Hydro Power Shows Signs of Comeback

Hydro power shows signs of comeback amid demand for green power

America's search for cleaner electricity has developers studying dozens of government flood-control dams from North Carolina to Oregon to see if it makes financial sense to retrofit them with hydroelectric turbines.
The studies are part of a broader trend that has developers looking at everything from millpond dams in New England to locks and dams on navigable waterways such as the Mississippi and Ohio rivers.

Factors ranging from the difficulty in obtaining permits for new coal-fired power plants to government renewable energy mandates and tax credits have created a potential market for new hydroelectric projects.
"You've created both the stick and the carrot," said David Sinclair, president of Advanced Hydro Solutions. Sinclair's Ohio-based company is focusing on four potential hydropower projects involving government dams in Pennsylvania and West Virginia.
Sinclair says government dams often lend themselves to hydropower. Some, such as the Tygart Dam near Grafton, were even built with hydropower in mind: the Corps of Engineers' designed it in the 1930s with twin 15-foot-diameter tunnels. The tunnels have been capped ever since, but Sinclair's company is studying whether it's economical to pull the plugs, install turbines and start generating electricity.

"I could kiss the engineer that did that," Sinclair said.
Despite its advantages, Tygart is no sure thing for conversion. Neither are dozens of other government dams. The process requires years of careful planning, chiefly to avoid disturbing a dam's original purpose or from damaging the environment.
Developers have been trying for years to develop the Corps' Bluestone Dam near Hinton, for instance, and have yet to get past the initial stages despite government support.
"There's a reason that hydro isn't on a lot of these dams right now," said John Seebach, who directs the hydropower reform initiative for Washington, D.C.-based environmental group American Rivers. "It was because it just didn't make financial sense."

That's starting to change.
Developers now have a potential market for hydropower from utilities more interested in upping the size of their renewable energy portfolios than increasing generating capacity, said Jeff Herholdt, director of West Virginia's Division of Energy.

"The power ends up in our markets, but the green credits are being sold."
As a result, West Virginia, which is far better known for its vast coal reserves, is enjoying a bit of a hydropower renaissance. Tygart and other projects hold the promise of increasing the state's 264-megawatt hydropower capacity almost 50 percent, according to Herholdt.
"We're certainly not talking about new dams," he said. "Our intent is trying to making sure that, with the dams we have, that they are being advanced. It would look like that's happening."

That's happening elsewhere as well.
Federal Energy Regulatory Commission figures show permit applications from would-be developers of conventional hydroelectric dams jumped to 177 last year from 78 in 2006. Through late November, the commission had received another 132 applications this year.

"The FERC right now is inundated," Sinclair said.
A fair number of those permit applications involve federal flood control dams.
FERC records list about two dozen permits for possible hydro projects on federal flood control dams across the country. A review by federal agencies found about 64 of 871 federal dams merited further study as potential hydro sites, according to a 2007 report.
Combined, the agencies say they have the potential to generate 1,230 megawatts of electricity. That's roughly 42 percent as much as American Electric Power's John Amos coal-fired plant produces, or enough for a month's worth of electricity for more than 1.2 million homes.

FERC records show dams under consideration are scattered across the country: permits have been issued to investigate sites in Kentucky, West Virginia, Oregon, Iowa, Texas and California. Going from a permit to an actual hydroelectric dam, however, is a lengthy process.
Firms like Sinclair's have to figure out how they can add hydropower without damaging the environment -- or altering a dam's original purpose. That's a lengthy process that can cost upward of $1 million, Sinclair said.
However, the process ends up with a project designed to cause no additional harm and, perhaps, even improve a river, said Seebach, whose group is better known for trying to remove dams than supporting them. American Rivers has, however, been working with the hydropower industry on converting existing dams.

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Euro Could Gain This Week, But Long-Term Outlook Remains Bearish

Fundamental Outlook for Euro This Week: Bullish

- ECB Governing Council Member Nowotny says he can’t rule out further rate cuts
- The Euro-zone's current account deficit narrowed to 6.4 billion euros, thanks to lower oil prices

The euro spent the majority of the past week consolidating versus the US dollar between 1.3915 and 1.4125, and these levels remain the proverbial lines in the sand, as a break above or below the bounds will suggest that price will continue to move in that direction. However, given the pair’s slow and steady climb from the December 19 low of 1.3826, it seems more likely that the EUR/USD rally could extend beyond 1.4125 toward 1.4300 once volumes pick up again.

From an event risk perspective, there’s nothing on the euro’s side of the coin to prevent such a move. The only indicators due to be released include the Purchasing Managers’ Index results for the Euro-zone’s retail and manufacturing sectors, both of which are anticipated to reflect the worst conditions on record. Nevertheless, these do not tend to be very market-moving for the euro, leaving technical analysis as a better method to use this week.

