News of the Day
May 28, 2009
According to the National Association of Realtors, existing-home sales rose 2.9 percent in April, but were 3.5 percent below the 4.85 million-unit level in April 2008. Most of the activity was in lower price ranges, or seasonal, repeat buyers. The number of buyers looking at homes has increased 14 percent from a year ago. “This is consistent with our forecast for home sales in the latter part of the year to be 10 to 20 percent higher than the second half of 2008,” Yun said. Existing-home sales in the Northeast increased 11.6 percent but are 10.5 percent below April 2008. The median price in the Northeast was $237,400, which is 9.6 percent lower than a year ago.
New one-family home sales rose at a much slower rate than existing-home sales April. New home sales were 0.3 percent higher than March, but that was 34.0 percent below April 2008.The median sales price of new houses sold in April 2009 was $209,700 and there were 297,000 new houses for sales, representing a supply of 10.1 months at the current sales rate
The Johnson Redbook Retail Sales Index was down 0.5% in the third week of May following a 0.3% drop the prior week. Month-over-month comps dropped 0.4%. “Discount stores maintained consistent strength in household staples. Sales results improved as we approached the Memorial Day long weekend as promotional and competitive pricing helped with sales of fans, summer wear, pool supplies and food.”
U.S. Census Bureau announced that new orders for manufactured durable goods in April increased $3.0 billion or 1.9 percent, which was the second increase in the last three months. Excluding transportation, new orders increased 0.8 percent. Excluding defense, new orders also increased 1.0 percent. Non-defense capital goods excluding aircraft, a key number for measuring the health of business spending, fell 1.5 percent.
Shipments of manufactured durable goods continued its 9-month decline, decreasing 0.2 percent to $174.2 billion. Inventories, down 1.7 percent in March, decreased 0.8 percent in April.
The initial claims unemployment numbers in the week ending May 23, showed a decrease of 13,000 from the previous week’s revised figure of 636,000.
The NASDAQ market calendar reported that, “A big 5.4-million-barrel crude draw to 363.1 million barrels in the May 22 week is likely to feed momentum in the oil market, raising new talk that $70 oil will be here before we know it. Gasoline inventories were also down, 0.6 million barrels in what is price bullish for the driving season. Refineries have been operating at very low rates while OPEC has successfully held back output, two supply-side factors that are a boost to petroleum prices at a time when demand is weak.”
Sources: NASDAQ, Energy Information Administration, Department of Labor, Census Bureau, Forbes, Home Textile Today, National Association of Realtors websites.
Treasury Inflation-Protected Securities, or TIPS, are purchased for a hedge against inflation since principal and interest increase/decrease with inflation/deflation based on the All Items Consumer Price Index for Urban Wage Earners (CPI-U) released by the Bureau of Labor Statistics. [Social security and federal retirement benefits are pegged to the All Items CPI for Urban Wage Earners and Clerical Workers (CPI-W)]. For the past few months, the CPI-U has been held in check by oil prices that are substantially lower than they were last year at this time. (The CPI-U increased 0.2 percent in April but had fallen 0.7 percent over the last 12 months, due primarily to a 25.2 percent drop in energy prices.) But by November, energy prices should be flat to increasing year-over year, bringing the CPI-U, which was 3.8 in 2008 and is expected to be -0.7 for 2009, to 1.4 in 2010 and 1.2 in 2011.
The CPI uses a “rental equivalence” number instead of the price of owning a home. “Critics often assume that the BLS adopted rental equivalence in order to lower the measured rate of inflation. It is certainly true that an index based on home prices would be more volatile, and might move differently from other CPI indexes over any given time period. However, when it was first introduced, rental equivalence actually increased the rate of change of the CPI shelter index, and in the long run there is no evidence that the CPI method yields lower inflation rates than some other alternatives. For example, according to the National Association of Realtors, between 1983 and 2007 the monthly principal and interest payment required to purchase a median-priced existing home in the United States rose by 79 percent, much less than the rental equivalence increase of 140 percent over that same period.”… “The CPI-U is used for indexation of tax brackets, personal exemption amounts, and many other quantities in the Federal tax system. In addition, the CPI-U is used by the Federal Government to calculate adjustments to the principal values of Treasury Inflation-Protected Securities, also known as TIPS, which have been issued since 1997 to provide a constant infla¬tion-adjusted return to investors.
Sources: Census, Bureau of Labor Statistics, Treasury, Energy Information Administration, U.S. Department of the Treasury Bureau of the Public Debt, Congressional Budget Office websites.
Johnson Controls has completed the largest renewable energy generation system of its kind in the Orange County Convention Center (OCCC) in central Florida. (The OCCC is the second largest convention center measured by square footage in the United States). The solar project has a peak output of over a megawatt of electricity which is enough energy to provide power to at least 80 homes.
Medtronic announced FDA approval of Activa RC and Activa PC, two deep brain stimulation devices used in treating symptoms of advanced Parkinson’s disease and essential tremor. The Activa PC is 20 percent smaller in size and weight than previous bi-lateral devices while maintaining the same battery life.
UBS restated its financial information for 2008. “The total net impact of all restated items was a reduction of net profit and net profit attributable to UBS shareholders of CHF 405 million, and a reduction of equity and equity attributable to UBS shareholders of CHF 269 million. The BIS tier 1 capital decreased by CHF 217 million, the BIS total ratio decreased 0.1% and the BIS tier 1 ratio was not affected by the restatement.
The restatement comprises three items in excess of CHF 100 million, as follows:
• Increased fair value of auction rate securities purchase commitments at 31 December 2008 (charge to net trading income of Wealth Management US of CHF 112 million).
• Calculation of interest income based on the effective interest rate method for assets reclassified from “held-for-trading” to “loans and receivables” in fourth quarter 2008 (reduction of the interest income of the Investment Bank by CHF 180 million).
• Realization of a foreign currency translation loss deferred in shareholders’ equity due to the partial disposals of an investment in a consolidated investment fund (reduction of other income of the Corporate Center by CHF 192 million).
Cisco announced it has completed its purchase of Pure Digital, creator of Flip Video. “The acquisition of Pure Digital is key to Cisco’s strategy to expand its momentum in the media-enabled home and capture the consumer market transition to visual networking. The acquisition will take Cisco’s consumer business to the next level as the company develops new video capabilities and drives the next generation of entertainment and communication experiences.”
