CPI: Prior 0% / Mkt Expects 0.3% / Actual 0.4%… Capacity Utilization: Prior 69% / Mkt Expects 69% / Actual 69.6% … Industrial Production: Prior 1% / Mkt Expects 0.6% / Actual 1%

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Call Buying In Tech Picks Up For Q4

Options traders are expecting the usual 4th quarter rally in tech stocks.  The IB options desk reports some unusual activity in tech names:

XLK – Technology Select Sector SPDR – Option traders devoured call options on the tech-sector exchange-traded fund in anticipation of further upside potential for the stock by expiration in December. Shares of the XLK are currently trading slightly higher by less than 0.5% this morning to stand at $20.77. Investors purchased approximately 42,000 calls at the December 22 strike by shelling out an average premium of 45 cents per contract. The heavy call volume at the December 22 strike evokes a sense of déjà vu given that a chunk of 35,000 calls were picked up at the same strike for about 43 cents each last week on September 11, 2009. Investors long the calls are hoping shares of the fund experience at least an 8% rally by expiration so they may breakeven at a price of $22.45. We note that shares of the XLK have traded beneath the breakeven point since September 2, 2008.

Source: IB

* All information on this website is provided for general purposes and should not be misconstrued as financial advice. Always consult your financial advisor before acting on any of the information herein. You should always assume that the author(s) could have a vested interest in topics described and may or may not own securities and instruments discussed.

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Greenback Sinking Fast

By Oliver Biggadike and Ye Xie

Sept. 16 (Bloomberg) — The dollar declined to the weakest level versus the euro in almost a year as an increase in America’s industrial output encouraged investors to sell the U.S. currency and buy higher-yielding assets.

New Zealand’s currency posted the biggest gains among 16 counterparts measured against the yen and dollar as investors were lured to a three-month deposit rate almost 10 times higher than in the U.S. So-called carry trades funded with equal amounts of dollars and yen gained 1.3 percent this week, according to data compiled by Bloomberg.

“We are in an environment that is constructive for growth,” said Lauren Rosborough, a currency strategist in London at Westpac Banking Corp. “It is positive for high- yielding, high-beta currencies. We are seeing evidence that cash is moving out of banks.”

The dollar slid 0.5 percent to $1.4724 per euro at 2:05 p.m. in New York, from $1.4658 yesterday. It reached $1.4733, the weakest level since Sept. 25, 2008. The yen dropped 0.4 percent to 133.95 per euro, from 133.47. Japan’s currency added 0.1 percent to 90.95 per dollar, from 91.05, after appreciating to 90.13, the strongest level since Feb. 12.

The euro gained versus the dollar as traders succeeded in pushing the currency past $1.4720, the technical level just above the Dec. 18 high.

The New Zealand dollar, one of 10 currencies offering the highest three-month deposit rates in the Bank for International Settlements’ triennial survey of currency volume, climbed as much as 1.5 percent to 71.53 U.S. cents, the highest level since August 2008, and 1.1 percent to 64.92 yen.

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More 6 Figure Earners Living Paycheck to Paycheck Despite Low Inflation

Making ends meet is getting harder, even for those earning over six figures a year, according to a new survey released by employment Web site CareerBuilder.com.

“Many more people are living paycheck to paycheck compared to last year,” says Richard Castellini, chief marketing officer at CareerBuilder.com. “What you’re seeing is that the problem is moving into higher income levels.”

Thirty percent of workers with salaries of $100,000 or more said they are living paycheck to paycheck, up from 21 percent last year, according to the survey of 4,400 workers nationwide.

Overall, 61 percent said they always or usually live paycheck to paycheck, up from 49 percent in 2008 and 43 percent in 2007.

“Companies have reduced salaries, and people are used to creating a lifestyle with what they were making a year ago or so,” says Castellini.

To cope, Americans have been cutting back on how much they save.

• Slideshow: Highest Paying Jobs

Some 21 percent of all respondents said they have reduced their 401(k) contributions or personal savings in the last six months in order to get by, while 23 percent of the $100,000-and-over group said they had done so.

While some Americans have cut back on what they set aside, others have stopped saving all together.

Thirty-six percent said they don’t contribute anything to retirement savings , like a 401(k) or a IRA.

As for short-term savings, 33 percent of those surveyed reported that they don’t put any money aside each month, up from 25 percent in 2008.

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Barclays To Sell $12.3 billion in Debt

By Jon Menon

Sept. 16 (Bloomberg) — Barclays Plc, the U.K.’s second- largest lender, agreed to sell $12.3 billion of debt to a fund run by two former executives as it seeks to cut its exposure to credit-market volatility.

