the $74 comparable of the same week in 2008.

Although the outlook for Black Friday weekend is better than it was a year ago, at first glance, recent spending trends as well as some consumer attitudes are not particularly encouraging for Black Friday and Christmas holiday sales:
  • Nine in 10 consumers say they continue to watch their spending closely -- essentially unchanged from the 89% of the same week in 2009.
  • Seventy percent say they are cutting back on their weekly spending -- consistent with the 69% of 2009.
  • Nineteen percent of Americans worry that they spent too much money "yesterday" -- also the same as in 2009.
However, despite the year-over-year comparables in actual consumer spending, there are some positives in consumer spending attitudes this month:
  • Half (51%) of Americans say they feel able right now to make a major purchase, such as a car, appliance, or furniture -- up from 46% in the same week of 2009.
  • About 6 in 10 (58%) say they feel pretty good about the amount of money they have to spend these days -- up from 54% in 2009.
  • Americans say they will spend an average of $714 on Christmas gifts this year -- up sharply from the $638 they estimated in November 2009.
Further, Gallup data also show the economic backdrop for consumer spending is improving:
  • During the week ending Nov. 21, 41% of Americans rated current economic perceptions "poor," compared with 48% during the same week in 2009
  • Gallup's U.S. unemployment rate, without seasonal adjustment, fell to 9.2% in mid-November
  • Gallup's Job Creation Index stands at +12 for the same week, with 30% of employees reporting their companies are hiring and 18% saying they are letting people go -- much better than the +1 of 2009, when 24% of employers were hiring and 23% firing, and consistent with the most recent drop in unemployment claims to 407,000 -- the lowest level since July 2008. Gallop Report

Another Guess at Black Friday Retail Sales National Retail Federation

“As retailers look ahead to the first few weeks
of December, it will be important for them to
keep momentum going with savings
and incentives that holiday shoppers
simply can’t pass up.”

National Retail Federation

Washington, November 28, 2010 – With one of the biggest shopping days of the year under their belts, retailers have reason to smile. According to a National Retail Federation survey conducted over the weekend by BIGresearch, more shoppers visited stores and websites over Black Friday weekend – and spent more – than a year ago.

According to the survey, 212 million shoppers visited stores and websites over Black Friday weekend*, up from 195 million last year. People also spent more, with the average shopper this weekend spending $365.34, up from last year’s $343.31. Total spending reached an estimated $45.0 billion.

“While Black Friday weekend is not always an indicator of holiday season performance, retailers should be encouraged that a focus on value and discretionary gifts has shoppers in the spirit to spend,” said Matthew Shay, NRF President and CEO. “As retailers look ahead to the first few weeks of December, it will be important for them to keep momentum going with savings and incentives that holiday shoppers simply can’t pass up.”

If it seems like Black Friday gets earlier every year, that’s because it is. Many retailers opened their doors earlier than ever, and eager shoppers followed suit. According to the survey, the number of people who began their Black Friday shopping at midnight tripled this year from 3.3 percent last year to 9.5 percent in 2010. In fact, by 4 a.m. nearly one-fourth (24.0%) of Black Friday shoppers were already at the stores. Thanksgiving Day openings have also been a boon to the industry, as the number of people who shop on Thanksgiving – both online and in stores - has doubled over the past five years, from 10.3 million in 2005 to 22.3 million in 2010.

Chart: Holiday 2010 - Black Friday Weekend Shopping Patterns

Holiday 2010 - Black Friday Weekend Shopping Patterns
Powered By: iCharts | create, share, and embed interactive charts online

After a holiday season of blue jeans and coffeemakers, shoppers demonstrated that they were in the mood to purchase more discretionary gifts this year. The number of people who purchased jewelry over the weekend rose substantially, from 11.7 percent last year to 14.3 percent this year. Additionally, more people purchased gift cards, toys and books and electronic entertainment than a year ago.

“It’s certainly encouraging to see an increase in traffic and sales from the four-day holiday weekend, however, consumers still have concerns about the economy, jobs, and paying down debt,” said Phil Rist, EVP, BIGresearch. “It was the consumers’ search for deals and bargains that drove the weekend traffic rather than their confidence in the economy.”

While shoppers seemed focused on getting good deals, items of strong value seemed to win out over the absolute lowest prices. According to the survey, both department stores (52.0% this year vs. 49.4% last year) and clothing stores (24.4% vs. 22.9%) saw healthy increases in traffic, while the percentage of people who shopped at discounters declined 7.2 percent, from 43.2 percent last year to 40.3 percent this year. As retailers leverage their websites to offer Black Friday prices to shoppers who don’t want to fight crowds, the percentage of people who shopped online this weekend rose a healthy 15.2 percent, from 28.5 percent last year to 33.6 percent this year – a strong sign heading into Cyber Monday. NRF Report

Chart: Holiday 2010 - Black Friday Weekend Shopping Patterns

Holiday 2010 - Black Friday Weekend Shopping Patterns
Powered By: iCharts | create, share, and embed interactive charts online

Black Friday sales little changed even though CNBC did their very best to hype retail activity

CNBC did their very best to hype retail activity on Black Friday. Live interviews with shoppers, video clips of mall-ites carrying bags albeit CNBC personalities were not granted a peek into bags.

