XSEIF - Economic Report
February 19th, 2009
Recent Updates:
Production of consumer durable goods, which includes vehicles, furniture and
electronics, fell 10.5%, the biggest monthly drop since November 1959.
Industrial production fell 1.8% in January after a 2.4% decrease in December.
The Federal Reserve Bank of New York’s Empire manufacturing report fell to minus 34.7
this month. Readings below zero signal that the industry is shrinking.
o Factory output, which accounts for about four-fifths of industrial production,
decreased 2.5%, led by automakers.
In the automotive industry January sales dropped 55% at Chrysler; 49 % at GM, and 40%
Ford Motor Co.
Treasury has announced it will double its stock purchases in Fannie Mae and Freddie
Mac to $200 billion of each company.
Budget deficit up to $1.75 trillion for 2009.
o Today Obama requested as much as $750 billion in aid to financial industry.
o To cut the deficit he proposes to tax couples earning more than $250,000 per
year. He will raise the top two income tax rates to 39.6% and 36% and
increasing capital gains tax to 20% from 15%.
o He is asking for a "down payment" of $635 billion used in the health-care
system.
Labor Department reported today that 667,000 people filed initial applications for
jobless benefits last week.
Credit Markets
In a repurchase agreement (repo) an investor will give cash to a dealer in exchange for a
government security such as bill, note, or bond. The exchange is reversed the nest day
with the investor receiving interest on an overnight loan.
o Right now we are seeing an unwillingness of investors to lend their securities.
o This disruption of the Treasury market is what reduces its liquidity and
efficiency.
o Also, the Fed’s effort to push Treasury rates close to zero reduces the incentives
of traders to repurchase Treasuries to each other; this as well reduces liquidity.
In December the Treasury market was around $5,800 billion. Last year the Treasury was
facing a financing need of about $1,800 billion.
XSEIF - Economic Report
February 19th, 2009
Treasury Repo Collateral
Housing Trends:
Sales of new one-family houses fell by 14.7% in December 2008. Sales of new homes
were down 10% in January to 309,000. That is the lowest level since 1963 when the
data began.
U.S. builders broke ground in January on the fewest houses on record as housing starts
decreased 17%.
o Inventory build-up is due to increasing foreclosures. The Obama administration
has designated $75 billion to help bring down mortgage rates and “encourage
loan modifications”
37.8% less homes were sold in 2007 than in 2008.
Vacancy Rates: 85% of housing units occupied, 15% vacant.
Building permits (sign of future construction) continue to decline. From December to
January permits declined by 3.6%. However, this rate seems to be slowing from the
10.6% rate from November to December.
Commodities:
Why the price of crude oil falls while gas prices rise:
o Gas prices are tied to oil, it’s just a matter of which oil they are tied to.
o Benchmark for crude oil is West Texas Intermediate (yes it is drilled in west TX).
Price per barrel is set at the New York Mercantile Exchange, (quoted on
business channels).
o West Texas crude is selling for much less than inferior grades of crude.
o Severe economic downturn has left a surplus and “overstock” in storage
facilities.
Has subsequently sent price per barrel to 5-year lows
XSEIF - Economic Report
February 19th, 2009
o It is not West Texas crude that goes into gas in the US, it is overseas crude.
Foreign crude costs about $7 more a barrel.
o Typically West Texas crude costs more, but no one is building the pipelines to
carry it beyond the nearby refineries in the Midwest, Texas, and a handful of
other places.
Pipelines are not being built because gas prices could spike back up
within a year.
Gas prices will continue to rise regardless of what happens to the benchmark crude.
o Speculation at $2.50/gal by spring.
XSEIF - Economic Report
February 19th, 2009
(As of December 1, 2008)
(As of December 1, 2008)
XSEIF - Economic Report
February 19th, 2009
(As of February 11, 2009)
(As of January 1, 2009)
XSEIF - Economic Report
February 19th, 2009
(As of February 18, 2009)