American Express Profit Falls on Higher Defaults

http://money.cnn.com/2008/07/21/real_estate/mortgage_delinquencies.ap/index.htm?postversion=2008072111 Delinquencies among commercial mortgages rose slightly in June due to increases in delinquencies among office and retail sectors, credit ratings agency Fitch Ratings said Monday.

http://www.bloomberg.com/apps/news?pid=20601087&sid=adfHH7wZsJjY&refer=home

American Express Profit Falls on Higher Defaults (Update2)

By Hugh Son

July 21 (Bloomberg) -- American Express Co., the biggest U.S. credit-card company by purchases, withdrew its 2008 earnings forecast after second-quarter profit fell 37 percent on worse-than-expected consumer defaults. The shares slumped 11 percent in extended trading.

Profit from continuing operations declined to $655 million, or 56 cents a share, from $1.04 billion, or 86 cents a year earlier, the company said today in a statement. The average estimate of 17 analysts surveyed by Bloomberg was 82 cents. American Express said it added $600 million before taxes to reserves for U.S. loan losses.

``By almost any measure, the U.S. economy and business environment are much weaker than the assumptions'' the company had in January, Chief Executive Officer Kenneth Chenault said today in a conference call. ``Unemployment rates took the largest jump in over twenty years. Home prices declined at the fastest rate in decades and consumer confidence is at one of its all-time low points.''

The U.S. economic slowdown worsened in June, affecting even American Express's wealthier cardholders with high credit scores, Chenault, 57, said in the call. Late and uncollectible loans were higher than expectations in the quarter and will rise as the year progresses, Chenault said. The U.S. lost 62,000 jobs in June, the sixth straight period of shrinking payrolls.

American Express fell $4.55 to $36.40 in trading after the close of regular U.S. markets at 5:58 p.m. The company's results sparked a 0.9 percent decline in Standard & Poor's 500 Index futures contracts expiring in September.

Previous Forecast

``They're like any other consumer lender right now, caught behind the 8-ball,'' Craig Maurer, analyst at New York-based Calyon Securities who rates the company ``buy,'' said in a Bloomberg Television interview. ``I don't think the environment's going to be helpful to the company over the next nine to 12 months.''

American Express is ``no longer tracking'' to a prior forecast for 4 percent to 6 percent earnings per share growth for this year, he said. The company won't meet longer-term targets until the U.S. economy improves, Chenault said.

Profit in the company's U.S. card business dropped 96 percent to $21 million from $580 million a year earlier as provisions for losses more than doubled to $1.5 billion from $640 million. Uncollectible debt in the unit rose to 5.3 percent of loans from 2.9 percent a year earlier.

``We are seeing very affluent people who have had historically very, very strong spending history with us cutting back,'' Chenault said.

Discontinued operations related to American Express Bank Ltd., which the lender sold last year, resulted in a loss of $2 million, compared with income of $17 million a year ago.

Negative Outlook

American Express, Capital One Financial Corp. and Discover Financial Services shares have dropped by more than a third in the past year as consumers have a harder time repaying debt of all kinds.

Moody's Investors Service has a negative outlook on credit- card lenders and said defaults ``will most certainly'' rise this year. Stressed consumers are tapping plastic as access to home- equity loans falls off, New York-based Moody's said in a February report.

American Express's net income declined to $653 million, or 56 cents a share, from $1.06 billion, or 88 cents a year earlier, the New York-based company said.

Consumer prices surged 1.1 percent in June on higher food and fuel prices, more than analysts had expected, the Labor Department said this month. The cost of living rose 5 percent in the year leading to June, the biggest increase since 1991.

Rising Defaults

Delinquent credit-card accounts rose more than a full percentage point from a year earlier to 3.99 percent in May, according to Bloomberg data.

Rising defaults hurt second-quarter profit at Capital One, where earnings fell 40 percent to $452.9 million. The McLean, Virginia-based company said it expected as much as $7 billion in soured loans in the next year. Discover, based in Riverwoods, Illinois, said last month that profit from continuing operations in the quarter ended May 31 fell 19 percent to $202 million.

