by Calculated Risk on 7/21/2009 06:06:00 PM

Just a couple of comments ... (ht Brian)

Analyst: ... on the commodities [components]. I'm just curious as to which ones you expect to be sort of challenging going forward?

AAPL: In terms of going forward, the market for DRAM and the market for large sized displays has shifted to a constrained environment and the pricing has moved accordingly. The NAND market has now begun to stabilize and we expect it to move towards a supply/demand balance. Hard drives and optical drives are recovering from a constrained supply environment and pricing is declining at less than historical rates as a result.

Interesting that any component is constrained - probably because of inventory cuts by suppliers in Q4 and Q1.

Analyst: When you look at consumer spending and you look at K12 and state and local government, is there any detail you can give on the education or the pro segment?

AAPL: Relative to the market, the consumer market performed relatively better for us. The US K12 institutional business is weak, as you might expect. It is getting hit by budgets short falls. And last quarter we saw very negligible amounts, if any, of the stimulus funds flow all the way to the state and district levels. And so that may or may not occur this quarter. In the pro business, the pro business has also been affected more by the economy than the consumer businesses. And you can see that somewhat in our ASPs as people that were buying those that were in commercial accounts and small business accounts are delaying purchases.

Once again consumer spending is relatively better off than business spending. Business spending on software and equipment was probably off some more in Q2 (after declining 28.1% SAAR in Q4 and 33.7% SAAR in Q1).

by Calculated Risk on 7/21/2009 04:05:00 PM

Update: "We'll probably ban naked credit default swaps."
House Agriculture Committee Chairman Collin Peterson, from Reuters: US House bill to require clearing of OTC derivatives

Orginal Post: I've heard that Agriculture chairman Collin Peterson and Financial Services Committee chairman Barney Frank (share oversight of of futures markets) are in agreement to have derivatives go through clearinghouses and to ban naked credit default swaps as part of the omnibus financial reform bill. More soon ...

Since several stories have the details wrong, here is the vig on the CIT loan:

"The Credit Facility has a two and a half year maturity and bears interest at LIBOR plus 10%, with a 3% LIBOR floor, payable monthly. It provides for (i) a commitment fee of 5% of the total advances made thereunder, payable upon the funding of each advance, (ii) an unused line fee with respect to undrawn commitments at the rate of 1% per annum and (iii) a 2% exit fee on amounts prepaid or repaid and the unused portion of any commitment."

That is a minimum 13% after paying back 5% immediately as a commitment fee. Tony Soprano would be proud.

Click on graph for larger image in new window.

This graph is from Doug Short of dshort.com (financial planner): "Four Bad Bears".

Note that the Great Depression crash is based on the DOW; the three others are for the S&P 500.

by Calculated Risk on 7/21/2009 03:16:00 PM

Baseline Scenario has a guest piece by Elizabeth Warren, chair of the Congressional Oversight Panel and the Leo Gottlieb Professor of Law at Harvard University: Three Myths about the Consumer Financial Product Agency. Professor Warren outlines three myths, and the concludes:

"At the end of the day, industry lobbyists try hard to invent myths and make things sound confusing to intimidate the public and to keep policymakers from acting. But this issue is simple: keeping safety and soundness and consumer protection together has not ensured safety and soundness, has not protected consumers, has not fostered choice and innovation, and has not minimized regulatory burden. In fact, the current regulatory structure that combines consumer protection with other bank oversight responsibilities has led to the kind of bad regulatory oversight that has led us to this crisis. The CFPA would put someone in Washington—someone with real power—who cares about customers. That’s good for families, good for market competition, and good for our economy."

by Calculated Risk on 7/21/2009 01:27:00 PM

From Bloomberg: Harvard’s Feldstein Sees Risk of ‘Double-Dip’ Recession in U.S.

... “There is a real danger this is going to be a double dip and that after six months or so we’ll have some more bad news,” [Martin] Feldstein, the former head of the National Bureau of Economic Research and Reagan administration adviser, said today in an interview on Bloomberg Television. “We could slide down again in the fourth quarter.”

The economy could “flatten out” or “even be positive” in the third quarter, and then it’s likely to contract again in the last three months of the year as the effects of the federal stimulus program wear off and companies finish rebuilding inventories, he said.

“There isn’t going to be enough to sustain a really solid recovery,” he said, even though recent data has provided some “good news” on the economy.