CNBC even displayed satellite images of a mall parking lot comparing car counts for a three year period. Of course there is no way to definitively determine if the count resulting from the painstaking process of placing red dots on cars reflected actual shoppers or an increase in "park-and-ride" vehicles.

In true WWE Smackdown fashion, CNBC attempts to whip viewers into a state of frenzy anticipating the best Black Friday in years. As with Smackdown, the promotional fanfare does not live up to the results.

By Dan Hart and Ian Thomson

Nov. 27 (Bloomberg) -- Black Friday sales were little changed, rising 0.3 percent, from last year, as U.S. retailers’ efforts to lure customers by opening early failed, ShopperTrak said.

The early holiday sales and promotions boosted sales and traffic for the first two weeks of this month through Nov. 13 by 6.1 percent and 6.2 percent, respectively, ShopperTrak said in a statement on its Website.

Shoppers nationwide spent $10.69 billion yesterday, Bill Martin, founder of Chicago-based research firm ShopperTrak, said in the statement. Black Friday is the day after Thanksgiving Day in the U.S. and the traditional beginning of holiday season buying.

Hundreds of people lined up at individual stores across the U.S. to take advantage of special deals as they face down a slow economic recovery. Sears Holdings Corp. and Toys “R” Us Inc. started their Black Friday “doorbuster” sales on Thanksgiving Day to attract consumers after two years of dampened shopping enthusiasm since the recession.

Sears, the largest U.S. department-store chain, opened at 7 a.m. with bargains that included a 58-inch Panasonic Corp. high- definition plasma television for $1,044, 55 percent off its list price of $2,299.

Open on Thanksgiving

Toys “R” Us, the world’s biggest toy retailer, opened earlier this year to accommodate customers who said they wanted to shop after Thanksgiving dinner, said Chief Executive Officer Jerry Storch. Employees at the chain’s Times Square store in New York handed out Santa hats to about 1,500 shoppers queued outside before the opening, spokeswoman Jennifer Albano said.

In 2009, Black Friday spending rose 0.5 percent to $10.66 billion, compared with a year earlier, according to ShopperTrak.

Analysts’ estimates for the holiday season’s aggregate sales vary from little changed to increases of as much as 4.5 percent. The Washington-based National Retail Federation forecasts a gain of 2.3 percent to $447.1 billion after an uptick of 0.4 percent last year and a 3.9 percent drop in 2008.

The projections coincide with a rebound in U.S. consumer spending this year as the economy began adding jobs. Consumer spending, which accounts for about 70 percent of the nation’s economy, increased at a 2.8 percent annual rate in the third quarter, according to the Commerce Department. That was the fastest since the final three months of 2006.

Assciated Press notes:
Comparatively, sales on Black Friday 2009 increased 0.5 percent
versus Black Friday 2008, with 10.66 billion dollars spent.

Friday, November 26, 2010

Wednesday Withdrawal from U.S. Equity Market continues for 29th consecutive week

Even the Municipal Bond Funds
Rolled Over with a Whopping
$4.781 billion in Withdrawals

Washington, DC, November 24, 2010 - Total estimated outflows from long-term mutual funds were $5.00 billion for the week ended Wednesday, November 17, the Investment Company Institute reported today. Flow estimates are derived from data collected covering more than 95 percent of industry assets and are adjusted to represent industry totals.

Equity funds had estimated outflows of $1.16 billion for the week, compared to estimated inflows of $1.63 billion in the previous week. Domestic equity funds had estimated outflows of $2.80 billion, while estimated inflows to foreign equity funds were $1.63 billion. ICI Report

Total Domestic Equity Flows/Week Ending
-$2.797 billion 11/17/10
-$666 million 11/10/10
-$1.132 billion 11/3/10
-$2.980 billion 10/27/10
-$217 million 10/20/10
-$624 million 10/13/10
-$5.385 billion 10/6/10
-$14.701 billion for the month of September 2010
-$15.553 Billion for the month of August 2010
-$11.091 Billion for the month of July 2010
-$7.503 Billion for the month of June 2010
-$19.056 Billion for the month of May 2010

Since April 30th, 2010, $82.425 BILLION has been withdrawn from Domestic Equity Funds (This is the 29th sequential weekly outflow from US stocks).

Wednesday, November 24, 2010

Unemployment Limbo, "A Terrible, Terrible Thing"

CNBS Really Needs to Get Out and Spend
a few Minutes on Main Street.
The glass is not always 1/2 full Erin.

By Arthur Delaney
Huffington Post

WASHINGTON -- Rona Wells of Las Vegas worries that she'll be homeless in no time if Congress fails to reauthorize extended unemployment benefits that are scheduled to expire next week.

"That's it. I'll be out on the street," Wells, 60, told HuffPost. "I have two checks left and those two checks are going to the rent. I'm not paying any bills, and so my bills are gonna be overdue, but I feel it's more important to have a roof over my head."

Wells said she lost her job as a telemarketer in January, along with 80 other people. "I was making very good money and they just closed the office," she said. "I came in on a Friday afternoon and right after lunch they said, 'Everybody go home.'"

She's been getting by thanks to the $375 she receives every week in unemployment benefits. The first six months were covered by the state. The federal government covered the next five as the first "tier" of a program called Emergency Unemployment Compensation, which, along with a program called Extended Benefits, provides up to 73 weeks of federally-funded jobless aid.