Barclays will sell the assets, which include bonds backed by U.S. subprime mortgages, to Protium Finance LP, a fund set up by Stephen King, former head of the bank’s principal mortgage trading group, and Michael Keeley, a member of Barclays Capital’s management committee, the London-based bank said in a statement today. Protium will fund the purchase with a $12.6 billion loan from Barclays and $450 million from investors.

Barclays won’t record a gain or a loss from the sale, and the assets will remain on its balance sheet for regulatory purposes, it said. The debt the bank is transferring caused a pre-tax loss of 1.2 billion pounds ($2 billion) in 2008, Barclays said.

The fund is a way for Barclays to “wriggle free from its toxic assets,” said Simon Maughan, an analyst at MF Global Securities in London, who has a “buy” rating on the lender. “They are still on the hook from a regulatory perspective and if the assets explode, they won’t pay the loan back,” he said.

Partners of Protium will get any excess cash in the fund after repaying the 10-year loan from Barclays, the bank said. Management fees and distributions to partners will be paid before interest and principal repayments on the Barclays loan, according to the statement.

Mortgage Bonds….

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GS Says the 10 yr. Note May Drop to 3%

By Candice Zachariahs

Sept. 16 (Bloomberg) — Yields on 10-year Treasury notes “risk” a decline toward 3 percent, the least in five months, as the underlying inflation rate is likely to set new lows, Goldman Sachs Group Inc. said.

The U.S., the U.K. and Australia will be the “main beneficiaries” of a rally in longer-maturity government bonds, Francesco Garzarelli, chief interest-rate strategist in London at Goldman Sachs, wrote in a research report. Australian 10-year securities are the “cheapest” among markets tracked by Goldman and should trade at yields below 5 percent, he wrote.

“We see risk skewed in the direction of 10-year yields breaking towards their 200-day moving average of 3 percent, from their current 3.4 percent level,” Garzarelli and Michael Vaknin wrote in a separate note to clients. “The global bond premium remains elevated, although off the June highs, and there is plenty of excess liquidity in banks balance sheets which needs to be put to work.”

The yield on the U.S. 10-year note declined one basis point, or 0.01 percentage point, to 3.45 percent at 11:05 a.m. in Tokyo, according to BGCantor Market Data. The 3.625 percent security maturing in August 2019 rose 1/32, or 31 cents per $1,000 face amount, to 101 14/32.

The yield on 10-year Australian government bonds rose four basis points to 5.30 percent, according to data compiled by Bloomberg.

Cost of Living

The cost of living in the U.S. probably rose 0.3 percent in August, Labor Department data will likely show today according to the median estimate of 75 economists surveyed by Bloomberg News. Investors use the figures to gauge inflation, which eats away at a bond’s returns. Goldman Sachs expects the consumer price index to rise 0.2 percent.

The difference between rates on 10-year notes and Treasury Inflation Protected Securities, or TIPS, which reflects the outlook among traders for consumer prices, stood at 1.85 percentage points, compared with an average of 2.19 points over the past five years.

Investors may benefit by using a so-called “call spread” in the futures market to bet on gains in Treasuries, the bank said. Goldman advised purchasing an option to buy a 10-year future at a strike price of 118, implying a yield of 3 percent, while simultaneously writing a buy option on the same future with a strike price corresponding to a yield of about 3.3 percent…..

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Asian Markets Rise on U.S. Retail Data

By Shani Raja and Ian C. Sayson

Sept. 16 (Bloomberg) — Asian stocks rose, giving the MSCI Asia Pacific Index its largest gain in three weeks, after U.S. retail sales and New York manufacturing reports beat estimates and commodity prices advanced.

Canon Inc., which gets 28 percent of its revenue in the Americas, climbed 4.8 percent in Tokyo as Nomura Holdings Inc. recommended buying the shares. National Australia Bank Ltd., the nation’s largest by assets, rose 2.8 percent, as an index of the country’s leading economic indicators climbed. BHP Billiton Ltd., the world’s biggest mining company, gained 1.7 percent after metal prices rose for the first time in five days.

“Asia and other emerging markets have strong domestic economies that will benefit further from a global recovery,” said Paul Joseph Garcia, who helps manage about $1.45 billion as chief investment officer at the Philippine unit of ING Investment Management Ltd. “Trade will pick up and that’s good for Asia’s export-oriented industries.”

The MSCI Asia Pacific Index gained 1.6 percent to 117.69 as of 1:36 p.m. in Tokyo, the biggest advance since Aug. 24. The gauge has climbed 67 percent from a more than five-year low on March 9 as stimulus measures around the world pulled economies out of recession. Stocks on the gauge are priced at an average 24 times estimated earnings, up from 15 times at the March low.

