SKY News Summary 01-29-09
According to the Department of Labor, in 2008, union members accounted for 12.4 percent of employed workers, or 16.1 million workers, up from 12.1 percent a year earlier, in the U.S. The new survey also disclosed that government workers were nearly five times more likely to belong to a union than were private sector employees, education and library occupations had the highest unionization rate at 38.7 percent, and New York had the highest union membership rate (24.9 percent), while North Carolina had the lowest rate (3.5 percent).
http://www.bls.gov/news.release/union2.nr0.htm
The Federal Open Market Committee will keep the federal funds rate at 0 to 1/4 percent. “The Committee continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time. Information received since the Committee met in December suggests that the economy has weakened further. Industrial production, housing starts, and employment have continued to decline steeply, as consumers and businesses have cut back spending. Furthermore, global demand appears to be slowing significantly. Conditions in some financial markets have improved, in part reflecting government efforts to provide liquidity and strengthen financial institutions; nevertheless, credit conditions for households and firms remain extremely tight. The Committee anticipates that a gradual recovery in economic activity will begin later this year, but the downside risks to that outlook are significant.
In light of the declines in the prices of energy and other commodities in recent months and the prospects for considerable economic slack, the Committee expects that inflation pressures will remain subdued in coming quarters. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.”
http://www.federalreserve.gov/newsevents/press/monetary/20090128a.htm
New orders for manufactured durable goods in December decreased $4.7 billion or 2.6 percent to $176.8 billion according to the U.S. Census Bureau. This was the fifth consecutive monthly decrease, following a 3.7 percent November decrease. Excluding defense, new orders decreased 4.9 percent.
http://www.census.gov/indicator/www/m3/adv/pdf/durgd.pdf
The Census Bureau and the Department of Housing and Urban Development announced that sales of new one-family houses in December 2008 dropped 14.7 percent from November and 44.8 percent year-over-year.
http://www.census.gov/const/newressales.pdf
The Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending January 23, 2009 showed the Market Composite Index decreased 38.8 percent from one week earlier. This week’s results included an adjustment to account for the shortened week due to the Martin Luther King Jr. holiday. The Refinance Index decreased 48 percent from the previous week. The four week moving average for the seasonally adjusted Market Index is down 10.5 percent. http://www.mbaa.org/NewsandMedia/PressCenter/67313.htm
The following link provides interesting information on mortgage and credit card problems:
http://data.newyorkfed.org/creditconditionsmap/
GE Energy and Mitsubishi Heavy Industries signed an agreement to co-develop the world’s most advanced steam turbine for combined-cycle power plants. According to Steve Bolze, president of GE Energy’s Power & Water business, “It is the latest example of our on-going commitment to technology advancement across all segments of the power generation industry including natural gas combined-cycle, nuclear, coal gasification, industrial, fossil fuel and renewable energy.”
http://www.genewscenter.com/Content/Detail.asp?ReleaseID=5633&NewsAreaID=2&MenuSearchCategoryID=
Roche announced that the Hoffmann and Oeri families will continue to hold the majority of the company’s shares.“For Roche this pool extension represents an important affirmation of the long term commitment of our majority shareholders to an independent development of the company”, commented Franz B. Humer, Roche’s Chairman of the Board.
http://www.roche.com/media/media_releases/med-cor-2009-01-28.htm
IBM Czech Republic signed an agreement worth approximately $100 million with the Ministry of Finance of the Czech Republic to deliver and implement the Treasury Integrated Information System. (This agreement probably utilizes the cloud computing technology discussed in Tuesday’s blog). “The Treasury Integrated Information System is designed to enable the transparent administration of state finance providing efficient handling of state budget resources and public finance.”
http://www-03.ibm.com/press/us/en/pressrelease/26321.wss
In the same vein, the prime minister of the Republic of Kazakhstan, and John Chambers, chairman and chief executive officer of Cisco, met to discuss how the use of technology can help the country. “The leaders discussed the role network technologies can play in health care, education and economic development for the greater social inclusion of citizens.”
http://newsroom.cisco.com/dlls/2009/prod_012809c.html
ENDESA, one to the world’s largest electrical companies and IBM announced that IBM will manage all the infrastructure and information technology that ENDESA uses in Spain and Latin America. “The agreement covers the implementation of a global unified IT model where users will have access to services provided both locally and from globally specialized centers.” (again, cloud computing)
http://www-03.ibm.com/press/us/en/pressrelease/26566.wss
Sources: Bureau of Labor Statistics, Federal Reserve Board, Census Bureau, GE, Roche, Endesa, IBM.
SKY News Summary 01-27-09
Halliburton is settling with the Department of Justice and the Securities and Exchange Commission regarding Halliburton and KBR. Final approval of the settlement is pending. Halliburton will agree to indemnify KBR from fines and penalties. Halliburton will agree to pay $382 million on behalf of KBR in eight installments over the next two years and to be jointly and severally liable with KBR. http://www.halliburton.com/public/news/pubsdata/press_release/2009/corpnws_012509.html
Kimberly-Clark ranks No. 9 on the EPA’s Fortune 500 Green Power List. It is the first time the company has been on the list. Kimberly-Clark’s Everett, Wash. facility uses an innovative process to utilize waste from the facility’s pulp manufacturing process to generate over 220 million kilowatt hours (kWh) of renewable energy annually or 7 percent of Kimberly Clark’s purchased electricity use in the United States.