In coming weeks, though, traders should keep in mind that the European Central Bank is still anticipated to cut rates yet again on January 15, as Credit Suisse overnight index swaps are pricing in a 50bp reduction to 2.00 percent. The fact of the matter is that price growth has slowed dramatically and recession is plaguing the Euro-zone’s biggest economies. While credit conditions have improved in recent weeks, the potential for instability still lingers and the ECB may want to confront this head on with more accommodative monetary policy.

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Using Orders in The Forex Market

Orders are critical trading tools in the forex market. Think of them as trades waiting to happen, because that’s exactly what they are. If you enter an order and a subsequent price action triggers its execution, you’re in the market, so be as careful as you are thorough when placing your orders in the market. Currency traders use orders to catch market movements when they’re not in front of their screens.

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Scalping is a trading strategy that the trader try to make many small profits with small price changes, the Scalper will place from dozens to hundreds trades in a single day because it’s believed that the small price moves are easier to catch than larger moves.
It based on an observation that the most of the price movements goes in the trader direction for a while of time before it goes in its trend direction!

In the Forex world a lot scalpers say “If I make a 20-25 pips per day by scalping the market and with a proper money management I might double my account balance every month”.
Theoretically, true! But what about the real? What about the risk of scalping the market?

Scalping risk:

While it seems profitable method when scalping the price movements, however the spread you pay when you open a trade makes the risk-reward more risky than the long term trading (trend trading).

For example if your broker charges you 5 pips spread for opening EURUSD position and your target is 10 pips and 10 pips stop loss; the price have to move 15 pips (5 pips of spread + 10 pips your target) to take the profit while it have to move only 5 pips (10 pips your stop loss - 5 pips of spread) and stop loss level will be reached.
So, the risk-reward ratio in this case is 2-1 which means a very dangerous and risky method to scalp!

Another risk in the Scalp is that one large loss could eliminate the many small gains that the trader has worked to obtain. So it needs a very good exit strategy to decrease this risk!

Why brokers hate scalping?

The most of brokers will not turn your trades with a market maker

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EUR/USD, DJIA Continue to Drift Within Well-Defined Ranges

Whether you are looking at the currency markets or stock markets, it is clear that most assets are drifting within well-defined ranges as trading remains muted, as is typical in the financial markets around the holidays. Indeed, since the start of the week, EUR/USD has consolidated into a range of 1.3920 - 1.4000, though we did see a high of 1.4125 reached early Monday morning. Likewise, the Dow Jones Industrial Average has yet to stray from its range of roughly 8370 - 9000, despite news that American Express received preliminary approval from the US Treasury to receive $3.39 billion in TARP funds.

However, the first tranche of $350 billion has already been used to shore up financial institutions and to prevent GM and Chrysler from filing for bankruptcy, so the release of the second tranche will need be approved by Congress before American Express will receive their funding.

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Tourism to Goa Takes Beating After Mumbai Attacks

Goa's year-end beach parties fizzle in wake of Mumbai attacks

Beach beds are lined up outside the snack bars dotting the sandy white coastline and dance music booms from bars and restaurants. The only thing missing from Goa's beaches are the throngs of merrymakers who normally flock here for the hedonistic year-end parties.
With the country on alert in the wake of the terror attacks in Mumbai that killed 164 people and nine accused gunmen, Goa officials have banned beach parties and stepped up patrols. Scores of spooked foreigners have canceled vacations.
Those who stuck to their plans are arriving to metal detectors and baggage scanners instead of the cocktails, house music and rollicking outdoor parties that the laid-back former Portuguese colony is known for.

As Goa effectively shut down its party scene, Mumbai was attempting a return to normalcy.
The iconic Taj Mahal hotel and the Oberoi, both targets in the bloody attacks, partially reopened on Sunday, greeting guests with prayer ceremonies and pledges of tightened security. With the holidays approaching, the landmark hotels seemed eager to woo guests back.
But jitters kept visitors away from Mumbai and Goa alike.
"There aren't enough parties. Everyone's scared," said John Ball, a 22-year-old marine engineer from London, as he strolled down the popular Baga Beach.

"This is the peak season. Everyone should be coming out," said Ball, who was back visiting Goa after making a trip two years ago. "To me, it looks like half the amount of people than usual."
Adding to surveillance by the Indian Coast Guard, Goa police also are patrolling the coastline with boats carrying armed officers, Inspector General of Police Kishan Kumar said.
On Saturday, officials reluctantly banned all beach parties.

"Taking into consideration all the aspects, we have decided that beach parties would not be allowed from Dec. 23 to Jan. 5," Goa Chief Minister Digamber Kamat said.
Just a handful of tourists loitered on Baga Beach on one recent afternoon. Some strolled along the sandy coastal stretch, others lazed on beds laid out near a row of shacks that serve drinks and snacks.
But by early evening, the eclectic mix of jewelers, bars and restaurants crammed along a narrow strip right off the beach -- usually hopping this time of year -- were largely empty.
"We feel like crying," said Tony Branza, manager of the beach shack Lucky Star, where few people were buying up the snacks and drinks on sale. He said revenue is down by some 90 percent compared to a year ago.