Fifth Third Bancorp announced plans to sell up to $750 million of its common shares. “We expect a portion of the proceeds of shares issued under this offering to be utilized to fund the cash portion of our offer to exchange cash and common shares for Series G convertible preferred depositary shares. Proceeds of the offering not utilized in the exchange offer will be available for general corporate purposes. These purposes would include the future use of the proceeds – in addition to other capital or funds we have generated or will generate, including the issuance of qualifying debt – to repay all or a portion of the preferred stock and warrants we issued to the U.S. Department of Treasury as part of the Capital Purchase Program, subject to consultation with and approval from regulatory authorities.”
The Mortgage Bankers Association released its Weekly Mortgage Applications Survey for the week ending May 15, 2009. The Market Composite Index, was 915.9, an increase of 2.3 percent on a seasonally adjusted basis from 895.6 one week earlier. The Refinance Index increased 4.5 percent to 4794.4 from 4588.6 the previous week and the seasonally adjusted Purchase Index decreased 4.4 percent to 254.0 from 265.7 one week earlier. The refinance share of mortgage activity increased to 73.6 percent of total applications from 71.9 percent the previous week.
The Conference Board’s Leading Economic Indicator increased in April, the first increase in seven months, due mainly to stock prices. Stock prices, the interest rate spread, consumer expectations, initial unemployment claims, the average workweek, and supplier deliveries, more than offsetting the negative contributions from real money supply and building permits.
The National Association of Realtors website had some numbers pertaining to investments in second homes which were interesting. Apparently, most people become interested in buying a second home in their 40s and buy their second home in their 50s. “Currently, 39.2 million people in the United States are aged 50 to 59…. “An additional 44.8 million people are between 40 and 49, and another 40.7 million are 30 to 39. While economic factors can affect sales from one year to the next, the fundamental demand from these large population groups will remain. http://www.realtor.org/wps/wcm/connect/1bbb6b004dd3b37f81d1ade06077afc4/apr09rei.pdf?MOD=AJPERES&CACHEID=1bbb6b004dd3b37f81d1ade06077afc4
Sources: Census, Bureau of Labor Statistics, Treasury, NASDAQ, Johnson Controls, UBS, Cisco, Fifth Third, Conference Board, Medtronic, National Association of Realtors, websites.
American Express announced a reduction of staff by 4,000 or 6%, worth $175 million, a reduction of investment spending, worth $500 million, and further cutbacks in operating costs, such as consulting and other professional services, travel, and general overhead, worth $125 million.
Medtronic announced a reduction of staff by 1,500 to 1,800 employees, including 400 U.S. employees who have accepted early retirement. The company plans to add 700 positions, primarily in sales and research and development functions, during the course of the fiscal year.
Today, Jorma Ollila and Jeroen van der Veer gave speeches outlining the future of the oil industry at the Annual General Meeting of Royal Dutch Shell in The Hague and London.
“Global oil demand is at least 3% lower than it was a year ago, and this will effect profitability, both upstream and downstream…. At the same time, many producing oil and gas fields are in decline, and replacing these declining fields will mean more investment in new energy infrastructure, and more investment in technology. Mr. Jeroen van der Veer continued: “World-wide demand is under pressure, and this creates lower oil and gas prices. At the same time, industry costs are relatively high, because of strong inflation in recent years. As a result of all this, investments are being delayed or postponed across the energy industry. In fact, the International Energy Agency believes that industry-wide investment could fall by more than 20% this year…Net capital spending was $92 billion in the last five years, with a steady increase in investment. And we have increased returns to shareholders, with some $68 billion of dividends and buy-backs since 2004. Shell’s 2008 dividend was $9.5 billion…. For 2009, we are maintaining the philosophy to grow the dividend and to keep investment at a relatively high level, which will create long term value for shareholders… I am a strong believer that technology sets Shell apart from the competition. This is all about technology for today, where we can improve our operating performance, and create value added products, and technology for future growth. We have built up the technology capabilities in the company in 14 technology centres, with some 3,000 people directly involved in R & D….”
Eli Lilly and Medtronic announced a marketing collaboration to help people with diabetes manage their blood sugar. Medtronic has been the leader in insulin delivery since it introduced the world’s first insulin pump in 1983, while Lilly introduced the world’s first insulin for public use in 1923.
According to NASDAQ, “store sales were weak in the May 16 week, according to ICSC-Goldman’s same-store tally that fell 1.2 percent and is down 0.3 percent year-on-year vs. year-on-year growth of 0.5 percent in the May 9 week.” “Redbook said sales so far this month are down 0.2 percent compared to April.”
The National Association of Realtors website has an interesting comment on purchases of second homes and second homes as investment properties. “…Vacation home sales fell 30.8 percent to an estimated 512,000 units. As in the market for primary residences, it appears that many sales of deeply discounted distressed homes are pulling down the median price in the second-home market as well. The median price of a vacation home also fell sharply to $150,000, a decline of 23.1 percent from 2007. A significant majority of vacation home buyers – 89 percent – purchased a property for their personal use, while one-quarter also considered the rental potential. Twenty-six percent purchased a vacation home with the expectation of converting it to their primary residence in the future. Vacation home buyers expect to own their property for a median of 12 years. Slightly fewer than one-third of vacation home buyers paid cash for their property…. Even in a difficult economic environment, investment opportunities exist.
During the past three years as the overall housing market softened, residential investment properties accounted for just over one in five purchases each year…. The median price fell 28 percent to $108,000. Eighty-four percent of investment property buyers purchased an existing home, up from 71 percent in 2007. Investors may have been attracted to distressed properties rather than new homes as suggested by the 16 percent of properties that were purchased through the foreclosure process. More than half of investment property buyers indicated that they purchased the home to rent to others and 38 percent considered the property a good investment opportunity over and above any income generation potential. Forty-two percent of investment property buyers paid cash, up from 35 percent in 2007.
The media reported today that housing starts in April fell to a new record low, going back to 1959, due to cutbacks in multifamily construction which plunged 46.1 percent. What the news does not emphasize is that single-family starts were up 3.6 percent from the revised March figure according to the Census Bureau and the Department of Housing and Urban Development.
The National Association of Home Builders explains, “With some of the best home-buying conditions of a lifetime now in place – including historically low mortgage rates, affordable prices and a first-time home buyer tax credit – single-family builders are starting to see the light on the horizon as more consumers realize they can now obtain the home of their dreams,” said NAHB Chairman Joe Robson. “Meanwhile, the extreme difficulty that builders are encountering in obtaining financing for new multifamily structures has ground production in that sector almost to a halt.”