Those programs expire next week. About 800,000 people on Extended Benefits will be dropped almost immediately, according to the National Employment Law Project, and another 1.2 million will find themselves ineligible for the next tier of Emergency Unemployment Compensation over the course of December.

Nobody knows what to expect, but many suspect that Democrats will cut a strange deficit-busting deal with Republicans to preserve the benefits by attaching them to a reauthorization of expiring tax cuts for the rich. A coalition of 28 Senate Democrats led by Sen. Bob Casey (Pa.) sent a letter to Senate Majority Leader Harry Reid (D-Nev.) Wednesday urging a hasty reauthorization.

"For the past six decades, Congress has provided federally funded unemployment insurance benefits during every recession," the letter said. "Further, federal unemployment insurance benefits have always been provided until the economy was on a stable path of growth. In fact, the highest unemployment rate at which federally funded unemployment benefits were not extended was 7.2 percent."

Wells said her job search has been "horrible." The unemployment rate in Nevada is 14.2 percent, the highest of any state. "I've been sending out resumes every week," Wells said. "I've been sending out maybe about 50 a week, sometimes more, sometimes less, and nobody ever answers you."

Members of Congress have no understanding of what it's like to struggle to find work, she said. "They don't understand that. They go home to their comfy homes and wonderful families and they have a paycheck that's given to them by us," she said. "I hope they [reauthorize the benefits] not only for myself but for everybody that's out there suffering. It's just a terrible, terrible thing."

Wells said she'll be unable to afford her COBRA health insurance payment in December. She's particularly annoyed that members of Congress receive comprehensive health insurance on the taxpayer dime. (If they paid for it themselves, it would save a few million dollars every year.)

"I think it's time that they start paying for their own medical care," she said. "People who go to work have to have their money taken out to pay for their own health care. Why shouldn't Congress do it? Why should they get a free ride?"

In addition to CBNS visiting Main Street, the Department of Labor could use some Main Street time in an effort see faces of those they seasonally adjust out of their reports. DOL seasonally adjust out 55,000 people

DOL (Department of Laughter) Seasonally Eliminates 55,000 jobless claims

S and P 500 Futures Launch 9+ points
as Wall Street Ignores Real Data,
opts to focus on smoke and mirrors 
seasonally adjusted figures

Department of Labor

Seasonally Adjusted
In the week ending Nov. 20, the advance figure for seasonally adjusted initial claims was 407,000, a decrease of 34,000 from the previous week's revised figure of 441,000. The 4-week moving average was 436,000, a decrease of 7,500 from the previous week's revised average of 443,500.

The advance seasonally adjusted insured unemployment rate was 3.3 percent for the week ending Nov. 13, a decrease of 0.1 percentage point from the prior week's unrevised rate of 3.4 percent.

The advance number for seasonally adjusted insured unemployment during the week ending Nov. 13 was 4,182,000, a decrease of 142,000 from the preceding week's revised level of 4,324,000. The 4-week moving average was 4,309,000, a decrease of 51,500 from the preceding week's revised average of 4,360,500.

Non-Seasonally Adjusted
The advance number of actual initial claims under state programs, unadjusted, totaled 462,027 in the week ending Nov. 20, an increase of 52,490 from the previous week. There were 542,492 initial claims in the comparable week in 2009.

The advance unadjusted insured unemployment rate was 3.1 percent during the week ending Nov. 13, an increase of 0.1 percentage point from the prior week. The advance unadjusted number for persons claiming UI benefits in state programs totaled 3,839,033, an increase of 103,105 from the preceding week. A year earlier, the rate was 3.9 percent and the volume was 5,081,961.

The total number of people claiming benefits in all programs for the week ending Nov. 6 was 8,532,502. DOL Smoke and Mirrors Report


Federal Reserve Cuts Outlook on GDP and Jobs

By Luca Di Leo and Jon Hilsenrath
The Wall Street Journal

Federal Reserve officials downgraded their outlook for the U.S. economy at their early November meeting, projecting that the jobless rate could exceed 8% for two more years and that it won't return to its former vitality for five years or more.

Minutes of a Nov. 2-3 meeting and a previously undisclosed Oct. 15 video conference also revealed that Fed officials considered steps beyond the Fed's controversial decision to buy $600 billion more U.S. Treasury debt to lower long-term interests rates to boost growth—including setting a cap on longer-term interest rates, a move which hasn't been tried since the 1950s.

Federal Reserve officials downgraded their assessment of the U.S. economy at their last meeting three weeks ago as they debated the benefits and costs of a new bold step to support the recovery. Jon Hilsenrath has details from Washington.

The minutes offer some detail on the Fed's decision to buy more bonds, a divisive one inside the Fed and one widely criticized outside the Fed. "Somewhat more than half of the participants judged that, in the absence of any additional shocks to the economy, the economy would converge fully to its longer-run rates of output growth, unemployment, and inflation within about five or six years," the minutes showed. "The rest indicated that it could take longer for unemployment to fall back to its longer-run rate or for inflation to rise back to the level they deemed desirable in the longer run."