South Korea’s Kospi Index advanced 2.2 percent. Hong Kong’s Hang Seng Index rose 1.8 percent. Australia’s S&P/ASX 200 Index climbed 2.2 percent with Telstra Corp. surging 3.9 percent on optimism it will get access to a new national Internet network……

European Markets Set To Trade Higher

By Adam Haigh

Sept. 16 (Bloomberg) — European stock-index futures advanced and Asian shares rallied as billionaire investor Warren Buffett said his company is buying equities and higher commodity prices lifted raw-material producers. U.S. futures gained.

BHP Billiton Ltd., the world’s biggest mining company, increased 2 percent in Sydney as copper, lead and nickel climbed on the London Metal Exchange. KBC Group NV may rise after Goldman Sachs Group Inc. advised buying shares of the Belgian bank. Inditex SA will probably gain after first-half net income at Europe’s largest clothing retailer beat analysts’ estimates.

Futures on the Dow Jones Euro Stoxx 50 Index added 0.6 percent at 7:23 a.m. in London. The U.K.’s FTSE 100 Index is set to open 25 points higher, according to inter-dealer broker BGC Partners. The MSCI Asia Pacific Index surged 1.5 percent.

Europe’s Stoxx 600 has rallied 53 percent since March 9 as earnings at companies from Goldman Sachs to Roche Holding AG topped estimates and the German and French economies unexpectedly exited recessions. The measure has risen eight times in the last nine days.

Standard & Poor’s 500 Index futures expiring in December added 0.2 percent after earlier falling 0.1 percent. The gauge increased 0.3 percent yesterday after a government report showed retail sales excluding automobiles gained 1.1 percent last month, while the Federal Reserve Bank of New York said its general economic index rose to 18.9 in September. Both reports surpassed economist estimates….

Oil Trades Below $71pb off Yesterday’s U.S. Supply Data

By ALEX KENNEDY p {margin:12px 0px 0px 0px;}

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By Eugene Robinson

It’s been a year since the financial system collapsed like a botched soufflé, and the sense of acute crisis has eased. The wizards of Wall Street are raring to get back to business as usual—and if we let them, we’ll have only ourselves to blame when the next meltdown comes.

The Obama administration and the Federal Reserve get too little credit for skillfully managing this terrible recession in a way that has kept it from turning into an all-out catastrophe. Too-big-to-fail financial institutions were put on life support or eased into oblivion in creative ways that involved massive injections of taxpayer funds—but prevented massive defaults. The auto industry, a victim of collateral damage, was expensively defibrillated and once again has a pulse. Nearly 100 banks have failed so far this year—compared with 25 in 2008 and just three in 2007—but depositors’ money was saved.

But in the process, the behemoth financial firms have gotten even bigger. And now that the economy has begun to revive, the stock market is getting happy again. I’m as pleased as anyone else to see a rising Dow, but somebody needs to slap the incipient grin off Wall Street’s face.

For one thing, the rest of the country is hardly smiling—not yet, at least. The “good news” is that “only” 200,000 or so Americans are losing their jobs each month, instead of the more than 700,000 monthly job losses we were seeing earlier this year. Unemployment is at 9.7 percent and still rising, albeit more slowly, and may peak above 10 percent. The stock market rally is cold comfort to a worker who just got a pink slip.

And many economists believe there’s another blow coming. The residential real estate market may be bottoming out, they say, but the air still has to be let out of commercial real estate. At this point, the temptation is to ask what difference another trillion-dollar problem would make. But we’d feel it, and not in a good way.

I have faith, though, that the crisis managers at Treasury and the Fed will minimize whatever pain we still must suffer. What I don’t have faith in is the willingness of President Barack Obama and his team to contemplate, much less execute, any kind of fundamental change in the way Wall Street works.

Even with the reforms the president is proposing, we will still have a situation in which the tail wags the dog—the tail being the financial system and the dog being the actual economy. Wall Street’s theoretical role is to allocate capital most efficiently to the companies that can make the best use of it. Wall Street’s actual role is more like that of a giant casino where the gamblers are rewarded for taking outrageous, unconscionable risks with other people’s money. If the bets pay off, the gamblers win. If the long-shot bets turn out to have been foolish, we’re the ones who lose.

“We will not go back to the days of reckless behavior and unchecked excess,” Obama said Monday in his speech on Wall Street. “The old ways that led to this crisis cannot stand.”

Obama said his proposed program of regulatory reform is based on fostering greater “transparency and accountability.” No one can argue with that. But Wall Street’s biggest failings are transparent enough for all to see. The Masters of the Universe created instruments such as derivatives and credit-default swaps, and encouraged the market in these exotica to grow bigger than the market in actual stock in actual companies. Financial firms spent millions of dollars to develop state-of-the-art software that could buy and sell securities—the real kind or the exotic kind—a split second faster than a competitor’s software could, thus generating a tiny profit on each sale. How does any of this channel capital to its highest and best use? How does any of this benefit the economy?