The neighboring Le Marin beach shack has a staff of 30 and not enough money coming in. "How will I pay salary for these people?" owner Francis D'Souza said.
The dearth of visitors could be devastating because tourism is a major money spinner for this tiny region that spans about 1,430 square miles (3,700 square kilometers) -- about 200 square miles (520 square meters) larger than Rhode Island.
Since Portuguese rule ended in 1961, Goa has evolved into a popular tourist destination and its coastline is crammed with hotels -- ranging from low-cost backpacker havens to five-star luxury resorts.
Last year, Goa was India's No. 10 destination for foreign tourists, drawing nearly 390,000 visitors, according to figures compiled by India's Ministry of Tourism.

Tourism accounts for 34 percent of the state's gross domestic product, generating about 15 billion Indian rupees ($320 million) in revenue a year, according to Director of Tourism Elvis Gomes.
But in the wake of the attacks, the U.S., Canada, Britain and other countries issued travel advisories warning its citizens against visiting India. Britain and Israel issued specific warnings about Goa.
Goa is particularly popular among young Israeli backpackers fresh out of military service. Restaurants offer Hebrew-language menus, and some locals have even picked up a smattering of Hebrew.
This year, Israelis have been warned to stay away. The Mumbai attackers targeted a Jewish center, killing a rabbi and his wife, as well as luxury hotels and a train station.

"Despite the absence of a concrete warning on a planned attack by Islamic militants in this region, it is a tempting potential target for Islamic terror groups, particularly during the new year period with its Christian events (infidel celebrations in the eyes of the attackers)," a Hebrew-language Israeli government advisory said recently, recommending Israelis against visiting Goa during the second half of December.
Travelers are taking heed. The number of tourists to Goa has dropped by 20 percent since the attacks and the number of hotel bookings for the upcoming holiday season is down by the same percentage compared to last year, Gomes said.
He said he hopes it's just a phase. "I'm a bit worried in the short term, but not in the long term. I'm hopeful the situation will be overcome shortly," Gomes said.
Reymund Merx, a 44-year-old banker from Aachen, Germany, said he will be avoiding crowded places -- especially discos. "The discotheque is a point where it can be 'poof,'" he said, simulating the sound of an explosion.

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Oil Gains as Dollar Weakens

Oil rose more than $1 to above $43 a barrel on Monday, buoyed by a weaker U.S. dollar and tough talk from top OPEC producers of compliance with their record output cut, while U.S. data showed speculators betting on a bounce.

U.S. light crude for delivery in February, when cuts in OPEC production were expected to take hold, rose 93 cents to $43.30 a barrel by 0126 GMT. The January crude contract expired on Friday, when it traded at a deep discount to February as key mid-continent storage tanks filled to near overflowing.

London Brent crude gained 69 cents to $44.69.
"The U.S. dollar has weakened after the sharp rebound on Friday. That's one of factors pushing oil higher," said Toby Hassall, chief analyst at Commodities Warrants Australia.
A surge in net speculative investment in the crude complex to its highest since mid-May, as of December 16 data, also fed the emerging view that markets may have hit bottom for now, although fears over the outlook for demand tempered hope for a bounce.

Speculators increased their net length to 64,120 lots during the week to last Tuesday, a surge from 10,807 the previous week, Commodity Futures Trading Commission data showed.
"I suspect in the last couple of weeks we probably saw a bottom in the oil market and that is also attracting some buying interest," said Hassall.
The U.S. dollar fell against the euro on Monday, giving up some of its gains made after the U.S. government offered a lifeline to U.S. carmakers, as investors remained concerned over the deepening economic recession. (USD/)

Oil prices have fallen more than $100 from their peak of above $147 in July as a global economic crisis slashes global oil demand.
Pledges by OPEC last week to cut output by 2.2 million barrels per day (bpd) -- its deepest ever supply cut -- have failed to stem the slide in January oil prices, which expired on Friday at $33.87 a barrel, the lowest since February 2004.

OPEC kingpin Saudi Arabia moved to scotch doubts on Sunday on the cartel's pledge to cut oil production to stabilize world oil markets, while Kuwait's oil minister also said separately on Sunday that he was confident that OPEC members will comply with latest output cuts decided by the group.
"Don't doubt the efforts of OPEC or its members to return the oil market to stability," Saudi Arabia's Ali al-Naimi told reporters.

But some analysts said doubts would linger.
"With the cartel, compliance is always going to be an issue. We have yet seen the full impact of the previous supply cuts and that will take some time to come through," Hassall said.
In OPEC member Nigeria, where production has been hindered for years by repeated militant attacks, gunmen in speedboats attacked three oil services ships and kidnapped at least two Russians in separate incidents in the Niger Delta, sources said on Saturday.

