As a bond trader for a major insurance company, I receive tons of economic commentaries from banks on the street on daily basis. I’d like to share some informative stuff you guys might find interesting going forward. 

David Rosenberg
Merrill Lynch Chief North American Economist

In need of a new bank - a jobs bank

“Internals of the report were as weak as the headline
The internals of the report, like its recent predecessors, were at least at weak as
the headline. The benchmark revisions were mixed but December was taken
down to -577,000 from -524,000 respectively. With all the revisions and the
current estimate for January, the economy has now shed 2.5 million jobs in just
the past four months. Compare that to the 1.8 million average decline we
typically see through the entire 10-month recessions of the past. We exceeded
that in just the past four months alone!
Job losses very broad based
The diffusion index is down to an all-time low of 25.3%, which means that for
every company adding to their payrolls, three are in cutback mode. The
comparable figure for manufacturing, by the way, is down to an all-time low of
7%, which means that businesses in the sector that are cutting jobs are
outnumbering the ones adding to payrolls by a 14-to-1 ratio. In the last recession,
the low in this factory diffusion index was 10 and in the early 1990s the trough
was 17 – just to put the current 7 figure into perspective.
Household survey showed a record 1.24 million job plunge
The companion Household survey was even worse than the payroll report, if that
is possible – showing a record 1.24 million job plunge. The data go back to 1950,
and we have never seen something like that before; even in per cent terms
(-0.9%), there has not been a decline of this magnitude in over 40 years. And
almost all of the January plunge was in full-time employment – down an eyepopping
1.1 million, taking the cumulative loss since the recession began in late
2007 to 6.1 million, which is unprecedented. In a “normal” recession, we lose a
little more than 2-1/2 million full-time positions. We have already lost nearly three
times that amount and counting.
Unemployment rate for full-time workers spiked to 8%
And, it is full-time employment that ultimately drives income, confidence and
spending. While the unemployment rate jumped 0.4 percentage points for the
second month in a row to 7.6%, the highest since September 1992, the rate for
full-time workers spiked from 7.5% to 8%, which was the highest since January
1984.”

Home prices still far from stabilizing
It stands to reason before we can expect to see the chain events reverse course,
we first must see house prices begin to stabilize. Unfortunately, at a record 12.9
months supply of unsold new housing inventory, we are nowhere near the eightmonth
level we would like to see before calling an end to the residential real
estate deflation cycle. Between now and the time that we attain that eight-month
supply threshold, there is at least a 15% downside potential to nationwide home
prices, with a adverse implications for bank capital not to mention the
government’s best efforts to modify delinquent mortgage loans.

Unprecedented loss in household wealth
As it now stands, the bear market in residential real estate and equities has
resulted in the household sector losing $13 trillion of net worth, which is a 20%
plunge and ongoing. Not since the 1930s has there been such a gaping hole
created in the household balance sheet. And insofar as households realize that
unlike prior recessions, this loss is going to be permanent and not temporary, the
impact is going to be at least a 3% decline in consumer spending annually in
each of the next three years as households are forced to put more of their
paycheck into the coffee can in order to make up for this monumental loss of
wealth.

“A society that promotes lies (make believe computer based asset valuation by fiduciaries) as truth (real value) for the profit of the few is NOT a society, but rather a group of animals destined for their own immediate destruction.”

- James Sinclair on the proposed change in mark to market accounting rules to mark to ...

Deflation in home prices to
linger longer

Housing starts will make even lower lows
The good news is that the homebuilders are finally getting serious about cutting
supply and over the past two months they have sliced the level of single-family
starts below the level of underlying demand. The bad news is that it is looking
increasingly as if housing starts, which are already at post-WWII lows, are going
to have to make even lower lows because trying to grow our way out of the
excess housing inventory looks more remote than ever because affordability has
already improved to its best level in history. Yet, new home sales in the fourth
quarter collapsed at a 57% annual rate and fell by 23% in the existing home
market. In January, we see that mortgage applications slid at a 20% annual rate
and the NAHB sales index fell to a new all-time low of 6; it was 78 at the 2005
peak, and it’s down to 6 despite the lowest mortgage rates in over a generation.