Some of American Express's rising loan losses will be cushioned by about $4 billion in settlement payments from Visa Inc. and MasterCard Inc. American Express said last month it settled an antitrust suit against MasterCard for $1.8 billion. Visa and bank partners settled in November for $2.25 billion.

American Express was ranked first by the total value of purchases and cash advances to U.S. cardholders in the first half of 2007, according to the Carpinteria, California-based Nilson Report, a trade publication. JPMorgan Chase & Co. and Bank of America Corp. are ranked second- and third-largest.

Billionaire Warren Buffett's Berkshire Hathaway Inc. owns the largest American Express stake with 151.6 million shares, 13 percent of outstanding stock at year-end, according to Bloomberg data.

To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net

Last Updated: July 21, 2008 18:52 EDT

The global economy is at the point of maximum danger

It feels like the summer of 1931. The world's two biggest financial institutions have had a heart attack. The global currency system is breaking down. The policy doctrines that got us into this mess are bankrupt. No world leader seems able to discern the problem, let alone forge a solution.

The International Monetary Fund has abdicated into schizophrenia. It has upgraded its 2008 world forecast from 3.7pc to 4.1pc growth, whilst warning of a "chance of a global recession". Plainly, the IMF cannot or will not offer any useful insights.

Its "mean-reversion" model misses the entire point of this crisis, which is that central banks have pushed debt to fatal levels by holding interest too low for a generation, and now the chickens have come home to roost. True "mean-reversion" would imply debt deflation on such a scale that would, if abrupt, threaten democracy.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/07/21/ccview121.xml

Fed Panics

In a dizzying day, investors grappled with a spate of mostly bleak economic developments, including pessimistic testimony from Ben S. Bernanke, the Federal Reserve chairman, who warned that significant economic risks remained and that inflation would accelerate.... http://www.nytimes.com/2008/07/16/business/worldbusiness/16markets.html?em&ex=1216267200&en=cecc9c6e9874f84c&ei=5087%0A

In his zeal to crack down on false market rumors, here are a couple of places for Securities and Exchange Commission Chairman Christopher Cox to start looking: the U.S. Treasury Department and the Office of Federal Housing Enterprise Oversight.... http://www.bloomberg.com/apps/news?pid=20601039&sid=aODKrCjnCK0Q&refer=home

The US Treasury may have just days to act before foreign patience snaps, writes Ambrose Evans-Pritchard

Merrill Lynch has warned that the United States could face a foreign "financing crisis" within months as the full consequences of the Fannie Mae and Freddie Mac mortgage debacle spread through the world.... http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/07/16/ccusdebt116.xml

Run on Wall St. Banks as White House begins to purchase equity

Feds spell out FREDDIE-FANNIE backstop plan...
White House Will Ask for Authority to Buy Stock...

Not expected to help more companies...

Government as the Big Lender...

'Unmitigated Disaster'...
CITIGROUP's $1.1 Trillion of Mysterious Assets Shadows Earnings...

Down and out in Vegas

http://www.independent.co.uk/news/world/americas/down-and-out-in-las-vegas-860513.html

Financial losses can top 1.6 Trillion http://www.earthtimes.org/articles/show/217143,financial-market-losses-could-top-1600-billion-dollars-report.html

Kunstler’s recent comments on $500 barrel oil : Penetration

Penetration

My new novel of the post-oil future, World Made By Hand, is available at all booksellers.
____________________________________