Compensation is the marquee issue—the unimaginable amounts of money Wall Street’s alleged best and brightest paid themselves for taking stupid risks with our money. I don’t see how this materially differs from theft, and I heard nothing from Obama about trying to claw any of this money back. But executive pay is really a sideshow.

The main event is making Wall Street serve the economy again, rather than the other way around. Putting more security cameras around the casino isn’t nearly enough.

Eugene Robinson’s e-mail address is eugenerobinson(at)washpost.com.

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Ritholtz:

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BBY

NEW YORK (MarketWatch) — Best Buy Co. /quotes/comstock/13*!bby/quotes/nls/bby (BBY 39.33, -1.08, -2.67%) , the largest U.S. electronics chain, said Tuesday that its second-quarter profit dropped to $158 million, or 37 cents a share, from $202 million, or 48 cents a share, a year earlier. Revenue in the quarter ended Aug. 29 rose to $11 billion from $9.8 billion. Analysts, on average, estimated that the Minneapolis-based retailer would earn 41 cents a share on sales of $10.81 billion, according to FactSet. Best Buy raised the bottom end of its full-year forecast to profit excluding items of $2.70 to $3 a share after first-half sales moderately beat the company’s projections. Analysts surveyed by FactSet estimated profit of $2.88 a share for the year.

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KR

CINCINNATI, Sept. 15 /PRNewswire-FirstCall/ — The Kroger Co. (NYSE: KR – News) today reported identical supermarket sales increased 2.6% without fuel in the second quarter of fiscal 2009 ended August 15, 2009, compared with the same period last year.

Total sales, including fuel, in the second quarter were $17.7 billion compared with $18.1 billion for the same period last year. Excluding fuel sales, total sales increased 3.5% over the prior year.

Net earnings totaled $254.4 million, or $0.39 per diluted share, for the second quarter, compared with net earnings of $276.5 million, or $0.42 per diluted share, in the same period last year.

“We remain confident in our strategy. The number of loyal households we serve and the number of items they are buying in our stores grew during the quarter. As a result, we experienced exceptional tonnage growth,” said David B. Dillon, Kroger’s chairman and chief executive officer. “Kroger’s customer-focused strategy is generating and will continue to generate long-term value for our shareholders.”

Details of Second Quarter Results

Including Kroger’s retail fuel operations, FIFO gross margin (Table 1) was 23.11% of sales, an increase of 59 basis points compared to the second quarter last year. Excluding retail fuel operations, FIFO gross margin decreased 60 basis points. Supermarket selling gross margin on non-fuel sales decreased 88 basis points.

The Company recorded a $14.7 million LIFO charge during the quarter, a decrease of $31.5 million from the prior year. Excluding retail fuel sales, the LIFO charge decreased 21 basis points as a percent of sales compared to the prior year.

Including Kroger’s retail fuel operations, operating, general, and administrative (OG&A) costs were 17.41% of sales, an increase of 81 basis points compared to the second quarter last year. Excluding retail fuel operations, the OG&A rate decreased 7 basis points relative to the same period last year as a result of strong cost controls.

Financial Strategy…….

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ADBE

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The Ghost Ships of Asia

The biggest and most secretive gathering of ships in maritime history lies at anchor east of Singapore. Never before photographed, it is bigger than the U.S. and British navies combined but has no crew, no cargo and no destination  –  and is why your Christmas stocking may be on the light side this year

The ‘ghost fleet’ near Singapore. The world’s ship owners and government economists would prefer you not to see this symbol of the depths of the plague still crippling the world’s economies

The tropical waters that lap the jungle shores of southern Malaysia could not be described as a paradisical shimmering turquoise. They are more of a dark, soupy green. They also carry a suspicious smell. Not that this is of any concern to the lone Indian face that has just peeped anxiously down at me from the rusting deck of a towering container ship; he is more disturbed by the fact that I may be a pirate, which, right now, on top of everything else, is the last thing he needs.

His appearance, in a peaked cap and uniform, seems rather odd; an officer without a crew. But there is something slightly odder about the vast distance between my jolly boat and his lofty position, which I can’t immediately put my finger on.

Then I have it – his 750ft-long merchant vessel is standing absurdly high in the water. The low waves don’t even bother the lowest mark on its Plimsoll line. It’s the same with all the ships parked here, and there are a lot of them. Close to 500. An armada of freighters with no cargo, no crew, and without a destination between them.

My ramshackle wooden fishing boat has floated perilously close to this giant sheet of steel. But the face is clearly more scared of me than I am of him. He shoos me away and scurries back into the vastness of his ship. His footsteps leave an echo behind them.

