Now that the market lives and breathes with every Fed decision and transaction, reading tea leaves and juggling cow feces has about the same predictive impact on security outcomes as analyzing fundamentals or technicals. Yet from the perspective of correlations, nothing is as important as the dollar: equities have a -100% correlation to the value of the dollar, which in turn impacts commodities and even interest rates. The dollar is the primary market leading indicator. Which is why we present the key points from the Goldman Sachs "Themes and Ideas for Q1 2010 and Beyond: FX Sales Strats" in which Goldman shares a few thoughts on why in its chartist opinion, and contrary to that voiced by Jim O'Neill and other Goldman strategists, the dollar is headed higher. And possibly much higher.
Just because every credit collapse mushroom cloud has a silver lining. The Obama miracle recovery captured in one simple, easy to remember song.
After posting a minor dip in October, at 9.04%, Capital One's charge off ratio once again resumed its upward climb, hitting 9.60% in November. This number was 9.77% in September so it looks like December data could be even worse as all those newly purchased plasma TVs start demanding payment. The worst data point was the 30 Day+ delinquency rate which was at 5.87%, which compares to 5.38% in September and 5.72% last month. If this number continues growing it is inevitable that the charge-off rate will also spike in the future. Meredith Whitney's greatest fear is slowly coming true.
Another masterpiece in the blistering Santelli-Liesman clash. The Rickster continues questioning the economic comprehension of Comcast's brand new chief economics reporter. That, and of course highlighting the propaganda reporting of said economist who enjoys highlighting good news, and "sweeping any bad news under the rug." When asked "do the bulls want to cry when the numbers don't go their way" Liesman responds appropriately, and hilarity ensues as usual. Some pearls of wisdom from Steve: "Rick, what you need to do is understand Emergency Claims Benefits" to which the retort is: "You don't say anything I find interesting to hear."
- German investor confidence falls for third month, Greece roils markets, CDS spikes from 220 to 247 bps (Bloomberg)
- Producer prices climb more than forecast (Bloomberg)
- Pension fund sues Goldman over pay (Dealbook)
- Clearance sales not good for bottom line shocker: Best Buy lowers Q4 forecast margin, shares drop (Bloomberg)
- Abu Dhabi may demand control after $10 billion Dubai lifeline (Bloomberg)
Empire State Manufacturing Continues Plunging, Drops From 23.5 To 2.55 In November, 34.6 In SeptemberSubmitted by Tyler Durden on 12/15/2009 - 09:45
Cash for Clunkers is long forgotten, and it is now time for another manufacturing stimulus: from 34.6 in September to 24.5 in October to a mere 2.55 most recently. Diffusion data suggested further contraction in margins, evaporation of optimism and an ongoing decline in inventories: the whole 5% of Q4 GDP is becoming a Liesmanian myth.
- Airline loss forecast for 2010 widens to $5.6B on fuel, IATA says.
- Chinese government will target “excessive” growth in property prices in some cities.
- Dubai bonds show more aid needed from Abu Dhabi to repay 2010, 2011 debt.
- German Investor confidence falls as recovery weakens, Greece roils markets.
- Gold futures down $7.90 at $1,115.90 an ounce.
- Major Asian markets decline, Hang Seng falls 1.2% as China developers fall.
RANsquawk 15th December Morning Briefing - Stocks, Bonds, FX etc.
There has been much conjecture on whether using CDS is an effective way to hedge against US default risk. Many theoreticians, especially those of the post-March lows variety, have sprung up and are speculating that buying Credit Default Swaps on the US is ultimately a futile and pointless endeavor. The main argument: a US default would likely mean that interconnected dealers won't recognize contracts on a US default event, as they themselves will be out of business. Even if they continued to exist, like cockroaches in a postapocalyptic world, the collateral which backs derivatives is mostly US Treasurys: the same obligations that would end up being massively impaired. Furthermore, even though US CDS try to isolate currency risk by being euro denominated, a somewhat gradual collapse into default would make the dollar lose its value, which would make premium payments in euros untenable for the protection buyer. Then again, regardless of theoretical considerations, in a world fleeing from any risk, it is precisely US CDS where everyone would be rushing to: just recall the 100bps US CDS wides reached in March.