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Canadian Dollar Forecast Unclear Against US Dollar

USD/CAD Ratio: -1.02

Signal: Bullish


USDCAD – The ratio of long to short positions in the USDCAD stands at 1.07 as nearly 52% of traders are long. Yesterday, the ratio was at -1.05 as 51% of open positions were short. In detail, long positions are 1.7% higher than yesterday and 50.6% weaker since last week. Short positions are 8.9% lower than yesterday and 11.1% stronger since last week. Open interest is 3.7% weaker than yesterday and 56.7% below its monthly average. The SSI is a contrarian indicator and signals more USDCAD losses.

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Dollar Falls Against The Yen in Night Trading

Dollar falls versus the yen in trading late Monday night

The dollar slipped against the Japanese yen late Monday night. The greenback fell to 90.48 yen from the 90.60 yen it bought in late afternoon trading.

On Friday, the dollar was worth 91.12 yen.

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More Challenges Await U.S. Homebuilders

Fitch: More Challenges Await U.S. Homebuilders as Housing Downturn Enters Year 4

With the U.S. economy in a severe recession and housing likely to deteriorate more sharply in 2009, U.S. homebuilders are facing even more operational and financial pressures, according to Fitch Ratings, which took rating actions on its public U.S. homebuilder universe of 14 companies late last week, resulting in nine downgrades and five affirmations.

Housing had stood out as one of the weakest sectors of (what was thought to be) a reasonably stable economy during the first three quarters of 2008. Affordability, wavering buyer confidence and significantly tighter mortgage standards, as well as still-considerable inventories of new and existing homes for sale (boosted by foreclosures) had severely restrained housing. But in the fall credit markets in the U.S. and in many other parts of the world froze, a condition that has barely eased. Already weak consumer confidence has plummeted. Job losses have surged. The economy is clearly now in a sharp recession. As weak as housing has been, it can deteriorate further, in particular, influenced by job losses, fear of job loss, poor consumer confidence and lack of income growth or possibly income contraction. Fitch is projecting that the recession, which technically began in December of 2007 (according to the Business Cycle Dating Committee of the National Bureau of Economic Research) will extend well into 2009. Some recently announced programs or programs under consideration by the Treasury Department and Fed designed to boost housing demand may soften the impact of the recession, but it appears very likely that key housing metrics (starts, new home sales, existing home sales) will be meaningfully weaker in 2009 than was reflected in Fitch's earlier forecast. A trough in new home sales is not likely until the second half of 2009, if not later. Starts should bottom three-to-six months after new home sales.

Ratings Rationale:

Fitch concludes that operational and financial pressures will persist and, probably, intensify for the public homebuilders during 2009. Profitability and cash flow will be somewhat weaker than anticipated earlier. Operational and financial ratios will suffer further stress. The consequence of the change in macro perspective resulted in Fitch's most recent rating actions for the homebuilders. The Rating Outlook for the sector is Negative.

The new ratings for the homebuilders reflect the most likely macro perspective for the balance of 2008 and 2009 as well as company-specific performance to this point in the cyclical downturn. As Fitch has noted in the past, a homebuilder's approach to land and development spending, inventory management, free cash flow generation and management and debt reduction are considered in its ratings in the midst of a housing downturn as are other factors such as credit metrics, ability to satisfy covenants, liquidity, size, geographic and product diversification, margins, and frequency of real estate write downs and option write-offs, etc.

Homebuilders have to successfully operate within this challenging environment or wither away. Companies have to continue to downsize to the point where they can remain or become profitable (excluding non-recurring real estate charges). That means further cuts in staffing and other overhead, as well as other cost reductions.

The public homebuilders cannot significantly influence profitability, but they can manage their balance sheets and their liquidity. Fitch Ratings believes that, overall, the U.S. homebuilding sector has good liquidity, although there are some weaker companies that face greater risk. Many companies in this sector have generated meaningful free cash flows over the past 12 months, while terming out borrowings and maintaining access to committed bank facilities which together provide room to handle maturities and fund working capital needs. As compared to the last major housing downturn in the latter 1980's into the early 1990's, leverage was lower during the later part of this upcycle, at the peak and currently (for some of the builders). For the majority of public homebuilders, debt composition 15-20 years ago was mostly, or all, short-term construction loans and possibly a secured credit line, while today the debt is often weighted most heavily to well laddered public debt (a more appropriate balance with longer-lived real estate assets), and, to a lesser degree, to an unsecured revolving credit facility. (All of the public homebuilders in Fitch's coverage have unsecured revolving credit facilities except for Beazer Homes USA, Hovnanian Enterprises, Inc. and Standard Pacific Corp., which have secured revolving credit facilities.)