“A severe credit crunch for acquisition, development and construction financing and a lack of investor interest in Low Income Housing Tax Credits are the main factors that are keeping apartment builders from moving ahead with new projects, along with the competition from excess inventory that’s on the market,” noted NAHB Chief Economist David Crowe. “Ultimately, the logjam in builder financing must be broken in order for housing construction to provide the boost that the national economy needs to get back on track.”
Meanwhile, improving activity on the single-family side aligns with what builders have been reporting in recent NAHB surveys, Crowe said. “Very attractive housing affordability factors — particularly the federal $8,000 first-time home buyer tax credit and other tax credits being offered by states for purchases of newly constructed homes – are helping drive potential buyers back into the market,” he explained.
Single-family housing starts rose for a second consecutive month in April, posting a 2.8 percent gain to a 368,000-unit pace for the month. At the same time, issuance of single-family permits, which can be an indicator of future building activity, rose 3.6 percent to 373,000 units.”
Sources: Census, Bureau of Labor Statistics, Treasury, NASDAQ, Lilly, Medtronic, National Association of Home Builders, National Association of Realtors, Shell, Medtronic, and American Express websites.
Applied Materials 2Q 2009
Applied Materials YE 2008
Berkshire Hathaway 1Q 2009
Berkshire Hathaway YE 2008
American Express released its second annual American Express/CFO Research Global Business & Spending Monitor, a survey of 285 senior finance executives from the United States, Europe, Canada, Mexico, Asia, and Australia. The survey showed that senior finance executives are reducing costs but are also investing in technology, marketing, and R&D to take advantage of the recovery. “Companies in all regions remain pessimistic about the prospects of rapid economic recovery, with nearly 70% of respondents expecting to see recovery begin sometime in 2010. Over two-thirds of respondents predicted modest to substantial economic contraction over the next 12 months, and 63% reported that their companies’ capital investments will decrease in 2009. When asked about changes in their workforce, 59% of respondents anticipate a decrease in headcount. But companies are also taking actions now to avoid layoffs. Half the executives polled reported plans to freeze salaries and bonuses, while 32% plan to reduce benefits and 29% plan to cut salaries and bonuses. Twenty-four percent plan to reduce employee work hours or give furloughs and 16% plan temporary office or plant closures.”
American Express received a final report from the Federal Reserve which concludes that there would be “no capital need” under the assumptions used by the Supervisory Capital Assessment Program. The stress test “confirms the strength of the company’s financial position, indicating that American Express:
•had a year-end 2008 Tier One Common Risk-based ratio of 9.7 percent, one of the highest in the industry. That translates into a capital level approximately $6 billion above the regulatory benchmark of 4.0 percent.
•had a year-end 2008 Tier One Risk-Based Capital ratio of 9.7 percent — or 13.0 percent on a pro forma basis reflecting the issuance of preferred shares in January as part of the Capital Purchase Program (CPP).
•would generate earnings in 2009-10 even under the ‘more adverse scenario’ used by the regulators.
“We believe our strong capital base gives us the resources to accommodate the spending needs of our creditworthy consumer, small business and corporate cardmembers,” said Kenneth I. Chenault, chairman and chief executive officer, American Express Company.
“Based on the results of the test, we have filed a request with the Federal Reserve Board of Governors and the Department of the Treasury to repay the $3.4 billion of preferred shares issued to the Treasury,” said Mr. Chenault. In accordance with the guidance of our bank regulators, the company would be required to issue long term debt in the public markets that is not backed by government guarantees, prior to or at the time the preferred shares would be repurchased. “We’ve always viewed CPP as a temporary program, and we believe that repaying the investment at this time is not only in the best interest of American Express shareholders, but also good public policy,” Mr. Chenault said.’
Fifth Third also reported results of their stress test. Accordingly, Fifth Third does not require additional overall capital under the Supervisory Capital Assessment Program and
will increase the common equity component of Tier 1 capital by $1.1 billion in the next six months to create required capital buffer. The increase is required to maintain a capital buffer related to new Tier 1 common equity standard of 4 percent of risk-weighted assets under SCAP “more adverse scenario” through 2010. Fifth Third will use private market alternatives to satisfy the $1.1 billion commitment. The company’s Tier 1 common equity ratio is 5.5 percent, pro forma, including the previously announced processing joint venture. This ratio without the joint venture is currently 4.5 percent.
Citi will expand its public exchange offers by $5.5 billion to meet its stress test requirements. “This transaction could increase Tier I Common of the company from the first quarter level of $22.1 billion to as much as $86.2 billion, which assumes the exchange of $33 billion of preferred securities and trust preferred securities, the maximum eligible under this transaction. Citi’s TCE which was $30.9 billion on March 31, 2009 will increase by as much as $60.4 billion to up to $91.3 billion. The U.S. government would own approximately 34% of Citi’s outstanding common stock and existing shareholders would own approximately 24% of the outstanding common shares. In the past 15 months, Citi has achieved the following milestones:
Reduced expenses by 25% and headcount by almost 20% from the peak in 4Q ‘07
Reduced the balance sheet by 23% from the peak in 3Q ‘07
Completed 23 divestitures
Announced the Morgan Stanley/Smith Barney joint venture and the sale of Nikko Cordial Securities
Strategically focused Citi by separating the company into Citicorp and Citi Holdings”
<http://www.citigroup.com/citi/press/2009/090507f.htm“>a href=”http://www.citigroup.com/citi/press/2009/090507f.htm” mce_href=”http://www.citigroup.com/citi/press/2009/090507f.htm”>http://www.citigroup.com/citi/press/2009/090507f.htm
Warm weather boosted ICSC-Goldman’s same-store sales index 0.3 percent in the May 9 week, making for a 0.5 percent year-on-year rate — the best rate since late November.
The U.S. Census Bureau announced that advance estimates of U.S. retail and food services sales for April were $337.7 billion, a decrease of 0.4 percent from the previous month and 10.1 percent below April 2008. Retail trade sales were down 0.4 percent from March 2009 and 11.4 percent below last year. Gasoline stations sales were down 36.4 percent from April 2008 and motor vehicle and parts dealers sales were down 20.7 percent from last year.
The budget for March was released by the Treasury. The report showed a deficit of $192.3 billion for the month and a year-to-date deficit of $956.8 billion (about double last year’s deficit for this period).
The Bureau of Labor Statistics reported that on the last business day of March, there were 2.7 million job openings in the U.S., the lowest level in 8 years. The number is down 44 percent from June 2007 which was the last high point.
Mexico spent nearly a half a million dollars in purchasing thermal imagers (infrared cameras) from Fluke Corporation to help them screen people for H1N1 influenza A, or swine flu. Fluke is a wholly-owned subsidiary of Danaher.