Meetings of the Fed's decision-making body—the Federal Open Market Committee—include the presidents of the 12 regional Fed bank and the members, currently six, of the Fed board in Washington. The bulk of that group projected unemployment, now at 9.6%, would descend slowly to between 8.9% and 9.1% at the end of 2011, between 7.7% and 8.2% in 2012 and between 6.9% and 7.4% in 2013, a grimmer outlook than the Fed's last official projections in June.

Fed official downgraded their growth projection to between 3% and 3.6% next year, compared to the 3.5% to 4.2% estimate it made in June. Fed officials forecast 2.5% growth in 2010, lower than the June prediction of between 3% and 3.5%. Though Fed critics warn its bond-buying program could spur inflation, the Fed projected inflation would remain below its informal objective of 2% through the forecast period.

The downwardly revised projections indicate the Fed might keep interest rates low for several years and suggests it is likely to follow through on plans to buy $600 billion in Treasury securities in the months ahead. The Fed said it stands ready to buy more securities if the forecast doesn't improve or deteriorates.

"They clearly indicated that even if the improved recent tone of the [economic] data continues and growth surprises to the upside next year it will not trigger any quick reversal in policy," Ted Wieseman, a Morgan Stanley economist, said in a research note.

The Fed's bond-buying has been attacked by GOP lawmakers and foreign officials, who said it could weaken the U.S. dollar and bring high inflation. Even though Fed officials voted 10-1 to support the move, strongly advocated by Chairman Ben Bernanke, the minutes showed that several worried about both those risks. "Some participants noted concerns that additional expansion of the Federal Reserve's balance sheet could put unwanted downward pressure on the dollar's value," the minutes showed. Several officials saw a risk it could "cause an undesirably large increase in inflation."

Fed officials held an unusual video conference on Oct. 15, a few hours after Mr. Bernanke laid out his thinking on inflation in a speech in Boston.

Officials discussed whether the Fed should target some long-term interest rate, in addition to holding its target for overnight rates near zero. In the 1940s and 1950s, the Fed pinned long-term rates below 2.5%. Though the Fed didn't take action in this direction, the discussion suggests the notion could come up later if the economy worsens.

Officials also discussed the pros and cons of adopting a firm numeral objective for inflation and considered holding occasional press briefings to explain the rationale for its decisions. Unlike the European Central Bank, which routinely gives press briefings after policy meetings, such a move would be a departure for the Fed.

Federal Reserve Unemployment Forecast:
  • 2010: 9.5% to 9.7%
  • 2011: 8.9% to 9.1%
  • 2012: 7.7% to 8.2%
  • 2013: 6.9% to 7.4%

Tuesday, November 23, 2010

Thanks for applying however we do not need you, Corporate Profits Were the Highest on Record Last Quarter

By Catherine Rampell
The New York Times

The nation’s workers may be struggling, but American companies just had their best quarter ever.

American businesses earned profits at an annual rate of $1.659 trillion in the third quarter, according to a Commerce Department report released Tuesday. That is the highest figure recorded since the government began keeping track over 60 years ago, at least in nominal or non-inflation-adjusted terms.

The government does not adjust the numbers for inflation, in part because these corporate profits can be affected by pricing changes from all over the world. The next-highest annual corporate profits level on record was in the third quarter of 2006, when they were $1.655 trillion.

Corporate profits have been going gangbusters for a while. Since their cyclical low in the fourth quarter of 2008, profits have grown for seven consecutive quarters, at some of the fastest rates in history.

This breakneck pace can be partly attributed to strong productivity growth — which means companies have been able to make more with less — as well as the fact that some of the profits of American companies come from abroad. Economic conditions in the United States may still be sluggish, but many emerging markets like India and China are expanding rapidly.

Tuesday’s Commerce Department report also showed that the nation’s output grew at a slightly faster pace than originally estimated last quarter. Its growth rate, of 2.5 percent a year in inflation-adjusted terms, is higher than the initial estimate of 2 percent. The economy grew at 1.7 percent annual rate in the second quarter.

Still, most economists say the current growth rate is far too slow to recover the considerable ground lost during the recession.

“The economy is not growing fast enough to reduce significantly the unemployment rate or to prevent a slide into deflation,” Paul Dales, a United States economist for Capital Economics, wrote in a note to clients. “This is unlikely to change in 2011 or 2012.”

The increase in output in the third quarter was driven primarily by stronger consumer spending. Wages and salaries also rose in the third quarter, which might help bolster holiday spending in the final months of 2010.

Private inventory investment, nonresidential fixed investment, exports and federal government also contributed to higher output. These sources of growth were partially offset by a rise in imports, which are subtracted from the total output numbers the government calculates, and a decline in housing and other residential fixed investments.

Insider Trading Is “Everywhere,” Matt Taibbi Says: “The Fear Is There’s No End to It”

Tech Ticker

When FBI agents raided the offices of three hedge funds on Monday, the reacton on Wall Street recalled the famous scene in Casablanca where Claude Rain's Capt. Renault character is "shocked, shocked to find that gambling is going on in here."

To Rolling Stone contributor Matt Taibi, author of Griftopia, there's nothing shocking at all about revelations of possible widespread insider trading on Wall Street. (See Massive Insider Trading Probe Could Nab Wall Street's Biggest Names)

"Everybody is trading on the inside somehow or another, so this isn't particularly surprising," Taibbi says. "A lot of sources I talked to suggested this is endemic to the entire culture."