Fourth-Quarter 2008 and Calendar 2009:
The world economy is entering a severe recession. Output is falling in the US, Japan, Germany, France and the UK, and prospects are for this contraction in activity to intensify over the next 12 months. For the major advanced economies (the US, Euro area, UK and Japan) in aggregate, Fitch Ratings is forecasting the steepest decline in GDP since the Second World War at -0.8%, in part reflecting the unusually synchronized downturn expected next year.

Although the latest GDP figures for the third quarter of 2008 showed only a small fall, this disguised a clear trend of accelerated declines in consumer expenditure. Growth in the third quarter of 2008 was supported by an inventory accumulation and net exports. While imports will continue to decline, the recent pace of export growth seems unlikely to be sustained. Fitch projects fourth quarter GDP will decline at least 0.7%. GDP is expected to shrink by just over 1% next year. Unemployment is expected to rise in the 2008 fourth quarter and continue to increase reaching to 8.3%, some 3.5pp above its structural rate.

Fitch's forecast for the housing sector became more bearish as 2008 evolved. This is principally due to the influence of even tighter credit standards for homebuyers and the effect of disruptions in the credit markets.

Of course, most potential homebuyers, absent any real urgency to buy, are deferring the purchase decision, concerned that selling their existing home at a fair price may be challenging, and fearing that real home prices might further decline as builders increase the level of incentives being offered to the advantage of those who wait to buy.

The disruption in broad credit markets and media focus on accelerating job losses took a further toll on homebuyer confidence since September. Consequently, housing metrics are likely to be weaker in the fourth quarter of 2008 as compared to the preceding quarter.

Total housing starts are forecast to be 910,000 in 2008, 33.1% lower than in 2007. Single family starts are expected to be 0.62 million, down 41.0% as compared to a year ago. Multi-family starts should decrease 6.5% to 290,000. New single family home sales should fall 37.2% to 487,000, while existing home sales ease 13.6% to 4.88 million.

For the full year of 2008, production, as represented by housing starts (especially single family), is expected to fall slightly faster than sales (new orders), but unfortunately the supply of homes is expected to still be excessive entering 2009.

The average single family new home price is expected to drop 6.5% in 2008, while the median new home price decreases 5.5%. The 'real' price reductions are larger than shown by the government's published transaction prices (and our forecasts) as, for example, sales incentives are not included. However, in 2008 a greater portion of the "real" price reduction was due to overt sales price decreases than was the case in 2007. Unfortunately, home prices have still not yet reached market-clearing levels in most places. Home prices (especially existing home prices) definitely had been 'sticky' on the downside, but came down more sharply in 2008, at least partially prompted by aggressive pricing of foreclosures and distressed homes.

Fitch is forecasting a contracting economy during the first half of 2009. Real GDP is forecast to decrease 1.2% for all of 2009. Investment is expected to plunge 6.9% as consumer spending and imports decline 0.6% and 3.2%, respectively. Government spending (+2.3%) and exports (+2.2%) will be economic positives next year. Inflation is expected to slow to 1.5% from 2.7% in 2008. Interest rates are expected to slightly recede.

The economy in the midst of a moderate to severe recession is another blow to housing. In particular, a deteriorating economy further erodes consumer confidence and accelerates job losses and consequentially foreclosures. One source, RealtyTrac, is currently predicting 1 million foreclosures in 2009. Undoubtedly, another stimulus program will emanate from Congress early in 2009 and there may be national legislation to specifically and more effectively target the foreclosure problem, as well as accelerate housing demand. However, these actions are unlikely to stabilize and then boost housing demand until the second half of 2009 or later.

In 2009, total housing starts are projected to fall 22.0% to 710,000 with single family volume declining 22.6% to 480,000. New home sales are forecast to decrease 16.0% to 409,000, while existing home sales slip 3.0% to 4.735 million.

Average and median single family new home prices are projected to fall 2% and 1%, respectively, in 2009. The combination of overt price decreases and sales incentives should represent a less significant percentage of the base home price next year than was the case in 2008.

Implications for the Companies and the Ratings:

Through the three quarters of calendar 2008 builder revenues are down about 39%, home deliveries are off 33%, and EBITDA margins (before non-recurring, non-cash real estate charges) are about 570 basis points lower than year earlier levels. Third quarter net new unit orders are down 34%, on average, and unit backlog at the conclusion of the third quarter, on average, is 46% beneath year earlier levels.

These companies have been contracting staffing as demand has evaporated with personnel typically down 50-65% as compared to peak staffing in early 2006. Just as important, builders have been reducing inventories in 2008, down 53% on average as of the end of the 2008 third quarter (or equivalent) as compared to the peak quarter end in 2006. (Admittedly, this is partially as a consequence of write downs). The companies have lowered debt - on average 28.5% since the peak, typically in 2006. Free cash flow comparisons have generally improved.