http://www.epa.gov/greenpower/toplists/
http://investor.kimberly-clark.com/releasedetail.cfm?ReleaseID=361706
Intel announced that Craig Barrett will retire as chairman and member of the board of directors in May at the company’s annual stockholders’ meeting. He joined Intel in 1974 and has served in many capacities including CEO from 1998 through 2005. Intel also announced that independent director Jane Shaw, who joined the Intel board in 1993, has been elected by the board of directors to replace Barrett as non-executive chairman beginning in May.
http://www.intel.com/pressroom/archive/releases/20090123corp_a.htm?iid=pr1_releasepri_20090123ra
Walgreens announced that Gregory Wasson, has been appointed Chief Executive Officer and a director of the company effective Feb. 1, 2009. Alan G. McNally, 63, who has served as Chairman and acting CEO since October 2008, will remain Chairman of Walgreens board. Wasson will retain the position of President.
http://news.walgreens.com/article_display.cfm?article_id=5142
IBM announced that it will work with six universities supporting their research with IBM blue cloud solutions. Cloud computing is pushing IBM into the world of SaaS (software as a service) where institutions use IBM’s computers to do large computing projects and get results over the internet, instead of purchasing the hardware themselves. As energy issues become prominent, institutions can move the processing from site to site to take advantage of lower energy costs.
http://www-03.ibm.com/press/us/en/pressrelease/26527.wss
The Bureau of Labor Statistics of the U.S. Department of Labor reported that the national unemployment rate rose from 6.8 to 7.2 percent in December and was up by 2.3 percentage points from a year earlier.
http://www.bls.gov/news.release/laus.nr0.htm
“The Federal Reserve Board announced the appointment of the chairs and deputy chairs of the twelve Federal Reserve Banks for 2009. Each Reserve Bank has a nine-member board of directors. The Board of Governors in Washington appoints three of these directors and each year designates one of its appointees as chair and a second as deputy chair.Following are the names of the chairs and deputy chairs appointed by the Board for 2009:
Boston
Lisa M. Lynch, Dean and Professor of Economics, The Heller School for Social Policy and Management, Brandeis University, Waltham, Massachusetts, renamed Chair.
Henri A. Termeer, Chairman, President and Chief Executive Officer, Genzyme Corporation, Cambridge, Massachusetts, renamed Deputy Chair.
New York
Stephen Friedman, Chairman, Stone Point Capital, LLC, New York, New York, renamed Chair. Denis M. Hughes, President, New York State AFL-CIO, New York, New York, renamed Deputy Chair.
Philadelphia
William F. Hecht, Retired Chairman, President and Chief Executive Officer, PPL Corporation, Allentown, Pennsylvania, renamed Chair.
Charles P. Pizzi, President and Chief Executive Officer, Tasty Baking Company, Philadelphia, Pennsylvania, renamed Deputy Chair.
Cleveland
Tanny B. Crane, President and Chief Executive Officer, Crane Group Company, Columbus, Ohio, renamed Chair.
Alfred M. Rankin, Jr., Chairman, President and Chief Executive Officer, NACCO Industries, Inc., Cleveland, Ohio, renamed Deputy Chair.
Richmond
Lemuel E. Lewis, President, LocalWeather.com, Suffolk, Virginia, named Chair.
Margaret E. McDermid, Senior Vice President and Chief Information Officer, Dominion Resources, Inc., Richmond, Virginia, named Deputy Chair.
Atlanta
D. Scott Davis, Chairman and Chief Executive Officer, United Parcel Service, Atlanta, Georgia, named Chair.
Carol B. Tomé, Chief Financial Officer and Executive Vice President, The Home Depot, Atlanta, Georgia, named Deputy Chair.
Chicago
John A. Canning, Jr., Chairman, Madison Dearborn Partners, LLC, Chicago, Illinois, renamed Chair.
William C. Foote, Chairman and Chief Executive Officer, USG Corporation, Chicago, Illinois, renamed Deputy Chair.
St. Louis
Steven H. Lipstein, President and Chief Executive Officer, BJC HealthCare, St. Louis, Missouri, named Chair.
Ward M. Klein, Chief Executive Officer, Energizer Holdings, Inc., Town & Country, Missouri, named Deputy Chair.
Minneapolis
James J. Hynes, Executive Administrator, Twin City Pipe Trades Service Association, St. Paul, Minnesota, renamed Chair.
John W. Marvin, Chairman and Chief Executive Officer, Marvin Windows and Doors, Warroad, Minnesota, renamed Deputy Chair.
Kansas City
Lu M. Cordova, Chief Executive Officer, Corlund Industries, LLC and President & General Manager, Almacen Storage Group, Boulder, Colorado, renamed Chair.
Paul DeBruce, Chief Executive Officer and Chairman/Founder, DeBruce Grain, Inc., Kansas City, Missouri, renamed Deputy Chair.
Dallas
James T. Hackett, Chairman, President and Chief Executive Officer, Anadarko Petroleum Corporation, Houston, Texas, renamed Chair.
Herb Kelleher, Founder and Chairman Emeritus, Southwest Airlines, Dallas, Texas, renamed Deputy Chair.
San Francisco
T. Gary Rogers, Chairman of the Board, Levi Strauss & Co., San Francisco, California, named Chair.
Douglas W. Shorenstein, Chairman and Chief Executive Officer, Shorenstein Properties LLC, San Francisco, California, named Deputy Chair.
http://www.federalreserve.gov/newsevents/press/other/20090127a.htm
“The U.S. LEI increased 0.3 percent, The Conference Board Coincident Economic Index
(CEI) decreased 0.5 percent and The Conference Board Lagging Economic Index (LAG)
decreased 0.4 percent in December.