Illinois Tool Works announced that it will not divest its Decorative Surfaces segment (including Wilsonart), returning the businesses to the Company’s continuing operations. “Given the continued weak acquisition market conditions and the premium value of these businesses, the Company decided to discontinue the sales process and return the businesses to continuing operations.”
Intel was fined $1.45 billion by the European Commission for supposedly using illegal monopolistic means to achieve market share. Intel’s response to the accusation may be found at this link:
I found the site interesting because it gives an insider’s history of chip making.
Sources: Census, Bureau of Labor Statistics, Treasury, NASDAQ, ITW, Danaher/Fluke, Citi, Fifth Third, Amex, Berkshire, CBS, Applied Materials, Intel, Yahoo finance websites.
GE announced that by 2015, it will invest $3 billion in research and development to launch at least 100 innovations that lower cost, increase access and improve quality by 15 percent. “This reflects the new opportunities we see in healthcare,” Immelt said. Our newest innovations – low-cost digital x-ray machines, portable ultrasounds, more affordable cardiac equipment – will save costs for doctors, hospitals, the government, families and businesses. This will help level the playing field in health care. With our technology, rural and urban areas and developing countries can have access to the best technology, affordably.
“We saw the same type of tipping point four years ago when we launched our successful environmental initiative, ecomagination,” Immelt said. “We learned that technical innovation can drive solutions and value for customers, investors, employees and the public. We will bring the same integrated approach to healthcare, focusing all of our expertise, labor and imagination on its success.”
Medtronic announced FDA approval of the Attain Ability left-heart lead for use with cardiac resynchronization therapy (CRT) devices for heart failure patients. Attain Ability has the thinnest lead body of any left-heart lead currently available, providing physicians with a tool to deliver therapy directly to hard-to-reach areas of the heart. This application marks the first time a NASA-developed material has been used in this kind of implantable medical device.
Roche announced that the FDA granted accelerated approval of Avastin for people with glioblastoma with progressive disease following prior therapy. “People with this type of brain cancer have had no new treatments in more than a decade,” said Timothy Cloughesy, M.D., director, Neuro-Oncology Program of the Jonsson Comprehensive Cancer Center at the University of California, Los Angeles. “After so many years with little progress in this field, Avastin was associated with a durable tumor response and doctors now have a new medicine to offer patients.”
The Mortgage Bankers Association released its Weekly Mortgage Applications Survey for the week ending May 1, 2009. Mortgage loan application volume index, was 979.7, an increase of 2.0 percent on a seasonally adjusted basis from 960.6 one week earlier. The Refinance Index increased 1.2 percent to 5169.3 from 5108.2 the previous week and the seasonally adjusted Purchase Index increased 5.0 percent to 264.3 from 251.6 one week earlier. The four week moving average is down 3.1 percent for the seasonally adjusted Purchase Index, while this average is down 6.7 percent for the Refinance Index.
ADP’s employment report for April was released. Private employment decreased 491,000 from March to April 2009 compared to a decline of 708,000 from February to March. In April, construction employment dropped 95,000 which was the smallest drop since November of 2008.
The Department of Labor announced that, in the week ending May 2, the advance figure for seasonally adjusted initial unemployment claims was 601,000, a decrease of 34,000 from the previous week’s revised figure of 635,000. The 4-week moving average was 623,500, a decrease of 14,750 from the previous week’s revised average of 638,250.
The Bureau of Labor Statistics reported preliminary productivity data for the first quarter of 2009. Productivity growth in the first quarter was 1.1 percent in the business sector and 0.8 percent in the nonfarm business sector. The improvement was due to hours declining faster than output.
What follows is a joint statement by Secretary of the Treasury Timothy F. Geithner, Chairman of the Board of Governors of the Federal Reserve System Ben S. Bernanke, Chairman of the Federal Deposit Insurance Corporation Sheila Bair, and Comptroller of the Currency John C. Dugan, regarding The Treasury Capital Assistance Program and the Supervisory Capital Assessment Program (stress tests):
During this period of extraordinary economic uncertainty, the U.S. federal banking supervisors believe it to be important for the largest U.S. bank holding companies (BHCs) to have a capital buffer sufficient to withstand losses and sustain lending even in a significantly more adverse economic environment than is currently anticipated. In keeping with this aim, the Federal Reserve and other federal bank supervisors have been engaged in a comprehensive capital assessment exercise–known as the Supervisory Capital Assessment Program (SCAP)–with each of the 19 largest U.S. BHCs.
The SCAP will be completed this week and the results released publicly by the Federal Reserve Board on Thursday May 7th, 2009 at 5pm EDT. In this release, supervisors will report–under the SCAP “more adverse” scenario, for each of the 19 institutions individually and in the aggregate–their estimates of: losses and loss rates across select categories of loans; resources available to absorb those losses; and the resulting necessary additions to capital buffers. The estimates reported by the Federal Reserve represent values for a hypothetical ‘what-if’ scenario and are not forecasts of expected losses or revenues for the firms. Any BHC needing to augment its capital buffer at the conclusion of the SCAP will have until June 8th, 2009 to develop a detailed capital plan, and until November 9th, 2009 to implement that capital plan.
The SCAP is a complement to the Treasury’s Capital Assistance Program (CAP), which makes capital available to financial institutions as a bridge to private capital in the future. A strong, resilient financial system is necessary to facilitate a broad and sustainable economic recovery. The U.S. government reaffirms its commitment to stand firmly behind the banking system during this period of financial strain to ensure it can perform its key function of providing credit to households and businesses.
Understanding the Results of Supervisory Capital Assessment Program
The SCAP Focus on the Quantity and Quality of Capital
Minimum capital standards for a BHC serve only as a starting point for supervisors in determining the adequacy of the BHC’s capital relative to its risk profile. In practice, supervisors expect all BHCs to have a level and composition of Tier 1 capital well in excess of the 4% regulatory minimum, and also to have common equity as the dominant element of that Tier 1 capital.
Under the SCAP, supervisors evaluated the extent to which each of the 19 BHCs would need to alter either the amount or the composition (or both) of its Tier 1 capital today to be able to comfortably exceed minimum regulatory requirements at year-end 2010, even under an more adverse economic scenario.
The SCAP capital buffer for each BHC is sized to achieve a Tier 1 risk-based ratio of at least 6% and a Tier 1 Common risk-based ratio of at least 4% at the end of 2010, under a more adverse macroeconomic scenario than is currently anticipated.