The current investigations center around alleged insider trading prior to merger announcements such as MedImmune's takeover by AstraZeneca in 2007 and Merck's buyout of Schering-Plough in 2009, The WSJ reports.

While gaming takeovers is a "classic" form of insider trading, Taibbi says it's also evident in high-frequency trading, where exchanges provide a millisecond sneak peak at buy and sell orders, or the practice of clients front-running big orders by institutions.

"The real issue here is that it's everywhere," he says. "And the fear is there's no end to it."

Taibbi, who became widely known in financial circles in 2009 when he dubbed Goldman Sachs "a vampire squid on the face of humanity," says he is not cynical by nature. "But this Wall Street stuff is overwhelming," he says. "The more you look into it, the less you see the way out. The government seems so completely helpless to do anything positive in this situation."

Wells Fargo reduces Harley Davidson Earnings Est. 22% and Raises Price Target

Wells Fargo Analyst Reduces HOG Earnings
by 22% for FY 2011 and Increases Price Target
(How many shares of HOG is Wells Fargo
trying to unload?)

The Street Insider

Wells Fargo continues to rate Harley-Davidson (NYSE: HOG) with an Outperform rating. The firm also lowered its EPS estimates for FY2010 to $1.22 from $1.35 and to $2 from $2.56 for FY2011. The firm is also raising its valuation range to $36-$39 from $35-$37.

Wells Fargo reports that, "Harley is well positioned as the global leader in the heavyweight motorcycle market given its iconic brand (image and lifestyle) and solid financials, in our view. We believe investors are yet to fully appreciate (1) Improving supply/demand that should allow for '12 shipments equal to retail sales, (2) Materially lower operating cost structure and significantly improving free cash generation, and (3) Positively skewed HDFS risk profile."

First, Feed the Children

By Jeff Bridges and Bill Shore

As we prepare for Thanksgiving, it's hard to believe that there might be a kid on our block who doesn't know when her next meal will come. Just last week, the U.S. Department of Agriculture announced that nearly one in four children struggles with hunger.

For most Americans with enough to eat, the hungry kid in our neighborhood is invisible. Hunger in the U.S. doesn't look like famine in developing countries, but its consequences are nonetheless devastating. Children who don't regularly get enough healthy food suffer behavioral difficulties, fatigue, poorer health, weaker immune systems and more hospitalizations. Hungry kids also show impaired performance in school. More than 60 percent of public school teachers identify hunger as a problem in the classroom. Many buy food for their hungry students.

We can end childhood hunger in America in this decade, maybe in the next five years. Programs are already in place. We need to get more children into them.

National food and nutrition programs can be the difference between empty stomachs and good health. Access to these programs makes economic sense. Every $5 the federal government spends on the Supplemental Nutrition Assistance Program, formerly known as food stamps, generates $9.20 in local economic activity.

Every time we increase access to programs, federal funding flows into local communities. Orange County, Fla., used targeted marketing to increase summer meal participation by 76 percent last year. It was able to access more than $2 million.

Several states are following suit.
With the backing of Gov. Bill Ritter, the Colorado Campaign to End Childhood Hunger helped increase the number of summer meals served by more than 25 percent from 2009 to 2010. By successfully lobbying for legislation to expand food stamp eligibility, End Childhood Hunger Washington helped raise food stamp participation by 64 percent, reaching an additional 370,000 people. And Gov. Martin O'Malley's Partnership to End Childhood Hunger in Maryland increased the number of low-income children eating summer meals by 17.4 percent in 2009.

Share Our Strength and the End Hunger Network are collaborating with communities where leaders are realizing that until they expand participation in food programs, they are shortchanging not just their children but also our nation. Public and private sectors should work together to make programs more effective.

Help for hungry children is surely a bipartisan cause. Congress can demonstrate its commitment by passing the Healthy, Hunger Free Kids Act, which would strengthen many of the most important hunger and nutrition programs, including school breakfast and summer meals. The bill passed the Senate in August and is awaiting House action. It will be weakened if we wait for the next Congress.

We have food. It's Thanksgiving. Let's act now to ensure that all of our children eat, learn, grow and thrive.

Actor Jeff Bridges is founder of the nonprofit End Hunger Network. Bill Shore founded and is executive director of Share Our Strength, a nonprofit working to make sure no child in America grows up hungry. They wrote this for The Washington Post.

U.S. office sector will be the slowest to recover

By Dan Levy
Nov. 23 (Bloomberg) -- The U.S. office sector will be the slowest to recover as companies absorb empty space and advances in technology reduce the need for square footage, said Kenneth Rosen, a professor at the University of California, Berkeley.

Unoccupied “shadow inventory” accounts for 3 percent to 5 percent of total business leases, and that space will be filled before firms sign new rental agreements, Rosen, chairman of Berkeley’s Fisher Center for Real Estate and Urban Economics, said at a conference in San Francisco. Cloud computing and other tech advances let employees work away from offices, further reducing space needs, he said.

“Every company has shadow space,” Rosen, who also runs Berkeley-based hedge fund Rosen Real Estate Securities LLC, said in an interview yesterday. Most U.S. cities face prolonged vacancies because of the surplus, excepting Washington, New York, San Francisco, Boston and parts of the Silicon Valley, where technology and venture capital spur leasing, he said.