This was the key point of the Texas Instruments post yesterday (with conference call comments on inventory). There is a possibility of short term growth as companies rebuild inventories, but then an extended period of sluggishness since end demand is flat.

by Calculated Risk on 7/21/2009 11:28:00 AM

Click on map for larger image.

Here is a map of the three month change in the Philly Fed state coincident indicators. Forty seven states are showing declining three month activity.

This is what a widespread recession looks like based on the Philly Fed states indexes.

On a one month basis, activity decreased in 46 states in June, and was unchanged in 1 state. Here is the Philadelphia Fed state coincident index release for June.

The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for June 2009. In the past month, the indexes increased in three states (Mississippi, North Dakota, and Vermont), decreased in 46, and remained unchanged in one (North Carolina) for a one-month diffusion index of -86. Over the past three months the indexes increased in two states (Mississippi and North Dakota), decreased in 47, and remained unchanged in one (Montana) for a three-month diffusion index of -90.

The second graph is of the monthly Philly Fed data of the number of states with one month increasing activity. Most of the U.S. was has been in recession since December 2007 based on this indicator.

Note: this graph includes states with minor increases (the Philly Fed lists as unchanged).

Almost all states showed declining activity in June. Still a very widespread recession ...

by Calculated Risk on 7/21/2009 10:14:00 AM

Click on headlines for larger image in new window.

See losses of more than $1.5 billion.

Insufficient liquidity.

May seek bankruptcy without successful tender offer.

by Calculated Risk on 7/21/2009 09:47:00 AM

Fed Chairman Ben Bernanke will testify before the House Financial Services Committee at 10 AM (semiannual Humphrey-Hawkins testimony on monetary policy).

Prepared testimony below the video links ...

Here is the CNBC feed.

And a live feed from C-SPAN.

Prepared Testimony: Semiannual Monetary Policy Report to the Congress

by Calculated Risk on 7/21/2009 08:57:00 AM

Note: Federal Reserve Chairman Ben Bernanke testifies at 10AM today in front of the House Financial Services Committee. I'll post a video link ...

From Fed Chairman Ben Bernanke: The Fed’s Exit Strategy

The depth and breadth of the global recession has required a highly accommodative monetary policy. Since the onset of the financial crisis nearly two years ago, the Federal Reserve has reduced the interest-rate target for overnight lending between banks (the federal-funds rate) nearly to zero. We have also greatly expanded the size of the Fed’s balance sheet through purchases of longer-term securities and through targeted lending programs aimed at restarting the flow of credit.

These actions have softened the economic impact of the financial crisis. They have also improved the functioning of key credit markets, including the markets for interbank lending, commercial paper, consumer and small-business credit, and residential mortgages.

My colleagues and I believe that accommodative policies will likely be warranted for an extended period. At some point, however, as economic recovery takes hold, we will need to tighten monetary policy to prevent the emergence of an inflation problem down the road. The Federal Open Market Committee, which is responsible for setting U.S. monetary policy, has devoted considerable time to issues relating to an exit strategy. We are confident we have the necessary tools to withdraw policy accommodation, when that becomes appropriate, in a smooth and timely manner.
emphasis added

There is much more, but clearly the Fed expects policy to be accommodative for some time, and when the appropriate time comes, the Fed believes they have an exit strategy to avoid inflation.

by Calculated Risk on 7/21/2009 12:06:00 AM

From the NY Times: The Rent Signs Are Sprouting

The storefront vacancy rate in Manhattan is now at its highest point since the early 1990s — an estimated 6.5 percent — and is expected to exceed 10 percent by the middle of next year ...

Some of the more desirable shopping districts are littered with empty storefronts. For example, Fifth Avenue between 42nd Street and 49th Street, the stretch just south of Saks Fifth Avenue, has a vacancy rate of 15.3 percent, according to the brokerage Cushman & Wakefield.

In SoHo, from West Houston Street to Grand Street and Broadway to West Broadway, among the high-end boutiques, art galleries and restaurants, 1 in 10 retail spaces are now empty or about to be.

For more on retail vacancies, see: Reis: Strip Mall Vacancy Rate Hits 10%, Highest Since 1992

by Calculated Risk on 7/20/2009 10:18:00 PM

From the SacBee: Schwarzenegger, lawmakers reach state budget agreement

Gov. Arnold Schwarzenegger and legislative leaders agreed Monday to balance Californias $26 billion deficit ... The proposal includes spending cuts to programs ranging from schools to welfare-to-work to prisons. It takes money from local governments, including borrowing $2 billion that the state will repay starting in 2013 and taking gas taxes that normally go toward local road projects.