The SCAP focuses on Tier 1 Common capital–measured by applying the same adjustments to “voting common stockholders’ equity” used to calculate Tier 1 capital–as well as overall Tier 1 capital, because both the amount and the composition of a BHC’s capital contribute to its strength. The SCAP’s emphasis on Tier 1 Common capital reflects the fact that common equity is the first element of the capital structure to absorb loss and offers protection to more senior parts of the capital structure. All else equal, more Tier 1 Common capital gives a BHC greater permanent loss absorption capacity and a greater ability to conserve resources under stress by changing the amount and timing of dividends and other distributions.
The Role of the SCAP Buffer
By its design, the SCAP is more stringent than a solvency test. First, each BHC’s capital was rigorously evaluated against a two-year-ahead adverse scenario that is not a prediction or an expected outcome for the economy, but is instead a “what if” scenario. In addition, the buffer was sized so that each BHC will have a cushion above regulatory minimums even in the stress scenario. Thus, any need for additional capital and/or a change in composition of capital to meet the SCAP buffer is not indicative of inadequate current capitalization. Instead, the SCAP buffer builds in extra capital against the unlikely prospect that the adverse scenario materializes.
The presence of this one-time buffer will give market participants, as well as the firms themselves, confidence in the capacity of the major BHCs to perform their critical role in lending, even if the economy proves weaker than expected. Once this upfront buffer is established, the normal supervisory process will continue to be used to determine whether a firm’s current capital ratios are consistent with regulatory guidance.
The SCAP and the Capital Planning Process
Over the next 30 days, any BHC needing to augment its capital buffer will develop a detailed capital plan to be approved by its primary supervisor, in consultation with the FDIC, and will have six months to implement that plan. In light of the potential for new commitments under the Capital Assistance Program or exchanges of existing CPP preferred stock, supervisors will consult with Treasury on the development and evaluation of the plans. The capital plan will consist of three main elements:
A detailed description of the specific actions to be taken to increase the level of capital and/or to enhance the quality of capital consistent with establishing the SCAP buffer. BHCs are encouraged to design capital plans that, wherever possible, actively seek to raise new capital from private sources. These plans should include actions such as:
Issuance of new private capital instruments;
Restructuring current capital instruments;
Sales of business lines, legal entities, assets or minority interests through private transactions and through sales to the PPIP;
Use of joint ventures, spin-offs, or other capital enhancing transactions; and
Conservation of internal capital generation, including continued restrictions on dividends and stock repurchases and dividend deferrals, waivers and suspensions on preferred securities including trust preferred securities, with the expectation that plans should not rely on near-term potential increases in revenues to meet the capital buffer it is expected to have.
A list of steps to address weaknesses, where appropriate, in the BHC’s internal processes for assessing capital needs and engaging in effective capital planning.
An outline of the steps the firm will take over time to repay government provided capital taken under the Capital Purchase Program (CPP), Targeted Investment Program (TIP), or the CAP, and reduce reliance on guaranteed debt issued under the TLGP.
In addition, as part of the 30-day planning process, firms will need to review their existing management and Board in order to assure that the leadership of the firm has sufficient expertise and ability to manage the risks presented by the current economic environment and maintain balance sheet capacity sufficient to continue prudent lending to meet the credit needs of the economy.
Supervisors expect that the board of directors and the senior management of each BHC will give the design and implementation of the capital plan their full and immediate attention and strong support. Capital plans will be submitted and approved by supervisors by June 8th, 2009. Upon approval, these capital plans will be the basis for the BHC’s establishment of the SCAP capital buffer by November 9th, 2009.
Mandatory Convertible Preferred under the CAP
To ensure that the banking system has the capital it needs to provide the credit necessary to support economic growth, the Treasury is making capital available under its Capital Assistance Program as a bridge to private capital in the future. A BHC may apply for Mandatory Convertible Preferred (MCP) in an amount up to 2% of risk-weighted assets (or higher upon request). MCP can serve as a source of contingent common capital for the firm, convertible into common equity when and if needed to meet supervisory expectations regarding the amount and composition of capital. Treasury will consider requests to exchange outstanding preferred shares sold under the CPP or the Targeted Investment Program (TIP) for new mandatory convertible preferred issued under the CAP. In order to protect the taxpayer interest, the Treasury expects that any exchange of Treasury-issued preferred stock for MCP will be accompanied or preceded by new capital raises or exchanges of private capital securities into common equity.
The MCP instrument is designed to give banks the incentive to redeem or replace the government-provided capital with private capital when feasible. The term sheet for MCP is available at www.financialstability.gov.
The SCAP focused on the largest financial firms to ensure that they maintain adequate capital buffers to withstand losses in an adverse economic environment. Smaller financial institutions generally maintain capital levels, especially common equity, well above regulatory capital standards. There is no intention to expand the SCAP beyond the 19 BHCs that have recently completed this exercise.
The Treasury reiterates that the CAP application process remains open to these institutions under the same terms and conditions applicable to the 19 SCAP BHCs. The Treasury stands ready to review and process any applications received in an expedient manner. For those firms wishing to apply to CAP, supervisors will review those firms’ risk profiles and capital positions. In addition, supervisors will evaluate the firms’ internal capital assessment processes, including capital planning efforts that incorporate the potential impact of stressful market conditions and adverse economic outcomes.
Redeeming Preferred Securities Issued under the CPP
Supervisors will carefully weigh an institution’s desire to redeem outstanding CPP preferred stock against the contribution of Treasury capital to the institutions overall soundness, capital adequacy, and ability to lend, including confirming that BHCs have a comprehensive internal capital assessment process.
All BHCs seeking to repay CPP will be subject to the existing supervisory procedures for approving redemption requests for capital instruments.
The 19 BHCs that were subject to the SCAP process must have a post-repayment capital base at least consistent with the SCAP buffer, and must be able to demonstrate its financial strength by issuing senior unsecured debt for a term greater than five years not backed by FDIC guarantees, in amounts sufficient to demonstrate a capacity to meet funding needs independent of government guarantees.
Sources: NASDAQ, Federal Reserve, Bureau of Labor Statistics, Department of Labor, ADP, Mortgage Bankers Association, Roche, Medtronic, GE, and Cisco websites.
Phillip Morris International 1Q and YE 2008
AT&T YE 2008
Altria YE 2008
Boeing YE 2008
Danaher YE 2008
Halliburton YE 2008
Intel YE 2008
http://www.intc.com/index.cfm?iid=ftr+invrelITW YE 2008
Johnson & Johnson YE 2008
Johnson Controls YE 2008
Merck YE 2008
Roche YE 2008
Texas Instruments YE 2008
Intel Capital announced an investment in ASM International of 4 percent of ASMI’s total common share capital, based on approximately 54 million common shares outstanding.