Attitudes towards debt have shifted substantially
The bottom line and this came though loud and clear in the Fed Senior Loan
Officer survey that just came out for the first quarter, is that less than 10% of
households increased their demand for credit while nearly 60% reduced their
demand for consumer credit and for the 14th quarter in a row, households cut
their net demand for mortgages. So again, a key reason for the weakness in
housing sales isn’t even so much the tightness in the supply of credit but attitudes
in general towards debt from the demand side have been altered substantially
and housing by definition is a leveraged asset.

Would take years to mop up surplus inventory…
This, in turn, means that to eliminate the inventory through the builders
maintaining discipline on the production front, and assuming that we get no
pickup in demand, it would take more than eight years to soak up the excess
supply. Alternatively, if the builders just issued a complete moratorium on new
housing starts, then it would take two years to mop up the surplus inventory.

And years to get some resolution to housing deflation
For anyone out there who does believe that a revival in the demand for homes is
just around the corner, consider that the inventory problem is so acute that sales
would have to soar 350%, and that still assumes that the builders leave their
starts at their current record-low level. That just shows you how arduous an
exercise this is going to be. Our assumption in our macro forecast is that home
prices begin to stabilize by early 2010, but that is just an assumption. Looking
through the lingering excess inventory, and what it could take to get to a renewed
balance between supply and demand, it could easily take years before we get
some resolution to the housing deflation cycle.
Just to run through the math quickly, we have net household formation now all the
way down to 770,000 units, and when you apply a 68% homeownership rate to
that, we get underlying demographic demand somewhere around a 520,000 unit
annual rate. Single-family starts are all the way down to a 400,000 annual rate.
So, you can see that if things just stay the way they are, it takes eight years to
absorb the 1 million units in excess single-family inventory.

We still have another 15% downside to home prices
In any event, if there is one part of the forecast we are extremely confident in at
this point, it is that we still have at least 15% more downside to average home
prices nationwide. This comes on top of the record 25% decline so far in this
down-cycle. That additional 15% decline, as an aside, would be enough to wipe
out the remaining capital at the large banks and would double the number of
people who are upside-down on their mortgage from 13 million to 25 million. This
means that half of the 51 million households with a mortgage would then be in a
negative net equity position, so the process of fiscal stimulus, government
incursion into the banking sector and loan modifications doesn’t end this week.

You guys are funny,

The states are in a state of disarray
We still think that whatever analysis on the fiscal stimulus is done must take into
account the escalating restraint at the state and local government level. The
states are in disarray. Seven of them have now totally emptied out their
unemployment insurance trust funds. Fiscal gaps have opened up in 42 states,
and, when added to the shortfalls at the start of the year, they cumulate to a
whopping $80bn. California, the world’s ninth largest economy, is in crisis mode,
slashing pay for 200,000 civil servants by an average of 9.2% as the state opts
for a two-day– per month furlough. But all that does is save the state $1.3bn (it
has a $42bn fiscal gap to close).
Have a look at page 19 of the Sunday, 8 February New York Times article
“California Work Program For Young Is Threatened”. It is unfortunate that the
California Conservation Corps, modeled on the depression-era Civilian
Conservation Corps which put unemployed younger men to work in enhancing
the country’s landscape (from fences, to bridges, to soil improvement to park
construction) is about to face the governor’s budget knife.

State & local governments: the largest employer in the US
If the government can move to insure bank bonds in an effort to bolster confidence
in the banking system, or the Fed can move to backstop the asset-backed market
for consumer loans, why would the federal government not look at providing
support for such a critical part of the economic and social fabric of the country as
the state and local government sector? This is a sector that represents our
teachers, law enforcement, fire prevention, and health and social assistance? The
state and local government sector spends $1.8tn per year, an amount equivalent to
nearly 13% of GDP. That is more than what businesses spend on new plant and
equipment annually.
The state and local government sector employs 20 million, or 15% of the total,
compared with 13 million in manufacturing, 8 million in financial services, less
than 7 million in construction and fewer than 3 million at the federal level. At some
point, Washington will figure out that the biggest bang for the buck will come from
supporting this fledgling segment of the economy, as opposed to tax gimmicks
aimed at boosting auto spending at a time when the average American household
owns 2.2 vehicles, or boosting housing demand in what is still a near-record 68%
homeownership rate.