“If you’re in the knowledge-based industries such as VC, everything ‘green’ and social media, there is a large, growing demand for space,” Rosen said.

The average vacancy rate in U.S. central business districts fell to 14.7 percent in the third quarter from 14.8 percent in the second quarter, Cushman & Wakefield Inc. said last month. The overall rate including suburban areas rose to 17.5 percent, the highest since 1993, from 17.4 percent, according to the New York-based broker.

Prices for U.S. commercial property rose in September after falling to an eight-year low the previous month, Moody’s Investors Service said yesterday. Demand for the best office buildings in major markets pushed up the Moody’s/REAL Commercial Property Price Index 0.3 percent from a year earlier as investors sought returns higher than fixed income. Prices gained 4.3 percent from August.

Rise in CMBS
The issuance of commercial mortgage backed securities is likely to increase to $25 billion next year and $60 billion by 2013, driven by investors in highly rated portions who demand more conservative underwriting and protection, Rosen said. CMBS peaked at $234 billion in 2007 before the credit bubble burst and sales plunged 95 percent the following year, according to data compiled by Bloomberg.

Demographic trends, the high cost of new construction and record home foreclosures make companies that own apartments good investments, according to Rosen. Senior housing is a “sweet spot,” as are multifamily properties in cities with workers aged 20 to 34, he said.

Interest rates on 10-year Treasury notes will rise to as high as 5.5 percent in two to three years, so real estate investors with good credit and long-term tenants should take advantage of current low rates, Rosen said.

Monday, November 22, 2010

Insider Selling Hits Record 8,280x Buying In Week Ending November 19 (Zero Hedge)

Bloomberg via Zero Hedge

In the first full week of the latest iteration of post-QE2 POMO, which was supposed to see a dramatic ramp in stocks, the only thing we have seen is the biggest insider buying to selling imbalance since the data has been tracked.

Overall, selling by S and P 500 insiders was 8,279.5x times greater than buying (per Bloomberg). There were 5 insider buys for a total of $150,673, and 117 sales for a total of $1,247,500,249. There is no point to even discuss what this data point indicates.

FBI Raids Three Hedge Funds Amid Insider-Trading Case (WSJ)

The Wall Street Journal
By Susan Pulliam, Jenny Strasburg and
Michael Rothfeld

Federal Bureau of Investigation agents raided the offices of three hedge funds as part of a high-profile insider-trading investigation, and more could be on the way, according to people familiar with the matter.

The offices of Diamondback Capital Management LLC and Level Global Investors LP were raided. Both hedge funds are run by former managers of Steve Cohen's SAC Capital Advisors.

The third firm raided is Loch Capital Management LLC, based in Boston, people familiar with the matter say. Leonard Pierce, a lawyer for Loch Capital, declined to immediately comment.

"The FBI is executing court-authorized search warrants in an ongoing investigation," said Richard Kolko, an FBI spokesman, who declined to comment further.

Loch had $750 million in assets as of the start of this year, according to SEC filings. The firm, run by brothers Timothy and Todd McSweeney, didn't immediately return a message seeking comment. Leonard Pierce, a lawyer for Loch Capital, declined to immediately comment.

The McSweeney brothers are acquaintances with Steven Fortuna, a hedge-fund manager who pleaded guilty in the Galleon case and agreed to cooperate in that ongoing investigation.

Level Global Investors LP is a Greenwich, Conn., hedge-fund firm run by David Ganek, a former SAC Capital trader and art collector. He started Level Global in 2003 and earlier this year reported managing about $4 billion in assets.

Diamondback Capital Management LLC is based in Stamford, Conn., and was started in 2005. It oversees more than $5 billion in assets, according to SEC filings.

The moves by the FBI follow an article by The Wall Street Journal describing an insider-trading investigation that is expected to encompass consultants, investment bankers, hedge-fund and mutual-fund traders. The investigation is said by people close to the situation to eclipse in size and magnitude past insider-trading probes.

Messages left with Richard Schimel, Diamondback's co-chief investment officer, and Diamondback's general counsel, Joel Harary, on their office phones weren't immediately returned.

A spokesman for Level Global said, "We can confirm that agents from the Federal Bureau of Investigations visited our offices this morning as part of what we believe to be a broader investigation of the financial services industry discussed in media reports over the weekend. We are cooperating fully with the authorities and, at the same time, we are fully operational and continue to work diligently for the benefit of our investors."

23 months of housing inventory (actually on the market and shadow inventory)

Inman News

The "shadow inventory" of homes likely to be repossessed by lenders or already in their real estate owned (REO) inventory but not yet on the market reached 2.1 million units in August, up from 1.9 million a year ago, according to the latest analysis by data aggregator CoreLogic.

Because home sales also slowed, the shadow inventory represented eight months of housing supply, up from five months a year ago, CoreLogic said.

Weak demand for housing is "significantly increasing the risk of further price declines in the housing market," said CoreLogic Chief Economist Mark Fleming -- a problem that's exacerbated "by a significant and growing shadow inventory that is likely to persist for some time" because of the length of time it takes loan servicers to liquidate properties.