     The telling moment last week was Robert Hirsch's appearance on the CNBC morning "Squawkbox" financial show in which he proposed the probability of $500-a-barrel oil within "a three-to-five-year time-frame." Squawkhead Becky Quick was clearly nonplussed by the stolid Mr. Hirsch, author of a (then)-startling 2005 US Dept of Energy report (since referred to as the Hirsch Report and buried by the Secretary of Energy) that warned of dire effects on the American way of life as the Peak Oil predicament gained traction.
     Perhaps more reality-challenged was the uber-idiot Larry Kudlow on CNBC's night-time money show, who kept repeating the mantra "drill, drill drill" when presented with signs that something other than "oil speculators" was driving up the price and creating global scarcity. These idiots always return to the shibboleth that "there's plenty of oil out there." What they don't get is that even while the world is enjoying the all time peak of production (somewhere around 85-million barrels-a-day), that same world is demanding at least 86-million barrels -- so even though there's more oil than ever, there's not enough. And the gap is only bound to get bigger.
     The difference between what's available and what's demanded is being felt by poor countries and poor people in richer countries. Third world nations lacking their own oil are simply dropping out of the bidding, and the lower classes in the US are having to choose between buying gasoline and velveeta. The floods in the corn belt will surely aggravate the problem here in the USA. Lunch breaks may soon be a thing of the past for WalMart Associates. Maybe they'll just play video games on their cell phones in the parking lot to allay their hunger.
      Meanwhile the notion that drilling drilling drilling offshore the US and up in Alaska will solve this problem shows how incredibly misinformed the news media itself is. The probability is next to zero that anything found off California or Florida would even fractionally offset ongoing depletion in the handful of old, established super-giant fields that the world gets most of it oil from. By the way, I support the idea of drilling in Alaska's ANWAR reserve because I think it can be done in a sanitary way and, more importantly, it would get the idiot cornucopian right-wing assholes to finally shut up about it -- before they discover that it contains less than half a year's oil supply for the US at current rates of use.
      Also on the "meanwhile" front, the OPEC meeting Sunday at Jeddah, Saudi Arabia, was simply a desperate dodge, a mummery, a kabuki theater of powerlessness. Once again, the Saudis are pretending that they can increase their production -- in essence, pretending that they actually have some power in the game. As Jeffrey Brown has pointed out on THEOILDRUM.COM, the Kingdom will still show a steady three-year decline over their 2005 production rates even if they're able to goose current output as much as they say they will in 2008.
    All this reality content is beginning to penetrate the collective consciousness in the US, but the result is mostly panic or paralyzed disbelief rather than any set of intelligent responses. For example, I got a call from one of Katie Couric's producers at CBS news on Friday. Somehow, they had noticed that oil prices were becoming a problem in America. They called me for a comment. The scary part was they were clearly treating the issue as a "lifestyle" story. Did I think more suburbanites would move downtown? And would that be a good thing...?  They have no fucking clue how broadly and deeply these dynamics will affect the life of this nation, or even our ability to remain a nation. Also, by the way, this demonstrates how the nightly network news has become the equivalent of the old "women's pages" of the daily newspapers.
     The parallel universe of the financial world is showing the strain of all this oil anxiety -- since, after all, oil is the primary resource for running industrial economies. It has been some time since the banker boyz embarked on their fateful venture to alchemize a new mutant strain of investment instruments to replace the tired old stocks and bonds which represented the hope for production of surplus wealth from industrial activity -- now mooted by the oil story. The idea of the mutant investments was to produce wealth with no real wealth-producing activity. This old trick, formerly known as Ponzi finance or a "pyramid scheme," was naturally self-limiting, and in a way that would prove ultimately very destructive to society as a whole. In fact, it has fatally undermined the legitimacy of the entire financial system, and a state of comprehensive nausea has set in as we all witness the dissolving foundation of the US economy under a tsunami of debt that will never be repaid.
      The markets seem to know this, the more vocal playerz are squawking more about it, some banks are issuing frightening "duck-and-cover" warnings, using horror movie phrases such as "...worse than the Great Depression of the 1930s..." and the general public is sinking into the quicksand of bankruptcy, repossession, and ruin. I haven't been to any lawn parties in the Hamptons this year, but I imagine that eczematous anxiety rashes are competing with suntans and Versace separates out there this year. Really, we're right back where we were last year about this time, only worse. Oil has doubled, food is outasight, the levees have broken, the people who run things are shitting their pants, and everybody is waiting for a whole lotta other shoes to drop.

http://jameshowardkunstler.typepad.com/clusterfuck_nation/

IMF begins general examination of US financial system

http://business.theage.com.au/imf-finally-knocks-on-uncle-sams-door-20080629-2yui.html?page=fullpage#contentSwap2

Der Spiegel wrote that the IMF had "informed" Federal Reserve chairman Ben Bernanke of plans that would have been unheard of in the past: a general examination of the US financial system. The IMF's board of directors has ruled that a so-called Financial Sector Assessment Program is to be carried out in the US.

This, Der Spiegel wrote, "is nothing less than an X-ray of the entire US financial system", adding that "no Fed chief in US history has been forced to submit to the kind of humiliation that Ben Bernanke is facing".