State and local government GDP collapsed in 4Q
As Chart 1 vividly illustrates, the state and local government segment of GDP
literally collapsed at a record 7.8% annual rate in 4Q. One would think that it
would be a given for any effective fiscal stimulus plan to prevent this huge share
of GDP, employment and social services from contracting any further.

Look for yet another 500k+ job slide
Look for yet another 500k+ job slide when the February payroll data roll out too:
It’s not just because the jobless claims are north of 600k or the 45% surge in
Challenger layoffs in January, but yesterday we also were on the receiving end of
the Conference Board’s employment trends index, which faltered to 96.6 from
97.5 in December, 100 in November and 118.7 a year ago.

Gas prices are now on the rise
In addition to the steep job losses, accelerating deflation in home prices, and the
backup in mortgage rates, gasoline prices are now on the rise. In fact, prices at
the pump now average 1.92 bucks a gallon – up 30 cents since the start of the
year for a $40 bln annualized cash flow drain. Whatever is in this coming fiscal
package, all we can say is ... it better work.

The next crisis – university endowments
Speaking of university endowments, we caught this headline off our Bloomberg,
“Dartmouth to Cut 60 Jobs After 18% Endowment Decline.” The college will fire
60 employees after the value of its endowment sank $700 million. An additional
70 employees have accepted buyouts while 28 others will have their hours cut.

(deleted)

I’m enjoying your tidbits of news BondTrader.  Keep em coming.

.

A Plan for a Plan

Short on details, long on promises
The Treasury’s new Financial Stability Plan (FSP) was released with a reasonable
structure yet little in the way of detail. The general themes had been anticipated
for some time: another round of capital injections, a plan to allow for the purchase
of distressed assets, an expansion of the Term Asset-backed Liquidity Facility
(TALF) and a housing program aimed at reducing foreclosures. Media reports of
the four program sizes suggest the FSP will be financed using the remaining
TARP funds.

Partners
This public-private fund to purchase distressed assets is potentially the keystone
to the entire plan. Yet, the amount of information provided regarding the plan was
minimal and therefore we cannot evaluate the possible efficacy of this aspect of
the SFP. The Treasury Secretary noted that the program could be $1 trillion in
size. However, the purchase method, the interest of private participants and the
methodology for valuing assets is all uncertain. Linking this program more tightly
to the capital injection program would have eliminated the need for the “stress
test” and rationalized the size of any capital injection.

Bottom line
The market seemed to react negatively to a lack of details after a build up of
market anticipation. It appears to have been disappointed by what is perceived as
a continued “ready, shoot, aim” approach. While the Treasury likely weighed the
cost and benefit of holding off on the announcement in order to iron out details,
the market seemed to be hoping for more clarity than was provided today.

For whoever is interested in knowing more about the bank rescue plan.  The system will ask you for your name and company, just make up something, like “Michael Jordan, Lehman Brothers”,

Credit Suisse Conference Call: Preliminary Thoughts on the Treasury Plan
Date: Tuesday, February 10, 2009
Time: 4:15 - 5:15pm EST

Replay:
*Dom: (800) 642-1687
*Int’l: (706) 645-9291
Pass code: 85452778
Available through: February 20, 2009

Latest on the stimulus bill
With a version of the stimulus package having passed the Senate, the bill now
moves into conference where the House and Senate will come together and
hammer out some sort of compromise. The only reason the bill was able to pass
the Senate with more than 60 votes (60 votes is critical because it’s the breaking
point for a filibuster) was because three moderate Republicans signed on after
cutting roughly a $100 billion of social spending from the package. And, we see
on page A4 of today’s Wall Street Journal (“Obama Seeks to Restore Some
Stimulus Spending”), that the President wants some of that spending back in and
the final bill to look more like the version passed by the House. However, we see
the following on the front page of today’s Investor’s Business Daily: “Centrist
Senators Warn House Over Stimulus.” These moderate senators are warning
House Democrats not to tinker too much with the version of the bill passed in the
Senate.

US consumer confidence remains weak
A couple of consumer confidence reports were released yesterday and they both
dropped. The IBD/TIPP Economic Optimism Index dropped to 44.6 in February
from 45.4 in January. Remember that on this index, anything below 50 indicates
negative sentiment and it has been flashing negative since April 2007. We also
received the weekly ABC News/Washington Post consumer comfort poll, which
dropped to -53 for the week ending February 7 from -52 the week before. The key
takeaway from this report was the fact that the state of the economy component
collapsed to -92 from -90, a new record low.