• The LEI rose modestly in December, mainly due to the continued and very large positive contribution from real money supply. The yield spread also contributed positively to the index, helping offset the continued declines in building permits, the average workweek, supplier deliveries, and initial unemployment claims. Since June 2008, the LEI has fallen 2.5 percent (a -5.0 percent annual rate), faster than the 0.9 percent decline (a -1.7 percent annual rate) during the previous six months through June 2008. In addition, the weaknesses among the leading economicindicators have remained widespread.
• The CEI fell sharply in December, amid a further contraction in industrial production and employment. The six-month change in the CEI has continued to decline — to -2.2 percent (a -4.3 percent annual rate) in the period through December, down significantly from -0.7 percent (a -1.3 percent annual rate) from December 2007 to June 2008, and the weaknesses among its components have remained widespread in recent months. The lagging economic index (LAG) decreased less than the CEI this month, and as a result, the coincident-to-lagging ratio fell again.Meanwhile, real GDP contracted at a 0.5 percent annual rate in the third quarter of 2008, down from a 1.8 percent average annual rate of increase for the previous two quarters.
• Despite December’s modest increase in the LEI, it is about 5.0 percent lower than its most recent peak in July 2007 as a result of widespread declines among its components. And, it would have been weaker without the very large expansion in inflation-adjusted money supply in the last four months. The CEI has been deteriorating since its most recent peak in November 2007, and the decrease in this index over the past six months is the largest since 1980. Taken together, the recent behavior of the composite economic indexes suggests that the recession that began in December 2007 will continue in the near term.”
http://www.conference-board.org/pdf_free/translations/twodays.pdf
According to the National Association of Realtors, existing-home sales rose 6.5 percent to 4.74 million units in December from 4.45 million units in November, but still was 3.5 percent below the 4.91 million-unit sales of December 2007. In all of 2008 there were 4,912,000 existing-home sales, which was 13.1 percent below the 5,652,000 transactions recorded in 2007 and is the lowest volume since 1997 when there were 4,371,000 sales.
http://www.realtor.org/files/research/existing-home/ehs_shows_strong_gain.htm
The Federal Reserve Board of New York announced that William Dudley will replace Tim Geithner as President and Chief Executive Officer. Mr. Geithner was sworn in as Secretary of the Treasury yesterday. ”Mr. Dudley, 56, was executive vice president of the Markets Group at the Federal Reserve Bank of New York. He was also the manager of the System Open Market Account for the Federal Open Market Committee. He oversaw domestic open market and foreign exchange trading operations and the provisions of account services to foreign central banks. Dudley expanded the Federal Reserve’s contacts with the buy-side investment community and through the Bank’s Treasury Market Practices Group was active in pushing forward the implementation of new best practices.”
http://www.newyorkfed.org/newsevents/news/aboutthefed/2009/oa090127.html
Sources: New York Fed, National Association of Realtors, Conference Board, Federal Reserve, Bureau of Labor Statistics, IBM, Walgreens, Intel, Kimberly-Clark, EPA, and Halliburton websites.
SKY News Summary 01-22-09
Roche announced that the European Commission has approved RoACTEMRA, known as Actemra outside of the EU, to treat patients with rheumatoid arthritis. The approval in the EU follows earlier approvals in Japan, India and Switzerland. In the U.S., the FDA has asked for new animal trials that could delay its U.S. launch by 18 months.
http://www.roche.com/media/media_releases/med-cor-2009-01-21.htm
http://online.wsj.com/article/SB123255459001602785.html
The Wall Street Journal reported that the U.S. Export-Import Bank is adding to its guarantees of Boeing airliners. The bank will increase its guarantees from $5.2 billion to $9 billion. The bank currently has $27 billion exposure to about 700 planes. Private lenders still do the actual lending, but the Ex-Im Bank guarantees facilitate the deals.
http://online.wsj.com/article/SB123258499368204467.html#printMode
Citi announced that Richard Parsons, will succeed Sir Win Bischoff as Chairman of the Board of Directors, effective February 23. Mr. Parsons was a member of President Obama’s transition economic advisory board, and has experience in running companies under the federal government’s microscope.
http://www.citigroup.com/citi/press/index.htmhttp://blogs.wsj.com/deals/2009/01/22/does-citigroups-new-chairman-matter/
Median weekly wages increased 4% to $728 in the fourth quarter of 2008, according to the Bureau of Labor Statistics and compares to a 1.6% gain in the Consumer Price Index over the same period.
http://www.bls.gov/news.release/wkyeng.nr0.htm
Building permits continued to slide in December, down 10.7% from November and down 50.6% year-over-year. Housing starts were down 15.5% from November and 45% year-over –year.
http://www.census.gov/const/newresconst.pdf
U.S. chain store sales increased by 1.1% for the week ending January 17. Year-over-year, sales declined by 1.8%. “Sales volatility continued on a week-over-week basis, while year-over-year trends for January remained sluggish,” said Michael P. Niemira, ICSC chief economist. “Being a low volume month with little incentive to spend will continue to make January a tough month for retailers.” http://www.icsc.org/srch/apps/newsdsp.php?storyid=2478®ion=main
The Mortgage Bankers Association today released its Weekly Mortgage Applications Survey for the week ending January 16, 2009. The Market Composite Index decreased 9.8% from the week before and increased about 23.1% compared with the same week one year earlier. The Refinance Index decreased 12.4% . The refinance share of mortgage activity decreased to 83.3% of total applications from 85.3% the previous week.