Credit metrics (LTM EBITDA/interest incurred, debt to LTM EBITDA, and FFO interest coverage) are considerably lesser than at this time last year. Debt/capitalization ratios have deteriorated moderately to sharply for the majority of builders when compared to one or two years ago, largely as a result of erosion in shareholders' equity from sizeable real estate charges.

Given Fitch's adjusted macro forecasts for the balance of 2008 and 2009, it appears likely that builders' financial pressures will continue unabated. For the full year of 2008 homebuilders' revenues could drop 40%, on average, while pretax losses, before real estate charges, will be reported for 12 of the 14 homebuilders Fitch tracks.

Price competition will likely persist at current levels well into 2009. Consequently, margins will remain under pressure and more land value write downs are a distinct possibility, although likely to be of lesser magnitude than in 2008. However, fewer option write-offs are likely.

Deterioration in credit metrics will continue during the fourth quarter of 2008 and next year, particularly for profit related metrics (EBITDA, interest coverage; debt to EBITDA). Tangible net worth covenants will again be challenged.

Most of the public builders that Fitch tracks have negotiated new revolving credit agreements or amendments to existing agreements that should prevent the companies from violating interest coverage covenants in the fourth quarter of 2008 and into 2009 as well as covenants applicable to speculative inventories and tangible net worth. Some builders may have to revisit their bank syndicates and request further covenant adjustments in 2009.

If Fitch's year-end forecast for 2008 is correct, then 2009 will start off with still considerable inventory over-hang. New home sales comparisons (year-over-year) would likely bottom late in 2009 with housing starts bottoming three-to-six months later.

There is a high probability that many public builders' revenues and profitability will fall further in 2009. Excluding tax refunds, cash flow from operations is likely to be lower in 2009 relative to 2008.

Credit pressures will continue. It will be imperative that builders continue to contract their balance sheets, further reducing land and development spending. Possibly more aggressive pricing may be necessary to lower inventories, especially specs. Positive free cash flow comparisons should result.

Fitch expects homebuilders to reduce debt where possible and to exercise restraint as to share repurchase, dividends and acquisitions in these uncertain times.

Although some builders have been more proactive than others in reducing inventories and lowering debt levels, most, in retrospect, started relatively late during this cyclical downturn.

Fitch rates the builders within the context of a typical cycle. In the midst of a non-typical upcycle, as took place in the 1992-2005 period, a number of builders realized higher credit ratings. Conversely, in this sharper than expected contraction, which it appears will last longer, and as builders' operating and credit metrics will be even more stressed, ratings again have to be adjusted.

Following last week's rating actions, Fitch's Rating Outlook is Negative for the majority of the homebuilders. Recent and projected credit metrics and other key metrics, such as inventory and debt contraction and cash flow generation, were taken into account relative to the new ratings.

The following is a list of Fitch rated issuers and their current Issuer Default ratings (IDRs) in the U.S. homebuilding sector:

--Beazer Homes USA ('B-'; Outlook Negative);

--Centex Corp. ('BB'; Outlook Negative);

--D.R. Horton, Inc. ('BB'; Outlook Negative);

--Hovnanian Enterprises, Inc. ('B-'; Outlook Negative);

--KB Home ('BB-'; Outlook Negative);

--Lennar Corp. ('BB+'; Outlook Negative;

--M.D.C. Holdings, Inc. ('BBB-'; Outlook Stable);

--Meritage Homes Corp. ('B+'; Outlook Negative);

--M/I Homes, Inc. ('B'; Outlook Negative);

--NVR, Inc. ('BBB'; Outlook Stable);

--Pulte Homes ('BB+'; Outlook Negative);

--Ryland Group ('BB'; Outlook Negative);

--Standard Pacific Corp. ('B-'; Outlook Stable);

--Toll Brothers, Inc. ('BBB-'; Outlook Stable).

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Fed To Press Rates Toward Zero

The U.S. Federal Reserve is expected to drop interest rates close to zero on Tuesday, but anticipated remarks on unconventional methods to dispel a year-old recession are what will really matter.
Economists forecast a clear statement that the U.S. central bank will aggressively deploy so-called quantitative easing measures to shelter the economy from a steepening downturn, but do not expect details of what steps it will actually take.

Those words would accompany a decision by the Fed to lower its target for overnight rates by at least a half-percentage point, economists believe.
A half-point cut would take the bellwether federal funds rate to just 0.5 percent, the lowest on records dating to July 1954, as the central bank battles a recession many think will stretch well into next year.
The announcement is expected around 2:15 p.m. on Tuesday at the end of a two-day meeting. The gathering had initially been scheduled for a single day, but was extended so policy-makers could study options for unusual steps to spur the economy with little room left to lower borrowing costs.