Another sign of the new frugality
Take a look at the front page of today’s Financial Times, “Discount Coupons
Open New Format in Battle of the American Brands.” Here is what the FT had to
say, “The humble money-off coupon rather than the high-profile advertising
campaign is emerging as a new battleground for some of America’s biggest
packaged goods brands as U.S. consumer demand falters.” And, in a sign that
the luxury goods market is not about to recover any time soon, take a look at
page 20 of today’s Financial Times, “De Beers Sees No Diamond Recovery in
Sight.”

State governments shedding jobs too
And, it’s not just private employers shedding staff. California, the world’s ninthlargest
economy, is on the verge of cutting 20,000 employees as it faces a $42
billion deficit through June 2010. Governor Schwarzenegger warned that workers
will have to be sent layoff notices if a budget deal is not reached by Friday. The
savings would be about $150 million through the end of the 2009-10 fiscal year.
Also take a look at page A3 of today’s Wall Street Journal, which points

deleted

BondTrader,

Thank you for your executive summary of our economy. I enjoy reading it every morning like a morning paper.

Adjusted misery index is on the rise

Misery Index - Unemployment Rate + Headline Inflation

We decided to reconstruct the misery index to accommodate for the changing
environment. We amended the index in two ways: First, we set 2% on headline
inflation as a target rate for price stability. Deviations further away (both up and
down) from 2% would add to the misery index. Secondly, we counted the
difference between the unemployment rate above the natural rate of
unemployment as increasing misery. We did this to remove the impact of
structural changes in the labor market over time. After all, once you drop below
the natural rate, it is not clear there is any decline in misery associated with a
further drop in unemployment. The chart below reconstructs the misery index
using these changes with our latest 2009 forecasts. The chart clearly illustrates
that misery is on the rise, not in retreat.

Deflation also creates economic instability
The underlying assumption in the traditional misery index is that a rising rate of
inflation creates social and economic costs, which is true. A higher rate of inflation
means that the purchasing power of currency declines. It also increases the cost
of holding cash and, more generally, creates uncertainty.
However, what that is missing is the fact that deflation, which is the dominant
macroeconomic risk over the near- and intermediate-term, is also a source of
uncertainty. As deflation expectations set in, consumers delay purchases on the
notion that prices will continue falling and that this reduces economic activity.
Deflation also hurts borrowers. Since deflation increases the purchasing power of
currency, borrowers would be paying off debt with dollars that are increasing in
value while the value of the asset being paid off is falling. In other words, the real
cost of debt is going up. The original misery index was telling a meaningful story
when inflation was running in the double-digits and the national savings rate was
north of 8%. That is not the case today.

Price stability cuts both ways
Price stability cuts both ways. Deflation can create as much misery for the
consumer as inflation. That’s why central banks adopt target rates of inflation or,
in the Fed’s case, comfort zones ranging between 1.5-2%.

I hope I’d be able to find some good news for you guys in the near future…

BondTrader - 11 February 2009 01:50 PM

I hope I’d be able to find some good news for you guys in the near future…

Please don’t.  Keep the bad news coming.

If spending the taxpayer’s future is not effective, just steal some pension funds and that will work?

Ackerman

China a buyer of US Treasuries
Finally, an answer comes out over whether or not China would begin a buyer’s
strike against the US Treasury market,the answer is that it ain’t going to happen (China
selling our bonds) and don’t take our word for it – just heed the words from Lui
Ping, director-general at the China Banking Regulatory Commission in a speech
in New York yesterday (and excerpts available on page 13 of the FT – “China To
Stick With US Bonds”). We love this one – “Except for US Treasuries, what can
you hold? Gold? You don’t hold Japanese government bonds or UK bonds. US
Treasuries are the safe haven. For everyone, including China, it is the
only option”. Liquidity. Transparency. Optionality. Safety. Yes indeed, for the
“bubble-ites” out there – there are reasons beyond the coupon to own Treasuries,
and the Chinese understand that.
And, it even looks as though the typical retail investor saw what we saw as the yield
on the 10-year note jumped 100 bps in short order – a buying opportunity, because
investors plowed $5.14 billion into bond funds last week (ICI data) while equity
funds suffered a net outflow of $739 million. See page C13 of the WSJ for more.