ASMI’s equipment and materials are used in wafer processing, assembly, and packaging of semiconductor devices.
IBM announced the acquisition of Exeros, a privately-held company based in Santa Clara, California, that provides leading data discovery software. Financial details were not disclosed. Exeros’ systems uncover hidden relationships between databases, helping users make sense of disparate data sources much faster than otherwise possible. For example, a credit card company or airline could use Exeros software to consolidate customer award program information from multiple databases containing millions of client records, down to a single, master view of all customer information.
The pending home sales index rose 3.2 percent to 84.6 in March. Gains were made in the Midwest and South. Construction spending for March showed the first increase in six months. http://www.nasdaq.com/asp/econodayframe.asp?page=http://anasdaq.econoday.com/byweek.asp?cust=nasdaq
Chairman Ben S. Bernanke spoke on The economic outlook before the Joint Economic Committee, in Congress today. An excerpt of that speech follows:
“The U.S. economy has contracted sharply since last autumn, with real gross domestic product (GDP) having dropped at an annual rate of more than 6 percent in the fourth quarter of 2008 and the first quarter of this year. Among the enormous costs of the downturn is the loss of some 5 million payroll jobs over the past 15 months. The most recent information on the labor market–the number of new and continuing claims for unemployment insurance through late April–suggests that we are likely to see further sizable job losses and increased unemployment in coming months.
However, the recent data also suggest that the pace of contraction may be slowing, and they include some tentative signs that final demand, especially demand by households, may be stabilizing. Consumer spending, which dropped sharply in the second half of last year, grew in the first quarter. In coming months, households’ spending power will be boosted by the fiscal stimulus program, and we have seen some improvement in consumer sentiment. Nonetheless, a number of factors are likely to continue to weigh on consumer spending, among them the weak labor market and the declines in equity and housing wealth that households have experienced over the past two years. In addition, credit conditions for consumers remain tight.
The housing market, which has been in decline for three years, has also shown some signs of bottoming. Sales of existing homes have been fairly stable since late last year, and sales of new homes have firmed a bit recently, though both remain at depressed levels. Although some of the boost to sales in the market for existing homes is likely coming from foreclosure-related transactions, the increased affordability of homes appears to be contributing more broadly to the steadying in the demand for housing. In particular, the average interest rate on conforming 30-year fixed-rate mortgages has dropped almost 1-3/4 percentage points since August, to about 4.8 percent. With sales of new homes up a bit and starts of single-family homes little changed from January through March, builders are seeing the backlog of unsold new homes decline–a precondition for any recovery in homebuilding.
In contrast to the somewhat better news in the household sector, the available indicators of business investment remain extremely weak. Spending for equipment and software fell at an annual rate of about 30 percent in both the fourth and first quarters, and the level of new orders remains below the level of shipments, suggesting further near-term softness in business equipment spending. Recent business surveys have been a bit more positive, but surveyed firms are still reporting net declines in new orders and restrained capital spending plans. Our recent survey of bank loan officers reported further weakening of demand for commercial and industrial loans.1 The survey also showed that the net fraction of banks that tightened their business lending policies stayed elevated, although it has come down in the past two surveys….
As economic activity weakened during the second half of 2008 and prices of energy and other commodities began to fall rapidly, inflationary pressures diminished appreciably. Weakness in demand and reduced cost pressures have continued to keep inflation low so far this year. Although energy prices have recently risen some, the personal consumption expenditure (PCE) price index for energy goods and services in March remained more than 20 percent below its level a year earlier. Food price inflation has also continued to slow, as the moderation in crop and livestock prices has been passing through to the retail level. Core PCE inflation (prices excluding food and energy) dropped below an annual rate of 1 percent in the final quarter of 2008, when retailers and auto dealers marked down their prices significantly. In the first quarter of this year, core consumer price inflation moved back up, but to a still-low annual rate of 1.5 percent.
The Economic Outlook
We continue to expect economic activity to bottom out, then to turn up later this year. Key elements of this forecast are our assessments that the housing market is beginning to stabilize and that the sharp inventory liquidation that has been in progress will slow over the next few quarters. Final demand should also be supported by fiscal and monetary stimulus. An important caveat is that our forecast assumes continuing gradual repair of the financial system; a relapse in financial conditions would be a significant drag on economic activity and could cause the incipient recovery to stall. I will provide a brief update on financial markets in a moment.
Even after a recovery gets under way, the rate of growth of real economic activity is likely to remain below its longer-run potential for a while, implying that the current slack in resource utilization will increase further. We expect that the recovery will only gradually gain momentum and that economic slack will diminish slowly. In particular, businesses are likely to be cautious about hiring, implying that the unemployment rate could remain high for a time, even after economic growth resumes.
In this environment, we anticipate that inflation will remain low. Indeed, given the sizable margin of slack in resource utilization and diminished cost pressures from oil and other commodities, inflation is likely to move down some over the next year relative to its pace in 2008. However, inflation expectations, as measured by various household and business surveys, appear to have remained relatively stable, which should limit further declines in inflation.
Conditions in Financial Markets
As I noted, a sustained recovery in economic activity depends critically on restoring stability to the financial system. Conditions in a number of financial markets have improved in recent weeks, reflecting in part the somewhat more encouraging economic data. However, financial markets and financial institutions remain under considerable stress, and cumulative declines in asset prices, tight credit conditions, and high levels of risk aversion continue to weigh on the economy.
Among the markets that have recently begun to function a bit better are the markets for short-term funding, including the interbank markets and the commercial paper market. In particular, concerns about credit risk in those markets appear to have receded somewhat, there is more lending at longer maturities, and interest rates have declined. The modest improvement in funding conditions has contributed to diminished use of the Federal Reserve’s liquidity facilities for financial institutions and of our commercial paper facility. The volume of foreign central bank liquidity swaps has also declined as dollar funding conditions have eased.
The issuance of asset-backed securities (ABS) backed by credit card, auto, and student loans all picked up in March and April, and ABS funding rates have declined, perhaps reflecting the availability of the Federal Reserve’s TALF facility as a market backstop. Some of the recent issuance made use of TALF lending, but lower rates and spreads have facilitated issuance outside the TALF as well.