Navigating a precarious course around the hull of this Panama-registered hulk, I reach its bow and notice something else extraordinary. It is tied side by side to a container ship of almost the same size. The mighty sister ship sits empty, high in the water again, with apparently only the sailor and a few lengths of rope for company.

Nearby, as we meander in searing midday heat and dripping humidity between the hulls of the silent armada, a young European officer peers at us from the bridge of an oil tanker owned by the world’s biggest container shipping line, Maersk. We circle and ask to go on board, but are waved away by two Indian crewmen who appear to be the only other people on the ship.

‘They are telling us to go away,’ the boat driver explains. ‘No one is supposed to be here. They are very frightened of pirates.’

Here, on a sleepy stretch of shoreline at the far end of Asia, is surely the biggest and most secretive gathering of ships in maritime history. Their numbers are equivalent to the entire British and American navies combined; their tonnage is far greater. Container ships, bulk carriers, oil tankers – all should be steaming fully laden between China, Britain, Europe and the US, stocking camera shops, PC Worlds and Argos depots ahead of the retail pandemonium of 2009. But their water has been stolen.

They are a powerful and tangible representation of the hurricanes that have been wrought by the global economic crisis; an iron curtain drawn along the coastline of the southern edge of Malaysia’s rural Johor state, 50 miles east of Singapore harbour.

‘We don’t understand why they are here. There are so many ships but no one seems to be on board,’ said local fisherman Ah Wat

It is so far off the beaten track that nobody ever really comes close, which is why these ships are here. The world’s ship owners and government economists would prefer you not to see this symbol of the depths of the plague still crippling the world’s economies.

So they have been quietly retired to this equatorial backwater, to be maintained only by a handful of bored sailors. The skeleton crews are left alone to fend off the ever-present threats of piracy and collisions in the congested waters as the hulls gather rust and seaweed at what should be their busiest time of year.

Local fisherman Ah Wat, 42, who for more than 20 years has made a living fishing for prawns from his home in Sungai Rengit, says: ‘Before, there was nothing out there – just sea. Then the big ships just suddenly came one day, and every day there are more of them.

‘Some of them stay for a few weeks and then go away. But most of them just stay. You used to look Christmas from here straight over to Indonesia and see nothing but a few passing boats. Now you can no longer see the horizon.’

The size of the idle fleet becomes more palpable when the ships’ lights are switched on after sunset. From the small fishing villages that dot the coastline, a seemingly endless blaze of light stretches from one end of the horizon to another. Standing in the darkness among the palm trees and bamboo huts, as calls to prayer ring out from mosques further inland, is a surreal and strangely disorientating experience. It makes you feel as if you are adrift on a dark sea, staring at a city of light.

Ah Wat says: ‘We don’t understand why they are here. There are so many ships but no one seems to be on board. When we sail past them in our fishing boats we never see anyone. They are like real ghost ships and some people are scared of them. They believe they may bring a curse with them and that there may be bad spirits on the ships.’

Two container ships tied together in southern Malaysia, waiting for the next charter

As daylight creeps across the waters, flags of convenience from destinations such as Panama and the Bahamas become visible. In reality, though, these vessels belong to some of the world’s biggest Western shipping companies. And the sickness that has ravaged them began far away – in London, where the industry’s heart beats, and where the plummeting profits and hugely reduced cargo prices are most keenly felt.

The Aframax-class oil tanker is the camel of the world’s high seas. By definition, it is smaller than 132,000 tons deadweight and with a breadth above 106ft. It is used in the basins of the Black Sea, the North Sea, the Caribbean Sea, the China Sea and the Mediterranean – or anywhere where non-OPEC exporting countries have harbours and canals too small to accommodate very large crude carriers (VLCC) or ultra-large crude carriers (ULCCs). The term is based on the Average Freight Rate Assessment (AFRA) tanker rate system and is an industry standard.

A couple of years ago these ships would be steaming back and forth. Now 12 per cent are doing nothing

You may wish to know this because, if ever you had an irrational desire to charter one, now would be the time. This time last year, an Aframax tanker capable of carrying 80,000 tons of cargo would cost £31,000 a day ($50,000). Now it is about £3,400 ($5,500).

This is why the chilliest financial winds anywhere in the City of London are to be found blowing through its 400-plus shipping brokers.

Between them, they manage about half of the world’s chartering business. The bonuses are long gone. The last to feel the tail of the economic whiplash, they – and their insurers and lawyers – await a wave of redundancies and business failures in the next six months. Commerce is contracting, fleets rust away – yet new ship-builds ordered years ago are still coming on stream.