http://www.mbaa.org/NewsandMedia/PressCenter/67233.htm
The Department of Labor’s employment numbers were released. In the week ending Jan. 17, the advance figure for seasonally adjusted initial claims was 589,000, an increase of 62,000 from the previous week’s revised figure of 527,000. The advance number for seasonally adjusted insured unemployment during the week ending Jan. 10 was 4,607,000, an increase of 97,000 from the preceding week’s revised level of 4,510,000.
http://www.dol.gov/opa/media/press/eta/ui/eta20090066.htm
Sources: Bureau of Labor Statistics, Mortgage Bankers Association, International Council of Shopping Centers, Census Bureau, Wall Street Journal, Roche, Boeing , and Citi websites.
SKY News Summary 01-20-09
GE will be taking a lead role in Masdar City, the first carbon-neutral, zero-waste city, powered by renewable energy and located near Abu Dhabi. The government of Abu Dhabi is sponsoring the project.
http://www.genewscenter.com/Content/Detail.asp?ReleaseID=5514&NewsAreaID=2&MenuSearchCategoryID=
UBS announced today that it will purchase the commodity index business of AIG including AIG’s rights to the DJ-AIG Commodity Index. “This commodity index business is comprised of a product platform of commodity index swaps and funded notes based on the benchmark Dow Jones-AIG Commodity Index.” The purchase price for the transaction $150 million.
http://www.ubs.com/1/e/about/news.html?newsId=160036
Cell phone expenditures exceeded landline phone expenditures beginning in 2007. Average annual cell phone expenses were $608 in 2007, compared to $482 for average annual landline expenses, according to the Bureau of Labor Statistics’ Consumer Expenditure Survey.
http://www.bls.gov/cex/cellphones2007.htm
Anne Case, Christina Paxson, and Mahnaz Islam have authored a recent paper in which they conclude that taller men and women make more money. “Each inch of height is associated with a 1.5 percent increase in wages, for both men and women…These effects are consistent with the authors’ earlier findings that taller individuals on average have greater cognitive function, which manifests in greater educational attainment, and better labor market opportunities.”
http://www.nber.org/digest/jan09/w14007.html
Sources: GE, UBS, National Bureau of Economic Research, and Bureau of Labor Statistics
SKY News Summary 01-16-09
Big news out of The National Institute of Standards and Technology. The NIST may have found a way to make biofuels a practical option for fuel by developing a way to accelerate stability testing of biodiesel fuel made from soybeans and identifying additives that enhance stability at high temperatures.
http://www.nist.gov/public_affairs/techbeat/tb2009_0113.htm#biofuel
The Census Bureau released numbers showing that Medicaid continued to be the largest source of funding for nursing and residential care facilities in 2007 at $59 billion. However, revenue for hospitals grew 6.5 percent in 2007 to $687 billion. Revenue for physicians’ offices increased 5.6 percent to $346 billion and revenue for dentists’ offices increased 6.5 percent to $94 billion. Medicare was the leading source of revenue for kidney dialysis centers, reaching $9.1 billion in 2007, a 10.4 percent increase from 2006.
http://www.census.gov/Press-Release/www/releases/archives/service_industries/013148.html
The FDIC board announced that it will soon propose rule changes to its Temporary Liquidity Guarantee Program to extend the maturity of the guarantee from three to up to 10 years where the debt is supported by collateral and the issuance supports new consumer lending.
http://www.ustreas.gov/press/releases/hp1356.htm
The Conference Board Measure of CEO Confidence, dropped to 24 in the fourth quarter of 2008, from 40 the quarter before. CEO Confidence is at the lowest level since the survey was first conducted in the second quarter of 1976.
http://www.conference-board.org/utilities/pressDetail.cfm?press_ID=3560
The Bureau of Labor Statistics released the Consumer Price Index for All Urban Consumers which decreased 1.0 percent in December, before seasonal adjustment. On a seasonally adjusted basis, the CPI-U decreased 0.7 percent in December, the third consecutive decline. Declining energy prices, particularly for gasoline, again drove most of the decline. The energy index declined 8.3 percent in December.
http://www.bls.gov/news.release/cpi.nr0.htm
Also from the Bureau of Labor Statistics, real average weekly earnings rose by 0.6 percent from November to December after seasonal adjustment, according to preliminary data. Hourly earnings increased 0.3 percent, with the CPI decrease of 1.0 percent more than offset by a 0.6 percent decrease in average weekly hours worked.
http://www.bls.gov/news.release/pdf/realer.pdf
Industrial production fell 2.0 percent in December, but for the fourth quarter as a whole, total industrial production decreased at an annual rate of 11.5 percent . Manufacturing production dropped the most, by 2.3 percent. http://www.federalreserve.gov/releases/G17/Current/default.htm
Boeing announced that it cleared Air Force approval of production of the sixth Wideband Global SATCOM (WGS) satellite for Australia for $234 million. With this authorization, Boeing is now fully funded for the production of all three WGS Block II satellites, and is on track to deliver the first in this new series in 2011. The first of three WGS Block I satellites went into service in April, 2008 and the second is expected to launch in the first quarter of 2009. According to the company, “One difference between the Block II and Block I satellites is that the Block II satellites include a radio frequency bypass capability designed to support airborne intelligence, surveillance and reconnaissance platforms requiring additional bandwidth.”