Ports in a storm
According to the WSJ, container activity at the Port of L.A. slid 15.8% YoY in
December. This was the steepest decline in 13 years. Volumes finished the year
down an average of 6%, the second straight year of decline, which has never
happened before (at least back to 1980).

How ironic is that?
A year ago, the consensus forecast was that 4Q08 GDP growth was going to be
the best for the year at nearly +3% at an annual rate and it now looks like it will be
worse than a -5% annual rate. And the reason was because the economy is
almost always reaccelerating in the fifth quarter following the first Fed rate cut. In
fact, on average, real GDP growth is north of 3% in that particular – the fifth
quarter after the first easing. Never before has it been this negative this far into a
rate-cutting cycle. Just another way of saying that this is not really a recession at
all but something entirely different altogether (if you catch our drift).

Congress reaches an agreement on stimulus bill

Yesterday afternoon, we learned that the House and Senate have reached an
agreement on the economy recovery package. The final price tag on the package
came in at $789 billion, below the price tag of both the House and Senate
version. This figure is close enough to our original estimate that it will not require
us to adjust our deficit outlook for the year. We continue to expect a budget deficit
of $1.45 trillion. Here are the key details of the package:

􀂄 35% of the bill would be tax cuts, 65% would be spending

􀂄 Tax breaks: $800 for family, $400 for individuals

􀂄 $44 billion in aid to the states, including money for education

􀂄 At least $6 billion to modernize schools.

Which consulting firm is getting the $1 Billion handout/contract to study healthcare effectiveness?

Better news on the foreclosure file
The number of filings fell 10% in January to 274,399 from 303,410 in
December – though they are still up 18% YoY (even here, it looks like we have
plateaued as the triple-digit increases now look to be behind us). There obviously
is an intensifying effort to work out stressed–out delinquent mortgages and
provide moratoria too – which the banks just ‘agreed’ to (see “Bankers Yield To
Congress Foreclosure Demands” on the front page of the FT). Even so, both
RealtyTrac and Moody’s still see another 3 million foreclosures in 2009.

Another sign the housing recession is deepening
Toll Brothers, the nation’s largest luxury homebuilder, reported a 51% drop in first
quarter revenue. Revenue was down for the 11th consecutive quarter.

Mortgage applications plummet
Mortgage applications plummet with large declines in both purchase and refi
volumes: Mortgage applications plummeted 24.5% in the week ending February 6th
with declines in both refi (-30%) and purchase (-10%) activity. Contract rates for
new loans fell by 9bps to 5.19% (30-year fixed) and were down by a similar amount
for jumbo mortgages, which now stand at 6.93%. Still, both are at least 20bps
higher than lows recorded several weeks ago when the government stepped up
purchases of mortgage-related debt. The bulk of activity continues to be refi-related
with most homeowners swapping out of problematic adjustable-rate loans and into
fixed rate mortgages. The large decline in refi activity last week could signal that
many are waiting for rates to go lower given the ongoing initiative by the Fed and
Treasury to drive rates down. In year-over-year terms the FHA refi volumes are up
35% versus a 54% decline in the conventional index.

February home sales off to very weak start
The large decline in purchase volumes puts February index levels down 21.3%
versus January, suggesting that home sales activity is off to a very weak start.
Relative to year-ago levels purchase applications are down 42% Y/Y for a new
cycle low. Barring a suspicious drop in early 1999, this index now is close to
10-year lows – clearly reflective of the state of housing demand into early
February. Despite record affordability on lower interest rates and home prices,
demand continues to decline, putting the floor in housing many quarters (if not
years) away, in our view. We expect to see an ongoing overhang in inventories
that will lead to continued declines in home prices.

Budget blues
The US Treasury reported an $84 billion budget deficit for the month of January,
bringing the fiscal year-to-date deficit to $569bn, $114bn higher than all of fiscal
year 2008. So far for the year individual income taxes are down 10% while
corporate income taxes are down 44%. Overall receipts are lower by 10%. Outlays
are up 41%, driven by TARP spending and the Treasury’s mortgage-backed
securities (MBS) buying program. Of the $569bn deficit, $369bn, or 65%, was
related to TARP spending and MBS purchases. We believe that this outlay is, in
actuality, an investment that is likely to lower Treasury outlays in future years. That
being said, even the remaining year-to-date deficit of $200bn would dwarf the
$89bn figure seen over the same period last year.