World shipping is tracked by satellite service Vesseltracker

Just 12 months ago these financiers and brokers were enjoying fat bonuses as they traded cargo space. But nobody wants the space any more, and those that still need to ship goods across the world are demanding vast reductions in price.

Do not tell these men and women about green shoots of recovery. As Briton Tim Huxley, one of Asia’s leading ship brokers, says, if the world is really pulling itself out of recession, then all these idle ships should be back on the move.

‘This is the time of year when everyone is doing all the Christmas stuff,’ he points out.

‘A couple of years ago those ships would have been steaming back and forth, going at full speed. But now you’ve got something like 12 per cent of the world’s container ships doing nothing.’

Aframaxes are oil bearers. But the slump is industry-wide. The cost of sending a 40ft steel container of merchandise from China to the UK has fallen from £850 plus fuel charges last year to £180 this year. The cost of chartering an entire bulk freighter suitable for carrying raw materials has plunged even further, from close to £185,000 ($300,000) last summer to an incredible £6,100 ($10,000) earlier this year.

Business for bulk carriers has picked up slightly in recent months, largely because of China’s rediscovered appetite for raw materials such as iron ore, says Huxley. But this is a small part of international trade, and the prospects for the container ships remain bleak.

Some experts believe the ratio of container ships sitting idle could rise to 25 per cent within two years in an extraordinary downturn that shipping giant Maersk has called a ‘crisis of historic dimensions’. Last month the company reported its first half-year loss in its 105-year history.

Martin Stopford, managing director of Clarksons, London’s biggest ship broker, says container shipping has been hit particularly hard: ‘In 2006 and 2007 trade was growing at 11 per cent. In 2008 it slowed down by 4.7 per cent. This year we think it might go down by as much as eight per cent. If it costs £7,000 a day to put the ship to sea and if you only get £6,000 a day, than you have got a decision to make.

‘Yet at the same time, the supply of container ships is growing. This year, supply could be up by around 12 per cent and demand is down by eight per cent. Twenty per cent spare is a lot of spare of anything – and it’s come out of nowhere.’

These empty ships should be carrying Christmas over to the West. All retailers will have already ordered their stock for the festive season long ago. With more than 92 per cent of all goods coming into the UK by sea, much of it should be on its way here if it is going to make it to the shelves before Christmas.

Lights from the fleet of ships illuminate the night-time horizon

But retailers are running on very low stock levels, not only because they expect consumer spending to be down, but also because they simply do not have the same levels of credit that they had in the past and so are unable to keep big stockpiles.

Stopford explains: ‘Globalisation and shipping go hand in hand. Worldwide, we ship about 8.2 billion tons of cargo a year. That’s more than one ton per person and probably two to three tons for richer people like us in the West. If the total goes down by five per cent or so, that’s a lot of cargo that isn’t moving.’

The knock-on effect of so many ships sitting idle rather than moving consumer goods between Asia and Europe could become apparent in Britain in the months ahead.

‘We will find out at Christmas whether there are enough PlayStations in the shops or not. There will certainly be fewer goods coming in to Britain during the run-up to Christmas.’

Three thousand miles north-east of the ghost fleet of Johor, the shipbuilding capital of the world rocks to an unpunctuated chorus of hammer-guns blasting rivets the size of dustbin lids into shining steel panels that are then lowered onto the decks of massive new vessels.

As the shipping industry teeters on the brink of collapse, the activity at boatyards like Mokpo and Ulsan in South Korea all looks like a sick joke. But the workers in these bustling shipyards, who teem around giant tankers and mega-vessels the length of several football pitches and capable of carrying 10,000 or more containers each, have no choice; they are trapped in a cruel time warp.

There have hardly been any new orders. In 2011 the shipyards will simply run out of ships to build

A decade ago, South Korean President Kim Dae-jung (who died last month) issued a decree to his industrial captains: he wished to make his nation the market leader in shipbuilding. He knew the market intimately. Before entering politics, he studied economics and worked for a Japanese-owned freight-shipping business. Within a few years he was heading his own business, starting out with a fleet of nine ships.

Thus, by 2004, Kim Dae-jung’s presidential vision was made real. His country’s low-cost yards were winning 40 per cent of world orders, with Japan second with 24 per cent and China way behind on 14 per cent.

But shipbuilding is a horrendously hard market to plan. There is a three-year lag between the placing of an order and the delivery of a ship. With contracts signed, down-payments made and work under way, stopping work on a new ship is the economic equivalent of trying to change direction in an ocean liner travelling at full speed towards an iceberg.

Thus the labours of today’s Korean shipbuilders merely represent the completion of contracts ordered in the fat years of 2006 and 2007. Those ships will now sail out into a global economy that no longer wants them.