http://www.boeing.com/news/releases/2009/q1/090115b_nr.html
Johnson & Johnson announced that it has cleared regulatory hurdles to the purchase of Mentor. Following the completion of the acquisition, Mentor will be a stand-alone business unit reporting through ETHICON, Inc., a Johnson & Johnson company. The transaction is expected to dilute Johnson & Johnson’s 2009 earnings per share by approximately $0.03 – $0.05. This amount will be reflected as part of Johnson & Johnson’s earnings guidance, which will be provided Jan. 20, 2009
http://www.jnj.com/connect/news/all/20090115_140000
CB&I announced that, in a joint venture with Aker Solutions and WorleyParsons, it has received a front-end engineering and design services contract for Phase 2 of the full-field development of the giant Kashagan oil field off of Kazakhstan, which contains an estimated 12 to 15 billion barrels of oil reserves. The contract has a value of approximately 135 million.
http://www.b2i.us/profiles/investor/ResLibraryView.asp?BzID=1705&ResLibraryID=28058&Category=1569
UBS announced that Barclays Capital has agreed to terms for transferring the risks associated with UBS’ Base Metals, Oil and US Power & Gas businesses by end of the second quarter. This follows the announcement on December 22, 2008 that J.P. Morgan will buy the commodities energy business and UBS’s Global Agricultural businesses.
http://www.ubs.com/1/e/about/news.html?newsId=160011
Sources: Bureau of Labor Statistics, Federal Reserve, Bureau of Economic Analysis, Department of Labor, Conference Board, Treasury, National Institute of Standards and Technology, Census Bureau, Boeing, JNJ, CBI, and UBS websites
SKY News Summary 01-15-09
Vice Chairman Donald L. Kohn of the Federal Reserve Board gave a speech on the
Troubled Asset Relief Program before the Committee on Financial Services, U.S. House of Representatives, on January 13th. He mentioned something new in the TARP program – setting up a bank to purchase troubled assets. Here are his comments:
“A continuing barrier to private investment in financial institutions is the large quantity of troubled, hard-to-value assets that remain on institutions’ balance sheets. The presence of these assets significantly increases uncertainty about the underlying value of these institutions and may inhibit private investment and new lending. The Treasury may thus wish to consider whether to supplement injections of capital with steps to reduce the uncertainty about the values of assets held by financial institutions. This objective could be accomplished in several ways, including by directly purchasing troubled assets, by setting up and capitalizing special banks that would purchase assets from financial institutions in exchange for cash and shares of capital in the special bank, or by making available to banks insurance that would pay off under very adverse conditions. Each approach could build on the infrastructure that the Treasury developed when it was planning to purchase troubled assets directly. Moreover, as I noted earlier, purchases that include residential mortgages could be combined with steps to restructure some mortgages as needed to avert preventable foreclosures.”
http://www.federalreserve.gov/newsevents/testimony/kohn20090113a.htm
Chairman Ben S. Bernanke gave a lecture before the London School of Economics, on January 13, 2009 called, “The Crisis and the Policy Response”. In it, he outlines an exit strategy. Who knew there was an exit strategy, but here it is:
“Exit Strategy
Some observers have expressed the concern that, by expanding its balance sheet, the Federal Reserve is effectively printing money, an action that will ultimately be inflationary. The Fed’s lending activities have indeed resulted in a large increase in the excess reserves held by banks. Bank reserves, together with currency, make up the narrowest definition of money, the monetary base; as you would expect, this measure of money has risen significantly as the Fed’s balance sheet has expanded. However, banks are choosing to leave the great bulk of their excess reserves idle, in most cases on deposit with the Fed. Consequently, the rates of growth of broader monetary aggregates, such as M1 and M2, have been much lower than that of the monetary base. At this point, with global economic activity weak and commodity prices at low levels, we see little risk of inflation in the near term; indeed, we expect inflation to continue to moderate.
However, at some point, when credit markets and the economy have begun to recover, the Federal Reserve will have to unwind its various lending programs. To some extent, this unwinding will happen automatically, as improvements in credit markets should reduce the need to use Fed facilities. Indeed, where possible we have tried to set lending rates and margins at levels that are likely to be increasingly unattractive to borrowers as financial conditions normalize. In addition, some programs–those authorized under the Federal Reserve’s so-called 13(3) authority, which requires a finding that conditions in financial markets are “unusual and exigent”–will by law have to be eliminated once credit market conditions substantially normalize. However, as the unwinding of the Fed’s various programs effectively constitutes a tightening of policy, the principal factor determining the timing and pace of that process will be the Committee’s assessment of the condition of credit markets and the prospects for the economy.
As lending programs are scaled back, the size of the Federal Reserve’s balance sheet will decline, implying a reduction in excess reserves and the monetary base. A significant shrinking of the balance sheet can be accomplished relatively quickly, as a substantial portion of the assets that the Federal Reserve holds–including loans to financial institutions, currency swaps, and purchases of commercial paper–are short-term in nature and can simply be allowed to run off as the various programs and facilities are scaled back or shut down. As the size of the balance sheet and the quantity of excess reserves in the system decline, the Federal Reserve will be able to return to its traditional means of making monetary policy–namely, by setting a target for the federal funds rate.