Mortgage markets have responded to the Federal Reserve’s purchases of agency debt and agency mortgage-backed securities, with mortgage rates having fallen sharply since last fall, as I noted earlier. The decline in mortgage rates has spurred a pickup in refinancing as well as providing some support for housing demand. However, the supply of mortgage credit is still relatively tight, and mortgage activity remains heavily dependent on the support of government programs or the government-sponsored enterprises.
The combination of a broad rally in equity prices and a sizable reduction in risk spreads in corporate debt markets reflects a somewhat more optimistic view of the corporate sector on the part of investors, and perhaps some decrease in risk aversion. Bond issuance by nonfinancial firms has been relatively strong recently. Still, spreads over Treasury rates paid by both investment-grade and speculative-grade corporate borrowers remain quite elevated. Investors seemed to adopt a more positive outlook on the condition of financial institutions after several large banks reported profits in the first quarter, but readings from the credit default swap market and other indicators show that substantial concerns about the banking industry remain….”
ConocoPhillips and Anadarko Petroleum announced the discovery and test production from two wells in the National Petroleum Reserve-Alaska: Pioneer 1 and Rendezvous 2. Pioneer 1 was tested in March of this year and Rendezvous 2 was tested in winter of 2008. Both are located in the Greater Mooses Tooth Unit, approximately 20 miles southwest of the Colville River Unit development on the North Slope of Alaska.
Test production rates for these wells ranged from about 500 barrels of oil per day to as high as 1,300 barrels of oil per day of high API gravity oil. Gas production rates averaged about 1.5 million cubic feet per day for each well.
ConocoPhillips is operator of and holds a 78 percent interest in the Greater Mooses Tooth Unit, while Anadarko holds a 22 percent interest.
Medtronic announced the U.S. launch of the PEEK PREVAIL™ Cervical Interbody Device which is an implant used to treat patients who suffer from a degenerative condition that affects the neck (cervical spine). Made of polyetheretherketone (PEEK), the new implant is invisible on x-rays, which allows the surgeon to view the spinal fusion during a follow-up visit. Featuring an “I-beam” shape with a two-screw configuration, the device incorporates a Nitinol wire locking mechanism to keep the screws securely in place.
Sources: NASDAQ, Federal Reserve, Conoco, Medtronic, Spectra, IBM, Intel, UBS, Phillip Morris International, AT&T, Altria, Boeing, Citi, Danaher, GE, Halliburton, Intel, ITW, Johnson & Johnson, Johnson Controls, Merck, Shell, Roche, Pepsi, Texas Instruments, and UTC websites.
CBI YE 2008
UTC’s President and Chief Executive Officer, Louis Chênevert wrote an article in yesterday’s Hartford Courant regarding a tax change proposal. “…Under current tax rules, companies doing business overseas are allowed to defer paying U.S. taxes on foreign income until it is brought back to the United States, typically as a dividend. This treatment is similar to individual owners of stock who are not taxed on the company’s earnings until they receive a dividend.
The administration’s proposal to repeal or fundamentally change deferral, which has been part of our tax law for decades, would not affect our foreign competitors. Instead, it would impose a unilateral tax on the foreign earnings of American companies. UTC pays taxes to the IRS, to all 50 states and in the countries where we do business.
UTC’s success as a Connecticut company, and an American company, depends on our success doing business around the world. A full 64 percent of our revenues came from outside the U.S. in 2008. Our U.S. workforce of 77,000 — engineers, scientists, salespeople and headquarters staff— supported exports of more than $7 billion in manufactured goods in 2008. UTC could not maintain current levels of U.S. employment on our domestic sales alone. The strength of our U.S. manufacturing base depends on being able to operate globally.
If an anti-deferral proposal became law, UTC would have to operate with a tax cost that its main competitors overseas wouldn’t shoulder. Business operations, new and existing, would have to be evaluated with the added weight of this immediate U.S. tax burden. The foreseeable consequences of such a drastic policy shift are higher costs of doing business for U.S. companies, weakening their ability to compete globally….”
The Mortgage Bankers Association released its Weekly Mortgage Applications Survey for the week ending April 24, 2009. The seasonally adjusted Purchase Index decreased 0.6 percent to 251.6 from 253.0 one week earlier. The refinance share of mortgage activity decreased to 75.3 percent of total applications from 79.7 percent the previous week. The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.62 percent from 4.73 percent, with points increasing to 1.14 from 1.12 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.
Real gross domestic product decreased at an annual rate of 6.1 percent in the first quarter of 2009, according to advance estimates released by the Bureau of Economic Analysis. In the fourth quarter, real GDP decreased 6.3 percent. The decrease in real GDP in the first quarter primarily reflected negative contributions from exports, private inventory investment, equipment and software, nonresidential structures, and residential fixed investment that were partly offset by a positive contribution from personal consumption expenditures (PCE). Imports, which are a subtraction in the calculation of GDP, decreased. Motor vehicle output subtracted 1.36 percentage points from the first-quarter change in real GDP. Final sales of computers added 0.05 percentage point to the first-quarter change in real GDP. Excluding food and energy prices, the price index for gross domestic purchases increased 1.4 percent in the first quarter, compared with an increase of 1.2 percent in the fourth.
Real personal consumption expenditures increased 2.2 percent in the first quarter, in contrast to a decrease of 4.3 percent in the fourth. Disposable personal income increased $133.6 billion (5.1 percent) in the first quarter, in contrast to a decrease of $62.6 billion (2.3 percent) in the fourth. Personal saving — disposable personal income less personal outlays — was $453.0 billion in the first quarter, compared with $337.4 billion in the fourth. The personal saving rate — saving as a percentage of disposable personal income — was 4.2 percent in the first quarter, compared with 3.2 percent in the fourth.
Durable goods increased 9.4 percent, in contrast to a decrease of 22.1 percent. Nondurable goods increased 1.3 percent, in contrast to a decrease of 9.4 percent. Services increased 1.5 percent, the same increase as in the fourth. Real exports of goods and services decreased 30.0 percent in the first quarter, compared with a decrease of 23.6 percent in the fourth. Real imports of goods and services decreased 34.1 percent, compared with a decrease of 17.5 percent. National defense decreased 6.4 percent, in contrast to an increase of 3.4 percent. Nondefense increased 1.3 percent, compared with an increase of 15.3 percent. The real change in private inventories subtracted 2.79 percentage points from the first-quarter change in real GDP after subtracting 0.11 percentage point from the fourth-quarter change. Private businesses decreased inventories $103.7 billion in the first quarter, following decreases of $25.8 billion in the fourth quarter and $29.6 billion in the third. http://www.bea.gov/newsreleases/national/gdp/2009/gdp109a.htm
The Bureau of Labor Statistics of the U.S. Department of Labor reported that labor costs increased 0.3 percent from December 2008 to March 2009. This follows a 0.6 percent increase for the September to December 2008 period. In March 2009, wages and salaries also rose 0.3 percent, while benefits rose 0.5 percent. Labor cost increases for the year ended March 2009 slowed dramatically, increasing 2.1 percent, down from the 3.3 percent increase for the year ended March 2008. In private industry, compensation costs rose 1.9 percent in the year ended March 2009, significantly less than the increase for the year ended March 2008, which was 3.2 percent. For state and local government, the increase for the 12-month period ended March 2009 was 3.1 percent, also slowing down from the March 2008 increase of 3.6 percent.
