US Congress may extend unemployment benefits-Economic Reviews

WASHINGTON: The US Congress will consider extending unemployment benefits after it returns in September to help 1.5 million Americans who risk

exhausting them, Senate Majority Leader Harry Reid said on Friday.

"Soon after Congress returns to Washington we'll need to address this matter," Reid said. "There is an economic case to be made for extending unemployment benefits."

The unemployment rate eased to 9.4 percent in July from 9.5 percent the prior month, according to Labor Department data released on Friday. It was the first time the U.S. jobless rate has fallen since April 2008.

But the number of long-term unemployed continues to rise as the country struggles with the longest recession since the Great Depression of the 1930s, and many analysts attributed the dip in July to people giving up the job hunt.

Data ranging from home sales to manufacturing have pointed to an economic revival, but the unemployment rate is expected to remain high, which could lead to an anemic recovery. Obama administration officials say they still expect the unemployment rate to reach 10 percent this year.

As of July 25, 6.31 million people were collecting long-term unemployment benefits, according to Labor Department data.

Some 1.5 million of those people could exhaust those benefits by the end of the end of the year, according to the National Employment Law Project.

"We must help those who are suffering as a result of an economic crisis they did not create," Reid said.

Congress has already extended unemployment benefits for up to 79 weeks and Obama administration officials and Democratic leaders in the House of Representatives have said they will work to extend them further.

But that could widen the already yawning budget deficit, which shot up another $300 billion in July to reach a record $1.3 trillion for the first 10 months of fiscal 2009, according to the Congressional Budget Office.

The CBO expects the budget deficit to top $1.8 trillion for the fiscal year which ends September 30, in large measure due to a $787 economic stimulus bill passed by Congress in February.

Polls show rising public unease with the record deficit and Republicans have sharply criticized it.

"Instead of seeking new ways to expand the government, this Congress needs to get back to the basics of deficit reduction," Republican Senator Judd Gregg said in a statement.

PSUs for disinvestment - Econamic Reviews

NEW DELHI: Steel Ministry has identified two Public Sector Units (PSUs) for disinvestment, and is going to send its recommendations to the cabinet later this month, Union Steel Minister Virbhadra Singh said on Friday. "We have identified two steel PSU's for disinvestment. We will be going to cabinet within this month," Singh told reporters here. Speaking on the sidelines of Converging India Leadership Summit, Singh said the ministry is in the process of finding more PSU's for disinvestment. "A couple more are in the pipeline for selling govt stake", he added. Singh said the ministry is looking to raise about 15,000 crore rupees from the process of disinvestment. Meanwhile, the Steel Ministry has already sent its proposal to sell 10 per cent of its stake in Manganese Ore (India) Limited to the Ministry of Finance. Steel Secretary P K Rastogi had said on August 4 that the ministry had approved the sale of 8.38 percent of its stake in iron ore producer NMDC and would take the proposal in a day or two to the Finance Ministry. India's present annual steel production stands at 55 million tonnes and is being enhanced to 124 million tonnes by 2011-12.

Indians defy high gold prices as festive season starts

Indians have started buying gold jewellery and wholesalers are stocking up against anticipated price rises as the busy season

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gets under way in the world's largest bullion consumer, dealers said on Wednesday.

India, which accounted for more than 20 percent of global demand for gold jewellery in 2008, celebrates the Hindu festivals of Raksha Bandhan, Janmasthami and Ganesh Chaturthi in August, when demand for bullion usually picks up.

Elsewhere in Asia, gold's rise to a two-month high above $970 an ounce spurred selling, but premiums for gold bars were steady at 70 cents to the spot London price in Singapore, suggesting that consumers would still buy on dips.

"As against nothing earlier, there is at least something now. This month for the festivals, the real consumers will be buying, so demand has revived a bit," said Haresh Acharya, bullion desk head at Parker Agrochem Exports Ltd, a wholesaler in Ahmedabad.

"However there is hardly any demand from northern India because of the below normal monsoon. If the monsoon fails, the full year will be very bad," said Acharya, referring to sales.

Jewellery is the most common gift during religious events in India and forms an essential part of the dowry basket. Weddings usually take place during the festive season, when parents give gold jewellery to their daughters for financial security.

Weak monsoon rains could hurt demand because farmers, who account for 65 percent of India's gold demand, depend on good harvests, but some dealers said wholesalers were active in the local market, looking for an opportunity to buy.

"When prices fall a bit, there is buying. The sentiment we saw in the first half of the year has turned around," said Ajit Shinde, a director at wholesaler Magna Projects Pvt. Ltd., which is based in the eastern city of Kolkata.

The most active October contract on the Indian gold futures added 25 rupees, to 14,920 rupees ($312.8) per 10 grams on Wednesday. Cash gold fell $3.20 to $963.55 but was within sight of a two-month high of $970.05 on Tuesday.

India's jewellery demand has suffered because of high global prices earlier this year and an economic slowdown, with consumption falling 52 percent to 34.7 tonnes in the first quarter.