Although a large portion of Federal Reserve assets are short-term in nature, we do hold or expect to hold significant quantities of longer-term assets, such as the mortgage-backed securities that we will buy over the next two quarters. Although longer-term securities can also be sold, of course, we would not anticipate disposing of more than a small portion of these assets in the near term, which will slow the rate at which our balance sheet can shrink. We are monitoring the maturity composition of our balance sheet closely and do not expect a significant problem in reducing our balance sheet to the extent necessary at the appropriate time.
Importantly, the management of the Federal Reserve’s balance sheet and the conduct of monetary policy in the future will be made easier by the recent congressional action to give the Fed the authority to pay interest on bank reserves. In principle, the interest rate the Fed pays on bank reserves should set a floor on the overnight interest rate, as banks should be unwilling to lend reserves at a rate lower than they can receive from the Fed. In practice, the federal funds rate has fallen somewhat below the interest rate on reserves in recent months, reflecting the very high volume of excess reserves, the inexperience of banks with the new regime, and other factors. However, as excess reserves decline, financial conditions normalize, and banks adapt to the new regime, we expect the interest rate paid on reserves to become an effective instrument for controlling the federal funds rate.
Moreover, other tools are available or can be developed to improve control of the federal funds rate during the exit stage. For example, the Treasury could resume its recent practice of issuing supplementary financing bills and placing the funds with the Federal Reserve; the issuance of these bills effectively drains reserves from the banking system, improving monetary control. Longer-term assets can be financed through repurchase agreements and other methods, which also drain reserves from the system. In considering whether to create or expand its programs, the Federal Reserve will carefully weigh the implications for the exit strategy. And we will take all necessary actions to ensure that the unwinding of our programs is accomplished smoothly and in a timely way, consistent with meeting our obligation to foster full employment and price stability.”
http://www.federalreserve.gov/newsevents/speech/bernanke20090113a.htm
Eli Lilly announced that it has reached resolution with the United States Attorney for the Eastern District of Pennsylvania and the Office of Consumer Litigation of the Department of Justice regarding government investigation into the company’s past marketing practices for Zyprexa. As part of the resolution, Lilly has agreed to plead guilty to one misdemeanor violation of the Food, Drug, and Cosmetic Act. The company will also enter into a settlement agreement resolving the federal government’s civil investigation. The misdemeanor plea is for the off-label promotion of Zyprexa between September of 1999 and March of 2001. Specifically, the plea states that Lilly promoted Zyprexa in elderly populations as treatment for dementia, including Alzheimer’s dementia, although Zyprexa is not approved for such uses. As part of this agreement regarding the criminal investigation, Lilly has agreed to pay $615 million.
Under terms for the resolution of the civil investigations, Lilly has agreed to make payments totaling nearly $800 million. Approximately $438 million will be paid to the federal government and approximately $362 million will be made available for payment to settling states. As previously reported, Lilly took a charge of $1.415 billion, or $1.29 per share, in the third quarter of 2008 in connection with this investigation.
http://newsroom.lilly.com/releasedetail.cfm?ReleaseID=359242
The Department of Labor announced unemployment figure for the week ending Jan. 10, The figure for seasonally adjusted initial claims was 524,000, an increase of 54,000 from the previous week’s revised figure of 470,000. The 4-week moving average was 518,500, a decrease of 8,000 from the previous week’s revised average of 526,500.
http://www.dol.gov/opa/media/press/eta/ui/current.htm
The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that total November exports of $142.8 billion and imports of $183.2 billion resulted in a goods and services deficit of $40.4 billion, down from $56.7 billion in October. November exports were $8.7 billion less than October exports of $151.5 billion. November imports were $25.0 billion less than October imports of $208.2 billion. In November 2008, the goods and services deficit decreased $19.4 billion from November 2007. Exports were down $2.4 billion, or 1.7 percent, and imports were down $21.8 billion, or 10.6 percent.
http://www.bea.gov/newsreleases/international/trade/2009/trad1108.htm
EDS, an HP company, announced that the Centers for Medicare & Medicaid Services awarded EDS subsidiary NHIC Corp. a contract to administer Part A and Part B Medicare claims payments for health care providers in five northeastern states.
The contract is worth $176 million if all options are exercised for the next five years.
The contract will help CMS fulfill the contracting requirements of the 2003 Medicare Modernization Act, which requires the agency to transition Medicare fee-for-service claims from fiscal intermediaries and carriers to Medicare Administrative Contractors.
http://www.hp.com/hpinfo/newsroom/press/2009/090113a.html
Illinois Tool Works CEO David Speer was on Mad Money last Thursday.
He points out that “his focus would remain the same: introducing new products, increasing market share and acquiring other companies all as a way to accelerate growth and provide long-term cash flow once the recession has past.
Illinois Tool Works should benefit from Obama’s stimulus plan, too, as long as it contains the infrastructure spending Wall Street’s expecting. ITW supplies the commercial construction industry, industrial-packaging businesses and other key markets that stand to gain the most. Though, again, Speer said the actual effects of the stimulus probably won’t show up until 2010 or even 2011, but they should have a “reasonably significant impact” at that time.”
http://www.cnbc.com/id/28560793
Medtronic, Inc. and privately held Ablation Frontiers, Inc., announced that the two companies have entered into an agreement whereby Medtronic will acquire Ablation Frontiers for an initial payment of $225 million plus potential additional payments contingent upon achievement of certain clinical milestones. “Following Medtronic’s recent acquisition of CryoCath Technologies, Inc., a leader in cryoablation treatments for AF, the addition of Ablation Frontiers’ anatomically designed, catheter-based ablation technologies and its unique radiofrequency (RF) energy system will allow Medtronic to deliver the industry’s broadest range of therapies.