Spreads tightened notably today with HY outperforming IG and credit outperforming equity as Abu Dhabi's hail-mary provided support for the bulls systemically on a slow econ data day. Breadth was very positive with winners far outpacing wideners on the day as FINLs outperformed non-FINLs in credit-land but underperformed in equities.
As Europe continues shouldering the burden of the devaluing dollar, courtesy of a Euro that just wont quit, even as the Eurozone is constantly putting out fires in its own backyard (Greece, Hypo, Latvia, ongoing downgrades), the optimism over European prospects is now more pervasive than ever. In a report titled "Key Surprises for 2010" Morgan Stanley's ever insightful Teun Draaisma has attempted to present the intangibles: the unquantifiable risks. As he points out "if there is a lesson the markets keep telling us, it is the persistence of uncertainty. Unlike risks, which are known and measurable, uncertainty is difficult to calibrate. We can never know the exact payoff distribution for any given investment." In order to conceptualize the 4 key areas of possible systematic impact, the strategist has provided 4 main scenarios he believes may shape equity returns over the coming year in a downside case.
While certainly a "slight" improvement from last week's ratio of 82 sales for every buy (in dollar value), this week we see a reversion back to the recent mean of about 30x, or a 32.4x ratio of insider selling to buying, to be specific. In the last week insiders sold $332.7 million worth of stock and bought $10.2 million. The recession continues being over.
Six months ago, Bill Ackman's Pershing Square came out with a research piece called "The Buck's Rebound Begins Here" in which he concluded a fair equiy value for bankrupt REIT General Growth Properties is between $10.40 and $30.08 per share. While since May the liquidity bubble has lifted all dodgy commercial REITs to unbelievable valuations, courtesy of round upon round of diluting capital raises, GGP being among them, the question of whether the tide has moved too far too fast is once again relevant, both for the broader REIT segment as well as for GGP in particular. Today we present the opposite view courtesy of Hovde Capital Advisors, and their report "General Growth Properties - Fool's Gold: We Think Current Equity Investors Will Be Disappointed in the Company’s Reorganization."
A quant fund voicing against the proposed transaction tax is hardly surprising. We expect many more letters from Asness' colleagues at GETCO, RenTec and all other HFT venues whose livelihood depends on strictly continuing the status quo. We eagerly expect a follow on essay in which Mr. Asness discusses the pro and cons of High Frequency Trading.
Should Congress and the President find enough appeal in HR 4191 to enact it, there are
three possible outcomes. The first is that there are enough loopholes that the tax raises
little money but has unfortunate side effects like driving jobs and tax revenues overseas
or inflating the balance sheets of banks. The second is that there are no meaningful
loopholes but, surprisingly, people still trade a lot and enormous taxes are paid, in which
case we expect stock prices to fall dramatically. The third, and most likely, is that there
aren’t enough exemptions and investors react by sharply reducing trading activity, so
there is little revenue but great harm to the market and the economy. Whichever of these
occurs, the sponsors of the Bill will face a hard time explaining how, when aiming to
shoot the banks, they shot their constituents who will then pay for the next Wall Street
bailout. - Cliff Asness
A 20 year chart comparing oil with railcar loadings may have something to say about either the mispricing of the commodity or provide some insight into Buffett's thinking on his long-term interest in rail. Granted, he started buying rails at or about the market peak so it is unlikely that the Omaha recipient of governmental generosity has this particular correlation in mind, however, it is oddly striking that while in the past the two trendlines have had a very distinct pattern, ever since the pop in the commodity bubble and the collapse of America into a recession the two have converged. On the other hand, as oil prices are driven purely by speculation and reflect very little of fundamental supply/demand metrics, and thus reflect nothing but excess liquidity, this particular convergence may persist for as long as Bernanke deems it relevant.