"From here on out, monetary policy has to rely primarily on non-traditional tools, tools other than the funds rate, to try to stimulate the economy," said former Fed Governor Lyle Gramley, who expects the Fed to spell this out.
"They are certainly going to have to acknowledge that non-traditional methods are going to be employed aggressively to try to provide assistance to the economy," he said.

A U.S. housing collapse panicked credit markets and has hammered the rest of the economy since the failure of investment bank Lehman Brothers in September. Many economists predict economic activity will shrink by an annualized 6 percent or more in the fourth quarter as unemployment climbs.
Quantitative easing, which the Bank of Japan used to end a decade of deflationary stagnation in the 1990s by pumping money into the banking system, was foreshadowed by Fed Chairman Ben Bernanke in a speech on December 1.
He emphasized the Fed would use all the weapons in its arsenal to protect the economy, and identified direct purchases of government and mortgage-related debt as possible options.

TARGET SPREADS

With yields on U.S. government debt already very low and private borrowing rates high because loss-scarred banks are too scared to lend, economists think it more likely the Fed will target private-sector mortgages to drive down home loan costs.
Buying such bonds should narrow the spread between their yields and yields on debt issued by the U.S. Treasury, and allow banks to offer home loans at lower rates.
Lower mortgage rates should raise demand for houses and stem the slide in home prices, which would help staunch massive bank losses that have touched off a global credit crisis.

"My one-word advice to the Fed now is 'spreads.' Fortunately, I don't think Ben Bernanke needs this advice. He gets it," said Alan Blinder, a former Fed vice chairman and professor of economics at Princeton University.
The Fed has already embarked on quasi-quantitative easing by allowing its balance sheet to more than double in size after pumping over $1 trillion into financial markets to prevent them from seizing up completely in the face of mounting losses.
Such liquidity measures are traditionally "sterilized" so they do not expand the money supply and stoke inflation.

But the Fed has abandoned this practice in an effort to reduce private borrowing costs that have so-far remained elevated despite dramatic official interest rate cuts. In addition, inflation fears have been replaced by worry that prices may fall too far and inflict deflation, similar to the Japanese economic conditions of the 1990s.
"The focus will be on purchasing assets to affect spreads. All of their policies are aimed at driving down borrowing costs to consumers and businesses," said Dean Maki, co-chief U.S. economist at Barclays Capital in New York.
"We don't think that the best use of the Fed's balance sheet is to further reduce the risk-free rate," he said. U.S. Treasury bonds are said to offer a risk-free rate of return because the U.S. government, with the ability to print dollars via the Federal Reserve, would never default on dollar debts.

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Oil Prices Near $48 a Barrel as Dollar Falls

Weak dollar outweighs IEA report on weak demand; oil prices near $48


Oil prices rose 10 percent Thursday as the value of the dollar sank further and investors dumped money into crude markets.

The falling dollar, which makes commodities like oil more attractive, outweighed a new report from the International Energy Agency, which said energy demand is sliding sharply.

Crude prices have spiked ahead of next week's meeting of OPEC, which is expected to slash production.

"Probably the biggest factor right now is financials," said Phil Flynn, an analyst with Alaron Trading Corp. "The market is worried that all these bailouts ... means we're going to be printing a lot more money, which makes the dollar weaker. That's really supporting the price."

Analysts cautioned reading too much into oil's rally. The price is up nearly 18 percent from last Friday's settlement price. After all, you don't have to look far to be reminded of the global economic downturn and its effect on crude consumption.

Paris-based IEA said Thursday that global oil demand will shrink this year for the first time since 1983. The IEA cut its forecast for global oil demand in 2008 by 350,000 barrels a day to 85.8 million barrels a day, down 0.2 percent from 2007.

The IEA also cut its forecast for global oil demand in 2009, saying it would increase by just 0.5 percent next year, to 86.3 million barrels a day. That's 200,000 barrels a day less than its estimate last month.

"It's premature to say the lows have been placed," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates. "If they don't put an auto package together soon, if the stock market gets slammed 300 or 400 points, we could shrug off the currency factor pretty quickly."

Light, sweet crude for January delivery rose $4.46 to settle at $47.98 a barrel in trading on the New York Mercantile Exchange, after rising to near $49 earlier in the session.

Prices at the pump, however, continue to plummet. Gasoline prices fell 1.9 cents overnight to a national average of $1.664 per gallon, according to auto club AAA, the Oil Price Information Service and Wright Express. That's 55.6 cents a gallon below what it was a month ago and $1.326 below where it was a year ago.

The U.S. dollar lost ground against other major currencies, making commodities like oil more attractive to investors as a hedge against inflation and dollar weakness.

The euro rose to $1.3227 on Thursday from $1.2988 late Wednesday in New York, while the dollar fell to 91.18 Japanese yen from 92.63 yen in the previous session.

Focus has remained on comments coming from the Organization of Petroleum Exporting Countries, which accounts for about 40 percent of global crude supply. The group has signaled it plans to slash output quotas at a meeting Dec. 17 in Algeria.