Keegan Harper, chief executive officer of Ablation Frontiers, said, “We are thrilled to join Medtronic and together will address the increasingly significant area of atrial fibrillation. We believe there is great value in aligning with a company that will offer a suite of distinct products that will provide physicians and their patients the best solutions for treating atrial fibrillation.”
http://wwwp.medtronic.com/Newsroom/NewsReleaseDetails.do?itemId=1231737727361〈=en_US
Texas Instruments and M2M, a security design company announced a device that can read data from motion or smoke detectors, or scan the status of doors or windows – all from your mobile phone or PC.
http://focus.ti.com/pr/docs/preldetail.tsp?sectionId=594&prelId=sc09006
The Bureau of Labor Statistics released the Producer Price Index for December. The PPI for Finished Goods fell 1.9 percent in December, seasonally adjusted, This decrease followed a 2.2-percent decline in November and a 2.8-percent drop in October.
http://www.bls.gov/news.release/ppi.nr0.htm
Sources: Wall Street Journal, Bureau of Labor Statistics, Texas Instruments, Medtronic, ITW, Federal Reserve, HP, Bureau of Economic Analysis, Department of Labor and Lilly websites.
SKY News Summary 01-08-09
The Federal Reserve Board announced two changes to the Money Market Investor Funding Facility. First, “U.S.-based securities-lending cash-collateral reinvestment funds, portfolios, and accounts (securities lenders), and U.S.-based investment funds that operate in a manner similar to money market mutual funds, such as certain local government investment pools, common trust funds, and collective investment funds” are now eligible for the program. Second, the minimum yield on assets eligible to be sold to the fund was adjusted so that the program could continue even at very low levels of money market interest rates.
http://www.federalreserve.gov/newsevents/press/monetary/20090107a.htm
ADP reported that “nonfarm private employment decreased 693,000 from November to December 2008 on a seasonally adjusted basis.”
http://www.adpemploymentreport.com/pdf/FINAL_Report_December_08.pdf
In the third quarter of 2008, U.S. retail corporations with assets of $50 million and over reported after tax profits of $8.3 billion, down 33.2%. Sales in the third quarter of 2008, were down 2.7%. The annual rate of after-tax profits on stockholders’ equity in the third quarter of 2008 was 8.1%, down 4.1% from the second quarter of 2008.
http://www.census.gov/csd/qfr/view/qfr_rt.pdf
The Wall Street Journal online reports that “virtually all retailers have posted sales drops from a year ago, but for almost two-thirds of them the decline wasn’t as much as expected, according to data tracker Retail Metrics….While the better-than-expected numbers may be somewhat consoling at first look, sales fell in just about all cases and demonstrate that aggressive discounting by most retailers didn’t pay off all that well.”
http://online.wsj.com/article/BT-CO-20090108-709872.html?mod=moj_industries
The Wall Street Journal had an interesting article on the savings rate, an excerpt of which follows: “… According to Boston College’s retirement-research center, Americans were becoming less prepared for retirement. Four of 10 working-age households were at risk of being financially unprepared for retirement in 1998, according to the center, up from less than one-third in 1983. By 2006, the figure stood at 44%.
Not saving enough has always been a big problem for 401(k) participants. The tough economic times are exacerbating that tendency. In 2007, the median account balance for 55- to 64-year-olds in defined-contribution plans such as 401(k)s administered by Vanguard Group was just $60,740, and only 10% of all participants saved the maximum dollar amount in the plans. Over the past year, about one in five workers age 45 or older have stopped contributing to a 401(k), IRA or other retirement account, according to a recent survey commissioned by AARP, an advocacy group for older people.”
http://online.wsj.com/article/SB123137714796462913.html
House Speaker Nancy Pelosi indicated that Congress will pass an economic stimulus package before it is dismissed on February 16th.
http://online.wsj.com/article/BT-CO-20090108-709883.html?mod=moj_industries
President Bush signed a law last month that allows retirees to skip required withdrawals from individual retirement accounts and related accounts this year. “In a typical year, to calculate how much to withdraw, you look at your account balance as of the previous Dec. 31 — and then divide that figure by your remaining life expectancy. (Life-expectancy tables can be found in Internal Revenue Service Publication 590.) Most people who inherit IRAs or 401(k)s can spread withdrawals over their own life expectancies…The new law suspends required distributions in 2009. This gives those who can afford to leave their nest eggs alone a better chance of recovering some of the investment losses they sustained last year.”
http://online.wsj.com/article/SB123102571426451615.html
Boeing sold 662 commercial airplanes in 2008, bringing its backlog of unfilled commercial orders to more than 3,700 airplanes. The Next-Generation 737 remained the company’s best seller, although the new 787 Dreamliner also remained strong with 93 ordered, primarily by Middle East customers.
http://www.boeing.com/news/releases/2009/q1/090108b_nr.html
Cisco is targeting the consumer market this year. The company has changed its Linksys subsidiary to a consumer business group and unveiled its two new networked entertainment systems at the Consumer Electronic Show this week. One system is a wireless home audio system while the other system is a media hub. The media hub links broadband connections in the home with the PC and at least one other electronic device such as a DVR, a video game console, an Internet radio or an IP telephone. The company has folded the company, Pure Networks, which it bought in July into the Linksys subsidiary and will be using Pure Network’s software to facilitate set up and management of the hub systems.
http://newsroom.cisco.com/dlls/2009/ts_010709.html
Sources: Federal Reserve, ADP, Census Bureau, WSJ, WSJ online, Boeing and Cisco websites
SKY News Summary 01-06-09
The Organisation for Economic Co-operation and Development released an interesting paper on the worldwide semiconductor market showing the growth in the Asian Pacific market:
http://www.oecd.org/dataoecd/52/45/41921147.xls
internet use http://ocde.p4.siteinternet.com/publications/doifiles/932008041P1G080.xls and digital content broken out by industry http://www.oecd.org/dataoecd/53/24/41921307.xls.