Combine the 2.1 million "shadow inventory" with the 4.2 million homes that were actually on the market in August, and the total months' supply of unsold homes was 23 months -- about double the 11.6 months the National Association of Realtors estimated in September.

(CoreLogic estimates that the "visible inventory" of 4.2 million homes, which NAR's estimate was based on, represented 15 months of supply.)

A six- to seven-month supply of housing is considered a more normal balance of supply and demand.

CoreLogic estimates shadow inventory -- sometimes called pending supply -- by calculating the number of properties that are seriously delinquent (90 days or more) or in foreclosure that will, in all probability, end up REO.

Although the "roll rates" vary over time, a high percentage of 90-day delinquencies and foreclosures end up in lenders' REO inventories. CoreLogic also counts properties that are already in lenders' REO inventories, but not yet listed on a multiple listing service (MLS), as "shadow inventory."

The size of shadow inventory and its impact on housing markets is subject to much debate, in part because it's not known how quickly lenders will get those homes to market.

But Fleming said there's no escaping the conclusion that shadow inventory will weigh down price appreciation in some markets, and put more downward pressure on falling prices in others.

A large proportion of shadow inventory has not even been foreclosed on yet, Fleming said, and those houses won't enter the market all at once.

"It's not the hurricane hitting the shore, it's just a long and persistent rain, and that dampens the spirit all the way through," Fleming said.

Hey Obama, do you understand people's frustrations when TSA pats down a young boy with his shirt off?!!

LISBON, Portugal — President Barack Obama on Saturday acknowledged some travelers' "frustrations" with having to go through full-body pat-downs and scans at airports, but he said the enhanced security measures are necessary to keep America safe.

"I understand people’s frustrations, and what I’ve said to the TSA is that you have to constantly refine and measure whether what we’re doing is the only way to assure the American people’s safety. And you also have to think through are there other ways of doing it that are less intrusive," Obama said.


Economic growth will be tepid through 2011

NEW YORK (AP) — The pace of the U.S. economic recovery will remain steady but slow in the face of persistently high unemployment and heavy debt burdens, according to a new survey.

The National Association for Business Economics survey, set to be released Monday, found economists now expect growth of 2.7 percent this year, up slightly from the previous forecast of 2.6 percent.

For 2011, the group still expects an economic expansion of 2.6 percent.

The likelihood of either stagflation or relapse into recession was seen as low. But high unemployment, debt and severe loss of wealth are expected to hamper a more robust rebound, according to the survey.

"Confidence in the expansion's durability is intact, but panelists remain concerned about high levels of federal debt, a continuing high level of unemployment, increased business regulation, and rising commodity prices," said Richard Wobbekind, president of NABE and an associate dean of the Leeds School of Business at the University of Colorado. "

The 51 members surveyed by the group said they also expect consumer spending to remain modest, with this year's holiday retail sales expected to rise just 2.5 percent from last year.

Meanwhile, the number of jobs employers add to their payrolls is forecast to average less than 150,000 a month before picking up in the latter half of next year. The unemployment rate is expected to remain elevated at 9.5 percent or higher through early next year. It's expected to ease only slightly to 9.2 percent by the end of 2011.

That would mark the weakest post-recession job recovery on record, the group said.

The outlook on housing also remained tepid, with the group scaling back its expectations for housing starts this year to 720,000, from its forecast of 750,000 last month.

The bright spot in the survey was business spending, with sustained, double-digit growth projected through the end of next year. Spending on structures is now expected to grow 1.8 percent in 2011. That's still weak, but better than the previous forecast of 0.2 percent contraction.

NABE panelists also said they expect the federal funds rate to remain near zero until late next year. The 10-year Treasury note is now expected to yield 3.25 percent by the end of 2011, compared with the 3.75 percent forecast last month.

The survey was taken between Oc.t 21 and Nov. 4.

National Assn. of Realtors wants FICO credit scoring model revised

By Kenneth R. Harney
LA Times

The group says Fair Isaac Corp. should lessen the negative effects on consumers when banks abruptly cancel or slash credit lines of nondelinquent customers.

Reporting from Washington — Here's a homeowner credit torture scenario that might have happened to you, and now has a major real estate lobby on Capitol Hill demanding immediate reforms.

Say you've had a solid payment record on just about all your accounts — three credit cards, your first mortgage, home equity line and other important monthly bills. The last time you checked, your credit scores were comfortably in the 750s.

Suddenly you get a notice from the bank that because of "market conditions," your equity line limit has been cut from $60,000 to $35,000, slightly above the $30,000 balance you've got outstanding. Then one of your credit card issuers hits you with more bad news: Your $20,000 limit has been reduced to $10,000. Your balance on the card, meanwhile, is about $9,000.

What happens to your credit scores in the wake of the bank cuts? You might assume that nothing happens; you haven't been late, you haven't missed a monthly payment. You're a good customer.

Wrong. Depending upon your overall financial situation, your credit scores could plunge into the upper 600s. This in turn could put you out of reach for a refinancing at a favorable interest rate or hamper your ability to buy a new home and sell your current one.

The reason for the score drop: With the reductions in your line limits, you're now much closer to being maxed out. You are using a higher percentage of your available credit — $30,000 of the $35,000 revised limit (86%) on your home equity line, and $9,000 of the $10,000 limit (90%) on your card. Credit scoring models typically penalize high utilization rates because they are statistically correlated with future delinquency problems.