The fact that the IMF is knocking on the very doors of its parents and waving legal papers about who lost the house, the car and the kids will, if the past is anything to go by, be buried in the US by pom-pom waving on CNBC telling all what a great time it is to buy.

But the news that the US Fed has now lost its last vestige of credibility did not end with the German report.

The Telegraph from London weighed in, following the Royal Bank of Scotland's statement last week (also lost on the US public) that it was time to head for the crags, and reported Barclays Capital's closely watched Global Outlook analysis that said US headline inflation would hit 5.5% by August and the Fed would have to raise interest rates six times by the end of next year to prevent a wage spiral.

If the Fed hesitates, the bond markets will take matters into their own hands. "This is the first test for central banks in 30 years and they have fluffed it," the report found. "They have zero credibility, and the Fed is negative if that's possible. It has lost all credibility."

http://video.google.com/videoplay?docid=8098419943467199200&q=stock+market+will+colapse&ei=p-NnSMv7CZqarQLl74C0CA Schiff says USD INX 50

US Stock Market Crash Predicted

http://www.youtube.com/v/cGNeCARNKuA&hl=en US Stock Market Crash – predicted?

Expert Advisor (MT) automated FX Systems break 100%

Systems submitting results to EAResults.com break 100% in profit

http://earesults.com/systems/1/year_change/desc

Barclays warns of a financial storm as Federal Reserve's credibility crumbles

"This is the first test for central banks in 30 years and they have fluffed it. They have zero credibility, and the Fed is negative if that's possible. It has lost all credibility," said Mr Bond.... http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/06/27/cnbarclays127.xml

Oil Industry shifts to alternative fuel

http://www.dallasnews.com/sharedcontent/dws/bus/stories/050108dnbusexxonrockefellers.b4874c03.html
A majority of members of the Rockefeller family called on Exxon Mobil Corp. on Wednesday to look beyond the oil and gas industry and invest in renewable energy.

Descendents of John D. Rockefeller, who founded Exxon predecessor company Standard Oil, say they're concerned that the company will quickly fall behind its peers, which tout their investments in biofuels and wind energy.

http://www.cnn.com/2008/US/06/12/exxon.mobil/index.html
(CNN) -- Oil giant Exxon Mobil Corp. plans to sell its company-owned gas stations, saying they aren't profitable enough even with gasoline selling at $4 per gallon.

The 2,220 stations make up about 1/5 of the Exxon and Mobil stations in the United States.

The nation's largest oil company, which earned nearly $41 billion last year, says it will sell more than 2,000 stations over the next few years.

"The fuels marketing sector is a very challenging market," ExxonMobil spokesperson Prem Nair said, adding that the company is feeling particular pressure from hypermarkets like Wal-Mart that sell gasoline.

 

Is everything spinning out of control

WASHINGTON - Is everything spinning out of control?

Midwestern levees are bursting. Polar bears are adrift. Gas prices are skyrocketing. Home values are abysmal. Air fares, college tuition and health care border on unaffordable. Wars without end rage in Iraq, Afghanistan and against terrorism.

http://news.yahoo.com/s/ap/20080621/ap_on_re_us/out_of_control

Regulators eye $10 trillion market that boomed outside traditional banking

http://www.marketwatch.com/news/story/weekend-edition-big-brokers-threatened/story.aspx?guid=%7BFA23DF5A%2D918F%2D41DA%2DB794%2D7E553ADAFAA7%7D&dist=hplatest

Brokers threatened by run on shadow bank system

Regulators eye $10 trillion market that boomed outside traditional banking

Government Is Sued Over Seizure of Liberty Dollars

http://www.nysun.com/national/government-is-sued-over-seizure-of-liberty-dollars/80368/ Government Is Sued Over Seizure of Liberty Dollars

http://www.reuters.com/article/reutersEdge/idUSL1664014920080523

FX a haven to investors wounded by credit crunch

By Simon Falush - Analysis

LONDON (Reuters) - Financial markets may be going through their toughest time in decades but foreign exchange markets are booming as investors, wary of ailing credit markets, look to the asset class as a way of driving returns.