The 2009 International Consumer Electronics Show kicks off in Las Vegas tomorrow. Cisco, among others will be unveiling the newest gadgets.
http://newsroom.cisco.com/dlls/2009/prod_010509.html
At the invitation of the incoming U.S. Administration, IBM’s CEO, Sam Palmisano, recently presented the findings and recommendations from an IBM study to Barack Obama’s transition team. “The study yielded three specific recommendations of where the U.S. Government should invest for maximum, high value job creation: Broadband, Health IT and Smart Energy Grids. Investing $30 billion in these three areas in 2009 would create approximately 949,000 jobs in the United States. Of those, approximately 525,000 jobs will be in small businesses (defined as firms having fewer than 500 employees). In each of these areas, the government has an opportunity to make initial seed stimulus investments that offer superior job creation and economic growth benefits because they create what economists call a “network effect.” This network multiplier arises from new consumer and business behaviors, functionalities, and downstream industries enabled by the IT infrastructure. For example, traditional public works investment projects, such as building or improving highways, will not likely spur innovations in the auto industry or purchases of better tires for cars. However, building the smart grid will spur a host of innovative new products and services from hybrid plug-in electric vehicles to smart appliances to more investment in renewable energy.”
http://www.asmarterplanet.com/blog/2009/01/investing-in-smarter-infrastructure-will-create-more-than-949000-in-2009.html
Lawrence Yun, Chief Economist, NAR Research wrote an interesting rebuttal to the recent Wall Street Journal article about housing prices. He says that “even with rising unemployment, nearly 93 percent of households will have jobs. These 93 percent of the working households (rather than 95 percent during good economic times) respond to home buying incentives. Measures such as the recently enacted first-time homebuyer tax credit and a larger number of mortgage loans that qualify for purchase by Fannie Mae and Freddie Mac and through the FHA program will further bring homebuyers to the marketplace…Back in the prior recession (2001-2003) the economy shed nearly 2 million net jobs. Even during those years, existing-home sales rose from 5.2 million to 6.2 million just as jobs were being cut. New home sales likewise rose from 900,000 to 1.1 million. Mortgage rates were falling. Housing affordability increased. While those 2 million job cuts were painful, the economy still had 130 million job holders. And given the right incentives, they purchased homes.
Following national declines of 5 to 8 percent in 2008, home prices are projected to increase 2 to 3 percent next year. New-home sales should total around 503,000 this year and 471,000 in 2009. Housing starts, including multifamily units, are likely to fall 28.2 percent to 973,000 units this year, and come in around 843,000 in 2009 as builders continue to clear the accumulation in inventory.
The 30-year fixed-rate mortgage will probably average 6.1 percent in the fourth quarter and rise gradually to 6.6 percent by the end of 2009.”
http://www.realtor.org/research/reinsights/forecast
http://www.realtor.org/research/reinsights/economistcommentary
The Census Bureau’s Manufacturers’, Shipments and Inventories numbers were released today. “New orders for manufactured goods in November, down four consecutive months, decreased $18.7 billion or 4.6 percent to $384.6 billion. This followed a 6.0 percent October decrease. Excluding transportation, new orders decreased 4.2 percent. Shipments, also down four consecutive months, decreased $22.1 billion or 5.3 percent to $393.8 billion. This was the largest percent decrease since the series was first published on a NAICS basis in 1992 and followed a 3.6 percent October decrease.”
http://www.census.gov/indicator/www/m3/
Today, Altria Group completed the acquisition of UST, valued at approximately $11.7 billion, which includes the assumption of approximately $1.3 billion of debt.
http://www.altria.com/media/02_00_NewsDetail.asp?reqid=1240832
Also today, CBS Corporation’s President and Chief Executive Officer, Leslie Moonves, will participate in a question-and-answer session at Citigroup’s 19th Annual Entertainment, Media And Telecommunications Conference on Tuesday, Jan. 6, 2009.
The discussion should be available under the Investors Relations section at:
UPS has been selected by Merck to manage a significant portion of its U.S. distribution of pharmaceuticals and vaccines including controlling Merck’s two temperature-controlled distribution centers suburban in Atlanta, Ga. and Reno, Nev.
“The two U.S. facilities are cGMP-compliant and add more than 200,000 square feet of secure, automated healthcare logistics space to UPS’s network. They join UPS’s 23 existing compliant healthcare facilities in North America, and two soon-to-open healthcare facilities in Puerto Rico and The Netherlands. In total, UPS will have more than 3.5 million square feet of dedicated healthcare space globally.”
http://www.ups.com/pressroom/us/press_releases/press_release/0,0,5068,00.html
Sources: UPS, CBS, Altria, IBM, Cisco, U.S. Census, National Association of Realtors, Federal Reserve, and The Organisation for Economic Co-operation and Development websites