Many analysts expect production cuts of as much as 2 million barrels a day, which would match the combined reductions of two previous output cuts earlier this year.

Victor Shum, energy analyst at consultancy Purvin & Gertz in Singapore, said indications from Saudi Arabia -- the biggest oil producer in OPEC -- that it would cut production going into January boosted hopes of a significant output reduction.

Russia's plan to coordinate production levels with other non-OPEC producers also supported prices. Energy Minister Sergey Shmatko said Russia would soon make an announcement of its intentions with OPEC.

On Thursday, Russian President Dmitry Medvedev suggested that Russia is ready to work with OPEC.

"I'd like to say that we are ready to defend our revenue base -- oil, gas. Moreover, such defensive measures could be connected with a reduction in oil output, and with the participation in the existing organization of producers," he was quoted as saying by RIA-Novosti and Interfax.

Shum said OPEC production cuts, which had failed in the past to curb plummeting oil prices, would not result in a rally but would stabilize the market and prevent any further downward spiral.

"There is a lot of bad economic news and if there is no meaningful cut by OPEC, oil pricing will come under a lot of downward pressure," he said.

What's more, he added, the success of any output cut in stabilizing the oil price will depend on how closely OPEC members comply with it.

In two separate announcements, OPEC said it would cut production by 2 million barrels a day.

OPEC's November production was well above quotas agreed to by member states, according to Platts, the energy information arm of McGraw-Hill Cos.

OPEC's 13 members pumped an average of 31.38 million barrels a day last month, a decline of only 880,000 barrels from the October level.

Oil prices have fallen 70 percent since peaking at $147.27 in July. After hitting $40.50 a barrel last week, some oil traders believe that if the market has not bottomed out, it is close to doing so.

"While we maintain our bearish bias, we are of the opinion the market has found a range in between the low $40s on the bottom and the mid $50s on the high end," oil trader and analyst Stephen Schork said in a report Thursday.

In other Nymex trading, gasoline futures jumped nearly 11 cents to settle at $1.0786 a gallon. Heating oil gained 10 cents to settle at $1.5066 a gallon and natural gas for January delivery fell 11.8 cents to $5.568 per 1,000 cubic feet.

In London, January Brent crude soared $4.99 to settle at $47.35 on the ICE Futures exchange.

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Today's Riksbank Rate Announcement

Sweden's Riksbank Meets Ahead of Schedule to Cut 175bp and Shifts Policy Outlook

Today's Riksbank rate announcement was moved forward from December 17. The central bank gave no reason for the date change but the move by the Riksbank's suggests that the central bank is eager to cut rates. A potential aggressive cut would coincide with similar moves from the ECB and BoE today. We have revised our rate outlook and now look for a one percentage point rate cut to 2.75%, which is in line with the Bloomberg snap poll this week. The Riksbank should also revise down its growth and rate projections. We expect further sharp rate cuts ahead and look for the repo rate to bottom at 1.50% next year.


The Riksbank slashed the repo rate by a massive 175bp to 2.00%, far more than the market median estimate for a 100bp rate cut as well as the 125bp cut priced in the markets. The aggressive move will also raise the stakes ahead of the BoE and ECB rate announcements later today. The central bank signals that this is its last cut, with its rate path outlook having the repo rate bottoming at 2.00% and sees a repo rate of 2.5% in Q4 of 2010 and of 3.2% in 2011. However, we see the risk for the Riskbank yet again having to revise down its rate estimate and cut rates further to 1.50% next year. The central bank also revised down its growth estimates to 2.2% and -0.5% for 2008 and 2009 respectively, versus 1.2% and 0.1% in October, while 2008 and 2009 CPI is now estimated at 1.2% next year, compared to a 2.1% estimate in October.

Meanwhile, the SEK headed lower after the Riksbank rate move, which saw the repo rate slashed by 175bp to 2.00%. The move was a shock to the market, which was pricing in a move up to 125bp, although the consensus had been for a 1% move. EUR-SEK moved up to 10.5290 highs versus 10.4500 ahead of the announcement, which increases the risk of a challenge of the 10.6900 top recorded in November. Equity markets and the churn in the risk profile should drive price action, while the risk of further rate cuts ahead should also encourage further SEK selling on rallies. EUR-SEK bids are noted below 10.4000 and in to the 10.3500 region in the very near-term.

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Trend of the Day EUR/AUD

EURAUD is coiling in a tight Pennant formation.

The European Central Bank (ECB) rate decision could be the catalyst needed to break this pair out of this range and toward new highs. The daily trend remains up and prices are hugging close to the rising daily support trend line. Buying at support with a stop 50 pips below the trend line targeting the next level of resistance occurring at 2.0597 would be a possible course of action. An alternative course of action entails buying a break or the Pennant at 1.9902.

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