Gold was around 4 percent below an 11-month high above $1,000 hit in February.

"In the near-term, it certainly has a bit of upside pressure and with expectations for the dollar to weaken further, I would expect gold to remain buoyant for now," said Adrian Koh, an analyst at Phillip Futures in Singapore.



Premiums were also steady in Hong Kong at 30 cents to the spot London prices, but physical trading slowed to a trickle in Tokyo during the summer holidays. Japanese dealers offered gold bars at a discount of 50 cents to London, compared with a premium of 25 cents two weeks ago.

A Massive Refinancing Boom - Seriously

No doubt thousands of Americans were contacting their mortgage brokers today.

For those paying attention, news about the Federal Reserve's decision to cut its key interest rate to nearly zero, had them rushing to refinance to something lower than 5.5 percent.

Many reports have folks locking in rates almost a full percentage point lower than yesterday's quotes.

Across the country, mortgage brokers are reporting a surge of calls from borrowers seeking to take advantage of the Fed's historic decision. Brokers were routinely quoting mortgage rates of close to 4.5 percent for people with good credit.

It was a continuation of the good news since late November for anyone looking to lock in a 30-year, fixed-rate mortgage. In the past 3 weeks alone, mortgage applicatons have surged by the greatest amount in history.

"We're going to see just a massive refinancing boom," said Mark Zandi, chief economist at Moody's Economy.com, who estimates that up to 10 million U.S. borrowers will wind up refinancing their existing notes.

Inter-bank lending rates in free-fall since October

Why are Libor rate declines a good thing?

1) Back in October, all we heard was that banks would not loan money to each other... that the credit markets were "frozen." Well, that is no longer the case -- short term lending is on the rise as indicted by the falling international LIBOR rates.

2) Many adjustable mortgages and home equity lines of credit (HELOC) are set by the LIBOR as their INDEX.

Let's say that one fine borrower has a HELOC on her home for $50,000 and that her interest rate payments are set by the LIBOR index + 2%.

See the charts below. Back in October her interest rate would have been 6.3%. But this month her rate will be somewhere south of 4.3%...

On her $50K note, her interest payment was $263 on October 15. But on her payment due today she only owes $179. That's $84 more for her pocket this month.

Will she save it? Pay down the principal on her note? Or buy me a nice Christmas gift?

I'd say any of those senarios are good news to her.

12 month Libor

6-month Libor

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Remembering 1975 - The Majority was Wrong

Does anyone remember the stock market crash of October 1973? Over the next 15 months world stock markets collapsed. In the UK the FT 30 index fell by 70%. The holidays of 1974 into the new year of 1975 was not merry. President Nixon decided not to light the National Christmas tree!

All the talking heads agreed: the end was near. Oil was about to be rationed, thermostats were turned down in all federal buildings to 68 degrees, and 55 mph speed limits were imposed to save gas. An energy crisis was upon us. And the Department of Energy got a Cabinet level position in the White House.

But what happened next? In January 1975, the FT index jumped 25% and in the next 12 months was up over 100%.

And what are "they" telling us now? "Things are bad right now, but they're going to get a lot worse. Apparently it'll be as bad as the Great Depression."

So why does this post offer a "good news" perspective? Because history continues to tell us that when it comes to economics, "the majority is always wrong."

Remember it has been less than 6 months since all the financial experts were predicting rampant inflation, oil over $200 a barrel, and gold over $2,000 an ounce. Yet now the same experts tell us deflation is the problem, oil and gold have plummeted. And every news outlet has a new story on economic bad news.

The majority was wrong in Jan 1975 -- one of the best buying opportunities ever in the stock market. Now the majority is wrong again.

Sounds like good news for 2009!

More Good News in the Housing Market

The National Association of Realtors (NAR), brought us continued good news in the housing market today. Despite the turmoil in the economy, the overall level of pending home sales has been remarkably stable over the past year, said Lawrence Yun, NAR chief economist. “...access to safe, affordable mortgages will bring more buyers into the market.... NAR’s housing affordability index is likely to remain quite favorable in 2009."

An additional government report released today also claims that despite all the dire conditions reported in most news outlets, "the majority of markets continue to show growth in home values over the last five years." In fact in the last half decade, the following markets did quite well:

- Honolulu was up 78.7 percent
- Virginia Beach was up 72.6 percent
- Flagstaff, Ariz.: up 66.5 percent
- Bellingham, Wash.: up 65.6 percent
- Wilmington, N.C.: up 62.1 percent
- Baltimore: up 60.6 percent

Further, the NAR now predicts that the 30-year fixed-rate mortgage will probably decline to at least 5.6 percent in the first quarter of 2009. (Remember we already blogged about the surge that is now occuring in mortgage applications)

And if all that wasn't enough good news for one day, Yun further observes that "California in particular has seen an exceptional turnaround in buying activity. Many foreclosed homes have enticed buyers to take advantage of deeply discounted prices. 'Fence sitters' are beginning to do a lot more home searches. That will result in a large set of potential buyers for the upcoming spring buying season."