Maersk announced last week that it was renegotiating terms and prices with Asian shipyards for 39 ordered tankers and gas carriers. One of the company’s executives, Kristian Morch, said the shipping industry was in uncharted waters.

As he told the global shipping newspaper Lloyd’s List only last week: ‘You have a contraction of oil demand, you have a falling world economy and you have a contraction of financing capabilities – and at the same time as a lot of new ships are being delivered.’

Demand peaked in 2005 when, with surplus tonnage worldwide standing at just 0.7 per cent, ship owners raced to order, fearing docks and berths at major shipyards would soon be fully booked. That spell of ‘panic buying’ has heightened today’s alarming mismatch between supply and demand.

Keith Wallis, East Asia editor of Lloyd’s List, says, ‘There was an ordering frenzy on all types of vessel, particularly container ships, because of the booming trade between Asia and Europe and the United States. It was fuelled in particular by consumer demand in the UK, Europe and North America, as well as the demand for raw materials from China.’

Cranes at Singapore Dock stand idle, waiting for work

Orders for most existing ships to be delivered within the next six to nine months would be honoured, he predicted, and the ships would go into service at the expense of older vessels in the fleet, which would be scrapped or end up anchored off places like southern Malaysia.

But, says Wallis, ‘some ship owners won’t be able to pay their final instalments when the vessels are completed. Normally, they pay ten per cent down when they order the ship and there are three or four stages of payment. But 50 to 60 per cent is paid on delivery.’

South Korean shipyard Hanjin Heavy Industries last week said it had been forced to put up for sale three container ships ordered at a cost of £60 million ($100 million) by the Iranian state shipping line after the Iranians said they could not pay the bill.

‘The prospects for shipyards are bleak, particularly for the South Koreans, where they have a high proportion of foreign orders. Whole communities in places like Mokpo and Ulsan are involved in shipbuilding and there is a lot of sub-contracting to local companies,’ Wallis says.

‘So far the shipyards are continuing to work, but the problems will start to emerge next year and certainly in 2011, because that is when the current orders will have been delivered. There have hardly been any new orders in the past year. In 2011, the shipyards will simply run out of ships to build.’

Christopher Palsson, a senior consultant at London-based Lloyd’s Register-Fairplay Research, believes the situation will worsen before it gets better.

‘Some ships will be sold for demolition but the net balance will be even further pressure on the freight rates and the market itself. A lot of ship owners and operators are going to find themselves in a very difficult situation.’

The current downturn is the worst in living memory and more severe even than the slump of the early Eighties, Palsson believes.

‘Back then the majority of the crash was for tankers carrying crude oil. Today we have almost every aspect of shipping affected – bulk carriers, tankers, container carriers… the lot.

‘It is a much wider-spread situation that we have today. China was not a major player in the world economy at that time. Neither was India. We had the Soviet Union. We had shipbuilding in the United Kingdom and Europe.

‘But then, back in those days the world was a very different place.’

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Meredith Whitney Says Market Faces A Big Test As Government Begins To Wind Down Stimulus Measures

The economy remains weak and will face a big test next month when the government starts winding down its massive support programs, banking analyst Meredith Whitney told CNBC.

cnbc.com Meredith Whitney

Despite avoiding a worst-case scenario, the economy continues to languish under weak job growth and home sales, Whitney said in a live interview.

“There’s not a lot of new job creation going on on Main Street—and the liquidity to the consumer and small business is still contracting,” she said. “And it’s very difficult to get the engine moving without a lot of government support within that. So when you slowly wean government supports, that’s going to be the test that I think everyone’s going to be watching starting in October.”

The Federal Reserve will wind down its aggressive buying of Treasurys next month. At the same time, President Obama and Treasury Secretary Timothy Geithner have said recently that the government is looking more broadly at getting out of the bailout programs used to prop up the financial system after its 2008 collapse.

Though economists generally believe the US is pulling out of a recession, unemployment remains high and most economic indicators are still showing only modest improvement.

As the economy retools, there are few areas that show any promise of generating big new jobs numbers, Whitney said. A potential complication is a leaning from the White House towards trade protectionism, most recently expressed in a trade dispute with China over tire imports.

“Where do the jobs come from?” she said. “Surely if this country becomes massively protectionist we’ll build up manufacturing capability. Is that necessarily a good thing? No. There’s not a lot of free capital for small business innovation—small business, period—and that’s half the workforce.”

In real estate, she said sales numbers have been boosted by foreclosures and other distressed sales, but high-end home sales continue to languish.