In the week ending April 25, the advance figure for seasonally adjusted initial unemployment claims was 631,000, a decrease of 14,000 from the previous week’s revised figure of 645,000.
The largest increases in initial unemployment claims for the week ending April 18 were in California (+8,535), New York (+6,959), Connecticut (+3,086), Georgia (+3,056), and North Carolina (+2,983), while the largest decreases were in Pennsylvania (-7,799), Florida (-7,208), Illinois (-3,803), Ohio (-3,310), and Washington (-2,432).
Sources: NASDAQ, Census, Bureau of Labor Statistics, Department of Labor, Bureau of Economic Analysis, Mortgage Bankers Association, UTC, Praxair, P&G, Exxon and CBI websites.
American Express 1Q 09
American Express 2008
Coca-Cola 1 Q 09
Coca-Cola YE 2008
Danaher 1Q 09
Danaher YE 2008
Exelon 1 Q 09
Exelon YE 2008
Kimberly –Clark 1 Q 09
Kimberly-Clark YE 2008
Medtronic 3 Q 09
Medtronic YE 2008
Microsoft 3 Q 09
Microsoft YE 2008
Fifth Third 1 Q 09
Fifth Third YE 2008
UPS 1 Q 09
UPS YE 2008
IBM 1 Q 09
IBM YE 2008
T. Rowe 1 Q 09
T. Rowe YE 2008
Berkshire Hathaway YE 2008
UBS announced the appointment of Alex Wilmot-Sitwell and Carsten Kengeter as co-CEOs of its Investment Bank. Oswald J. Grübel, Group CEO of UBS, said “Under their joint leadership we will continue to build on the strong core businesses of our Investment Bank and remediate our legacy risks. Our Investment Bank is indispensable to our global firm and to our integrated business model.”
American Express sold 638,061,116 ICBC H shares of Industrial and Commercial Bank of China to a group of investors through a private sale, and continues to hold 638,061,117 H. ICBC is the largest wholesale and retail bank in China by assets and deposits and had total assets of RMB 10.98 trillion at the end of March, 2009.
GE announced a successful demonstration of a DVD-like disc that can support 500 gigabytes of storage capacity via holographs. This is equal to the capacity of 20 single-layer Blu-ray discs, 100 DVDs or the hard drive for a large desktop computer.
“GE’s breakthrough is a huge step toward bringing our next generation holographic storage technology to the everyday consumer,” said Brian Lawrence, who leads GE’s Holographic Storage program. “Because GE’s micro-holographic discs could essentially be read and played using similar optics to those found in standard Blu-ray players, our technology will pave the way for cost-effective, robust and reliable holographic drives that could be in every home. The day when you can store your entire high definition movie collection on one disc and support high resolution formats like 3-D television is closer than you think.”
Redbook and ICSC-Goldman had different readings on the store-sales rate for the week of April 25. According to ICSC-Goldman’s same-store index store-sales fell -0.7 percent for a -1.7 year-on-year rate which is the worst rate in nearly three months. Redbook reports a strong 0.7 percent year-on-year rate.
The Conference Board Consumer Confidence Index™, which had posted a slight increase in March was up 26.9 in April. This was the biggest on-month jump in four years. The Expectations Index rose to 49.5 from 30.2 in March. “The employment outlook was also considerably less pessimistic. The percentage of consumers anticipating fewer jobs in the months ahead decreased to 33.6 percent from 41.6 percent, while those expecting more jobs increased to 13.9 percent from 7.3 percent. The proportion of consumers anticipating an increase in their incomes edged up to 8.0 percent from 7.8 percent.”
Advance GDP by Industry Statistics showed that the economic slowdown was widespread: nearly two-thirds of private industries contributed to the deceleration in real GDP growth. Finance and insurance industries’ value added dropped 3.0 percent in 2008, its first decline since 1992. Health care and social assistance industries’ value added increased 4.6 percent, its strongest increase since 1989.
Sources: April 2009 Consumer Confidence Survey, The Conference Board, NASDAQ, Census, Bureau of Labor Statistics, GE, UBS, American Express, Berkshire Hathaway, T. Rowe, IBM, UPS, Fifth Third, Microsoft, Medtronic, Kimberly-Clark, Exelon, Danaher, Coca-Cola websites.
The Department of Labor announced that in the week ending April 18, initial unemployment claims was 640,000, an increase of 27,000 from the previous week’s revised figure of 613,000, but very near the 4-week moving average of 646,750. Continuing unemployment claims during the week ending April 11 was 6,137,000, an increase of 93,000 from the preceding week’s revised level of 6,044,000. The 4-week moving average was 5,944,000, an increase of 142,500 from the preceding week’s revised average of 5,801,500.
According to the National Association of Realtors, existing home sales were weak, dropping 3.0 percent to 4.57 million units in March, from 4.71 million in February, and were 7.1 percent lower year-over-year. Lawrence Yun, NAR chief economist, said, “The share of lower priced home sales has trended up, indicating a return of many first-time buyers, which we also see in a parallel member survey. Sales in the upper price ranges remain stalled because of higher interest rates on jumbo loans.” According to the NAR, “Distressed properties, which accounted for just over half of all transactions in March, typically are selling for 20 percent less than traditional homes. An NAR practitioner survey in March showed first-time buyers accounted for 53 percent of transactions, based largely on contracts offered before the $8,000 first-time home buyer tax credit became available.”
Sources: UBS, Bureau of Labor Statistics, Federal Reserve, Bureau of Economic Analysis, Department of Labor, Conference Board, Treasury, Census Bureau, National Association of Realtors, Applied Materials, Roche, Diageo, AT&T, Walgreens, Johnson Controls, Intel ITW, Halliburton, Pepsi, GE, Danaher, Shell, J&J Conoco, Lilly, Citi, Boeing, Altria, Texas Instruments, UTC, and Merck websites