Good news?

And what about jobs? "

"President-elect Barack Obama is focusing his economic recovery strategy on making the biggest investment in the nation’s infrastructure since Eisenhower's plan for the interstate highway system.

Speaking yesterday at a Chicago news conference and on NBC’s “Meet the Press,” Obama said state governors have many such projects that are “shovel ready,” meaning they could be undertaken swiftly and have an immediate impact on jobs." - Bloomberg.

For those of you not familiar with the history leading up to FDR taking office: From 1929-1933, unemployment in the U.S. increased dramatically from 4% to 25%. In addition, manufacturing output was reduced by approximately a third from its historical peak. Prices fell drastically causing a deflation of currency values, which made the repayments of any debts much harder. The mining, lumber, and agriculture industries were hit especially hard by the drop in values. The outgoing Hoover administration claimed, "There is knowing more to be done. We have done all that we can do."


But in the first 120 days of 1933, the FDR administration and Congress past all 34 initiatives proposed by the new leaders. Have a look at the results:

With the statements of Obama yesterday and throughout the campaign, the next 8 years look extremely bright.

Now that's good news!

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Would you believe consumer spending is up?

Yes, the title is correct. According to reports out this past week, consumer spending was up over last year for both Black Friday and Cyber Monday.

Market Watch reported that "strong discounts brought U.S. consumers to the stores on 'Black Friday' -- the traditional first day of the holiday shopping season -- with estimated sales rising 3% from last year."

And consumers kept the momentum going on Cyber Monday... according to comScore, "Online shoppers spent $846 million on Dec. 1, a 15% increase over the Monday after Thanksgiving last year." It was the second largest online spending day on record.

Oh yes, and while we were finding great deals online, gas prices continued to fall.

What went down, must come up

Would you believe that housing prices are on the rise?

Believe it or not, in the third quarter of 2008 according to the National Association of Realtors, "28 out of 152 metropolitan statistical areas showed increases in median existing single-family home prices." That is over 18%. Said another way, one in five major metropolitan areas are experiencing a rise in the value of their homes.

If you don't believe me. Read the whole story here.

And, as the chart to the left suggests, the national decline in home values is beginning to level off.

Further evidence of a this housing market turn-around was reported on Wednesday (12/3). Mortgage applications surged by the largest amount on record in the last week of November as a new Federal Reserve program pushed interest rates down to their lowest level in more than 3 years. The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended November 28 "soared a by a record 112.1%"

You heard that right my friend. Mortgage applications are soaring. I doubt they are sub-prime.

It's December 2008, Ho, ho, ho.

Bottom Feeding...

And the market keeps testing the bottom.

Tomorrow folks will wake up and see that alas, the market is way oversold yet again.

So two more developments seem highly likely.... much lower mortgage rates as the powers that be consider plans to lower long term rates to 4.5%. I never dreamed I would see that in my lifetime. It is surreal.

Looks like next week short term rates will come down another 1/2 percent. For folks with adjustable rate mortgages and any type of debt tied to the prime rate, monthly cash flow should be better right now than at any time in the last several years.

So, gas prices are way down. Mortgage payments are way down. Credit card payments are way down. Credit to the consumer, home buyers, and investors is flowing nicely.

This is not the great depression my friends. This is a buyers' market. Buy some stock. Buy some investment real estate. Buy oil if if you must, but buy something of tangible value. You will probably never see it's price this low again.

While others are lamenting their paper losses and moving their 401Ks into bonds and money markets, the time is ripe to move money in to depressed assets.

I am betting that 2 years from now you will be incredibly glad you took the counter-intuitive risk.

It's good news.

All business eyes on the macro market

With the election behind us, all industries, including recession-proof sectors have their eyes on the macro market. Despite the continued volatility in the stock market, some positive macro economic market indicators have emerged.

With oil prices continuing to fall, the US consumer is gaining significant savings at their local gas station. Since a peak in mid-summer, the price for a gallon of unleaded as fallen almost $2. With the US consuming close to 390 million gallons a day, that savings translates to a $780 million dollar stimulus package for US citizens with no congressional action required.

The business credit markets continue to thaw. According to Bloomberg, borrowing volumes are up by more than 10 times what they were in early October. In a further indication of a world market economy on the mend -- large international banks like Chase and Citigroup are lending to their counterparts like HSBC Bank of Europe.

And the market for commercial paper — the unsecured debt that companies sell for short-term financing — continues to improve. Just a few weeks ago, even the strongest companies like AT&T were having trouble selling paper for longer than overnight. Now, investors are starting to step back in and buy paper with 30-day and 60-day maturities.

And surprisingly in a Reuters report released on 11/14, US consumer confidence actually rose in November from October’s depressed reading.

October was tough. A recession is already likely. But significant economic engineering on the global market scene has already produced some positive results.