“The high-dollar units have not sold. So people are still shopping at Wal-Mart cnbc_comboQuoteMove(‘popup_WMT_ID0ECAAC15839609’);[WMT 49.90 -0.48 (-0.95%) ]
cnbc_quoteComponent_init_getData(“WMT”,”WSODQ_COMPONENT_WMT_ID0ECAAC15839609″,”WSODQ”,”true”,”ID0ECAAC15839609″,”off”,”false”,”inLineQuote”);
. People will go after value,” Whitney said. “Home ownership is still less attractive to the average consumer.”

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Bernanke Feels The Recession Has Most Likely Ended

By Craig Torres and Scott Lanman

Sept. 15 (Bloomberg) — Federal Reserve Chairman Ben S. Bernanke said the worst U.S. recession since the 1930s has probably ended, while warning that growth may not be strong enough to quickly reduce the unemployment rate.

“Even though from a technical perspective the recession is very likely over at this point, it’s still going to feel like a very weak economy for some time,” Bernanke said today at the Brookings Institution in Washington, responding to questions after a speech.

The remarks by the Fed chief followed a report today showing retail sales surged last month by the most in three years, adding to evidence of a recovery. The central bank has kept the benchmark lending rate as low as zero since December and in August said “exceptionally low” rates are likely warranted for “an extended period.”

“Unemployment will be slow to come down” if growth turns out to be “moderate” and not much more than the economy’s underlying potential, Bernanke said.

The central bank in March authorized $1.45 trillion in purchases of mortgage-backed securities and other housing debt this year. Policy makers decided last month to taper off a $300 billion program buying U.S. Treasuries through October, while debating a similar move for MBS purchases. Bernanke convenes the next meeting of Fed policy makers Sept. 22-23 in Washington.

The economy will rebound at a 2.3 percent pace next year, according to the median estimate in a Bloomberg News survey of economists. The growth rate won’t be fast enough to lower the unemployment rate below 9 percent, the economists predict.

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Most Asian Markets Trade Higher on Raw Materials

By Masaki Kondo

Sept. 15 (Bloomberg) — Most stocks in Asia rose, led by raw-material producers, leaving the MSCI Asia Pacific Index little changed a year after the collapse of Lehman Brothers Holdings Inc.

LG Chem Ltd., South Korea’s biggest chemicals maker, climbed 9.2 percent on speculation it may sell its batteries to Volkswagen AG. Rio Tinto Group, the world’s No. 3 mining company, rose 1.6 percent after agreeing to sell a stake in a cable division. The yen fell for the second-straight day versus the dollar, while copper and oil futures in New York were little changed. Treasuries were little changed.

“The worst is behind us, but we aren’t sure how well or badly the economy will fare next year,” said Hiroshi Morikawa, a strategist at MU Investments Co., which manages the equivalent of $14 billion in Tokyo. “What’s changed after Lehman was that financial companies have reduced leverage using debts, but there are still lots of things off their books, which keeps investors nervous.”

Five stocks advanced for every four that fell on the MSCI Asia Pacific Index, which was little changed at 115.85 as of 7:29 p.m. in Tokyo. The gauge has recouped its slump in the past year of as much as 39 percent as the panic caused by the collapse of Lehman and American International Group Inc. abated.

Japan’s Nikkei 225 Stock Average added 0.2 percent, while Taiwan’s Taiex Index rose 1.2 percent. The Hang Seng Index fell 0.3 percent in Hong Kong, where the start of trading was delayed to 2:30 p.m. local time because of a typhoon.

Lehman Anniversary

Among stocks that fell today, Alibaba.com Ltd. tumbled 11 percent in Hong Kong after Yahoo! Inc. offered its stake in the company for sale. Consumer lender Aiful Corp. slumped 8.4 percent in Tokyo after Standard & Poor’s said it may cut its credit rating. Telstra Corp. sank 4.3 percent in Sydney after the government said the company should split its retail and wholesale businesses.

Futures on the U.S. S&P 500 Index lost 0.1 percent. The gauge advanced 0.6 percent yesterday to the highest close since Oct. 6 amid gains in utility, industrial and financial shares.

Today is the one-year anniversary of Lehman’s bankruptcy filing, which exacerbated the credit crunch and helped drag the global economy into its worst slowdown since World War II. Losses at the world’s biggest financial institutions since the start of 2007 have climbed to more than $1.6 trillion.

The MSCI Asia Pacific Index has climbed 64 percent from a more than five-year low on March 9 as government stimulus measures introduced in the past year worldwide dragged economies out of recession.

‘Fewer Buying Opportunities’….

European Markets Pair Losses Led By Technology

By Andrew Rummer

Sept. 15 (Bloomberg) — European stocks pared their losses as technology and telecommunications companies advanced. The Dow Jones Stoxx 600 Index was little changed at 240.9 as of 11:40 a.m. in London, having earlier slipped as much as 0.3 percent.

Oil Trades Largely Unchanged @ $69pb

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