Investors stung by heavy losses in credit markets are diverting resources into FX trading, pushing trading volumes ever higher toward a daily average of $4 trillion that could be reached by the end of the year.

Merrill Lynch (MER.N: Quote, Profile, Research, Stock Buzz) and Citigroup (C.N: Quote, Profile, Research, Stock Buzz) have suffered a combined loss of $42.5 billion in writedowns as a result of exposure to poor quality credit assets, but growing FX revenues have taken some of the sting out of these losses.

Both Citi and Merrill Lynch posted record currency revenues in the first quarter with Merrill Lynch doubling its income compared to the same period last year.

LEVERAGE AVAILABLE

And while banks may be wary about lending money to investors looking to trade credit-related instruments there are no such qualms about involvement in foreign exchange, helping maintain hedge fund activity in the area strong.

"Banks may not be willing to lend to hedge funds margined against credit instruments but customers are not finding themselves credit constrained (when looking to borrow to funds for) FX trading," said Justyn Trenner, principal of research and advisory analytics group ClientKnowledge.

"There is evidence that customers are picking and choosing who they'll trade their foreign exchange through. The boot has moved onto the other foot. But the underlying interest in the asset class has not diminished in any way," Trenner added.

Investors have moved out of the carry trade where they borrow low yielding currencies like the yen to fund purchases of higher yielding assets, as volatility increased.

One-week implied volatility on dollar/yen currency options was trading around 5.0 percent in June, when the carry trade was at full tilt, and increased to as high as 18.40 percent in March, though it has subsequently retreated to 11.75 percent.

Low volatility is good for the carry trade as investors are more comfortable in the relatively risky position when markets are calm than when there are sharp, unpredictable moves.

However, investors are still selectively buying into high yielding currencies that they think will deliver strong growth.

The Australian dollar this week surged to 24-year highs against the U.S. dollar, and with volatility rising, flows in and out of these strategies is more rapid, again increasing volumes.

The Bank for International Settlements said FX trading volumes average $3.2 trillion a day. Trenner at ClientKnowledge says this figure will likely soar to $4 trillion per day by the end of the year.

COVERING POSITIONS

Sharp moves in the currency market that have seen the dollar retreat by nearly 8 percent versus the euro this year have forced companies and funds to think about their exposure to these fluctuations.

Lisa Scott Smith, managing director of global currency at Millenium Global Investments, said the sharp moves in currencies had highlighted the large potential risks that companies and funds with exposure to different currencies face, bolstering the amount of hedging that companies engage in.

"We are seeing increasing demand from institutional players, pension funds, corporations who are realizing given these dislocations in markets that there are currency issues," she said.

A benefit of foreign exchange that these investors are looking to exploit, is that it can generate positive returns when other assets are suffering.

When markets turn south investors can buy into low-yielding currencies like the yen and Swiss franc which tend to rise at times of heightened risk aversion.

"It has a low correlation with other asset classes and investors have seen strategies drive solid returns in difficult conditions," said Thanos Papasavas, head of currency management at Investec Asset Management.

To meet the demand that these potential returns are generating, banks are reallocating staff from areas which have seen demand ebb, like structured credit, into foreign exchange.

Societe Generale reorganized its credit and FX operations in April to bolster its currency capabilities ID:nL0336801.

TECHNOLOGY KEY

However while the investment environment is important, improvements in trading technology is also key as it enables a wider range of investors to trade faster and more frequently.

Michael Spencer, chief executive of ICAP (IAP.L: Quote, Profile, Research, Stock Buzz), the world's largest interdealer broker, which saw strong growth in forex revenues help drive its pretax profits rise to 330.2 million pounds ($645.9 million) this week, said the growth of electronic trading and advances in technology have been key in driving growth.

"The average transaction time on EBS platform was 150 milliseconds per transaction 18 months ago, its mow 6 milliseconds. The mere speeding up of the platform itself allows the algorithmic trading platforms to speed up by themselves and has contributed to volume growth."

He added that increased globalization and the growth of emerging markets has also boosted the volumes.

"We trade currencies on EBS which a dozen years ago which we wouldn't have thought possible a dozen years ago....Currencies like rouble, renmibi, Korean won...these are non-trivial currencies, they will tend to drive volume growth."