California is nearing a budget deal
California Governor Arnold Schwarzenegger and legislators are nearing an
agreement to fill the state’s $42 billion budget hole. Some of the proposals under
consideration include raising the state sales tax rate to 8.25% from 7.25%,
increasing the vehicle license fee to 1.15% from 0.65% on the value of the car, a
12-cent per gallon tax on gasoline, and surcharge on income taxes. All told, the
tax increases would amount to $14 billion with $16 billion in spending cuts and
add $10 billion in new state debt.

tenmagnet - 12 February 2009 09:32 AM

Which consulting firm is getting the $1 Billion handout/contract to study healthcare effectiveness?

Wouldn’t that be good to know ahead of everybody else.

BlackVault CM - 12 February 2009 10:30 AM

tenmagnet - 12 February 2009 09:32 AM

Which consulting firm is getting the $1 Billion handout/contract to study healthcare effectiveness?

Wouldn’t that be good to know ahead of everybody else.

Yeah it would.
Even better if we ran the consulting firm.
Especially now with the gov’t doling out cash for the stupidest things.
Doesn’t matter that we know nothing about healthcare
All we’d have to do is pay a “fee” to the guy in Washington to steer the fat contract over to us.

Less in the fiscal package than meets the eye
Fiscal stimulus may provide some support for various sectors, like broadband,
telecom, e-health and asphalt, but there is really less in the package than meets
the eye. For all the talk about “infrastructure”, only $150 billion of the $789.5 bln
plan is targeted for such. Go figure. The $54 bln aid for the states barely cuts
into more than half of next year’s expected fiscal shortfall. The tax breaks do not
involve changes to tax rates that elicit permanent changes to spending behavior –
$400 individual tax breaks are going to likely exert as much of a tepid impact as
last year’s rebates. Tax breaks for housing and auto buying leave us less than
inspired. Temporary relief from the AMT is something we see every year – but is
still seen as “stimulus”. Jobless benefit extension will help buy food and assist
people to meet their rental and utility bills, but we fail to see how the recession
ends with these measures. Note that the White House began to leak out
proposals for mortgage loan modification – a new program to subsidize mortgage
payments for troubled homeowners who have gone through a standardized
reappraisal and affordability test – these tests would occur before the borrower
becomes delinquent. That is the new wrinkle.

Seasonal effects at work in retail sales lift
Retail sales surprised higher in January, posting a 1.0% m/m gain which is the
first positive read since last June. Amazing – the best retail sales result in 14
months at the same time we lose almost 600,000 jobs. After all, isn’t that you do
when you are about to lose your job? Go and max out on the credit card? Most
likely, seasonal distortions played a key role in boosting the figure as consumers
waited for post holiday sales to make purchases. Therefore, we think the rise in
January has to be taken in conjunction with the downwardly revised 3.0% drop in
December, suggesting that the trend in sales remains negative. In the details,
sales were better in apparel at 1.6% gain after a 4% drop in December. Tech
stores saw a 2.6% rise after a 5.8% decline in December and non-store retailers
(the category where online sites are recorded) posted a 2.7% increase, following
a 1.2% decline in December.
What is interesting is that the raw – not seasonally smoothed – retail sales data
showed a 19.7% decline: Usually sales are down way more than 20% MoM on
this basis after what is generally a strong December because of the holidays –
December has ALWAYS been the best month of the year, even in depressions.
This time around, sales in December were only up 14% whereas they normally
are up well over 17% – so in this sense, the January jump was in part due to the
fact that the raw data were coming off a much weaker-than-normal December.

Inventory to sales highest since 2001
Business inventories fell 1.3% m/m in December – a bit lower than consensus
expectations; however the 3.2% slide in sales means that companies fell even
further behind in their efforts to control inventory costs. The inventory to sales
ratio rose to 1.44 months and is now the highest since 2001. The increase in the
past 6 months from a low of 1.23 months rivals the sudden inventory back-up
seen in the early 1980s. Moreover, the surge in inventories is most severe at the
retail level, where the inventory to sales ratio now sits at 1.61 months and is the
steepest 6-month rise ever recorded (going back to 1967). We have an excess
inventory situation on our hands, pure and simple, suggesting that more
production and employment cutbacks are on their way.