No one ever warned you about this — certainly not the banks that cut your credit. Now the largest lobby group on Capitol Hill, the 1.1-million-member National Assn. of Realtors, is demanding that Fair Isaac Corp., the creator of the FICO score that dominates the mortgage market, take immediate steps to lessen the negative effects on consumers when banks abruptly cancel or slash credit lines of nondelinquent customers.

In a major policy move, the realty association is calling upon Fair Isaac to "amend its formulas to avoid harming consumers whose utilization rates increase because their available lines of credit" are reduced despite on-time payment histories. The group wants FICO to either ignore the utilization rate altogether for such consumers or to compute the score as if the credit max had not been reduced.

Ron Phipps, president of the association, said, "We're seeing this across the country and it is hurting people who are responsible users of credit." Tom Salomone, broker-owner of Real Estate II in Coral Springs, Fla., said, "There's absolutely no question these credit card and home equity line reductions are killing deals, and arbitrarily raising interest rates on people."

In an interview, Salomone said he had seen many situations where home buyers lost 20 to 30 points on FICO scores "but had done nothing wrong — the banks just lowered their lines." He added that the inability of FICO's software to distinguish innocent victims from people whose behavior actually merits credit line reductions demonstrates that "FICO's model is archaic."

Asked for a response, Joanne Gaskin, Fair Isaac's director of mortgage scoring solutions, said the FICO model attached such importance to consumers' available credit and utilization rates — they account for 30% of the score — because they are highly accurate predictors of future credit problems.

Research conducted by Fair Isaac last year found that consumers who use 70% of their available credit "have a future bad rate 20 to 50 times greater than consumers with lower utilizations." Ignoring this key indicator, the study said, would decrease the score's "predictive power."

The National Assn. of Realtors has also asked Fair Isaac to help out with the nationwide foreclosure crisis by revising its model to recognize lender codings on credit file accounts indicating that homeowners had received loan modifications approved under federally backed programs. Rather than treating borrowers' reduced post-modification payments as ongoing evidence that the mortgage was "not paid as originally agreed," which depresses scores sharply, the association said FICO scores should reflect the reality that the lender agreed to lower payments and borrowers are making payments "as agreed."

The realty group also said it planned to push for legislation in the upcoming congressional session to provide free credit scores — one each from Equifax, Experian and TransUnion, the national credit bureaus — every time a consumer orders annual free credit reports.

Cadmium, lead found in drinking glasses

Federal regulators will decide whether
the superhero and Oz glasses are
children's products" and thus
subject to strict lead limits

LOS ANGELES (AP) — Drinking glasses depicting comic book and movie characters such as Superman, Wonder Woman and the Tin Man from "The Wizard of Oz" exceed federal limits for lead in children's products by up to 1,000 times, according to laboratory testing commissioned by The Associated Press.

The decorative enamel on the superhero and Oz sets — made in China and purchased at a Warner Brothers Studios store in Burbank — contained between 16 percent and 30.2 percent lead. The federal limit on children's products is 0.03 percent.

The same glasses also contained relatively high levels of the even-more-dangerous cadmium, though there are no federal limits on that toxic metal in design surfaces.

In separate testing to recreate regular handling, other glasses shed small but notable amounts of lead or cadmium from their decorations. Federal regulators have worried that toxic metals rubbing onto children's hands can get into their mouths. Among the brands on those glasses: Coca-Cola, Walt Disney, Burger King and McDonald's.

The testing was part of AP's ongoing investigation into dangerous metals in children's products and was conducted in response to a recall by McDonald's of 12 million glasses this summer because cadmium escaped from designs depicting four characters in the latest "Shrek" movie.

The New Jersey manufacturer of those glasses said in June that the products were made according to standard industry practices, which includes the routine use of cadmium to create red and similar colors.

To assess potential problems with glass collectibles beyond the "Shrek" set, AP bought and analyzed new glasses off the shelf, and old ones from online auctions, thrift shops and a flea market. The buys were random.

The fact it was so easy to find glasses that appeal to kids and appear to violate the federal lead law suggests that contamination in glassware is wider than one McDonald's promotion.

The irony of the latest findings is that AP's original investigation in January revealed that some Chinese manufacturers were substituting cadmium for banned lead in children's jewelry; that finding eventually led to the McDonald's-Shrek recall; now, because of the new testing primarily for cadmium in other glassware, lead is back in the spotlight as well.

AP's testing, conducted by ToyTestingLab of Rhode Island, found that the enamel used to color the Tin Man had the highest lead levels, at 1,006 times the federal limit for children's products. Every Oz and superhero glass tested exceeded the government limit: The Lion by 827 times and Dorothy by 770 times; Wonder Woman by 533 times, Superman by 617 times, Batman by 750 times and the Green Lantern by 677 times.

Federal regulators will decide whether the superhero and Oz glasses are "children's products" and thus subject to strict lead limits; if U.S. Consumer Product Safety Commission staffers conclude the glasses to fall outside that definition, the lead levels would be legal.

Judging by the agency's own analysis, obtained by the AP under the Freedom of Information Act, the Oz and superhero glasses appeal to kids. Complete Article