Archive - Dec 10, 2009

After we posted our preliminary thoughts on the Z.1 "Flow of Funds Accounts of the U.S." report earlier, we had the chance to dig deeper through the data in the governmental cash flow report. To our surprise we uncovered some dramatic data revisions whose presence highlights the recent "consumer resurgence" in a very different light. The key finding is that the government has been chronically overrepresenting Household Net Worth in original publications, and subsequently revising the data dramatically in order to hide the fact that consumers' wealth is nowhere near as impressive as originally represented. Putting a number to this statement: a $2.1 trillion downward revision in just one quarter.

A Detailed Technical update of the BKX Bank-Index, Crude Oil, Gold, US Dollar, Google, NASDAQ Composite, S&P Cash and DJIA Cash

No dramatic photos, but the statistics are dramatic ...

Spreads were tighter in the US today as the ten-day swing cycle in IG has once again reached channel tights. Overnight outperformance on a weakening dollar was stymied by a weak jobless claims number that stalled the performance in the US after a decent open. Breadth was very positive though in credit as roll thoughts continue to weigh (positively) on IG names with tighteners outpacing wideners by almost 6-to-1.

Goldman on Dubai (12/01/2009) "Dubai Doubts & Implications on Fina [sic]" (1:03 hour mp3 file). h/t: Hedged In

I wonder how many more years the SEC will “look at” the ratings agencies before they nail them for putting USDA Grade A stickers on rotting horse shit. Maybe the SEC should do some soul-searching and ask why they allow private for-profit companies (with tons of conflicts of interests) to act as an oversight committee for financial products. Is that not the role of a governor? It’s as laughable as renaming “bribery” the socially acceptable term “lobbying.”

At a jobs summit with President Obama, Democratic and Republican leadership gathered at the White House to discuss the Administration's job bills. Apparently it got a bit testy. Republicans pushed Mr. Obama to freeze federal spending, a plea the president answered by repeatedly challenging them to produce an economist who believed that cutting spending now would be a good idea. His query was met with silence. So, in order to rescue the inept Republicans, I have a list of 200 respected economists who would gladly support a freeze on federal spending.

"Over the weekend, key MetWest professionals assumed portfolio management responsibilities for all of TCW’s high-grade fixed income client accounts. This transition has been orderly and seamless, a testament to the professionalism and enthusiasm of both MetWest and TCW employees.

Attached please find a complete list of our high-grade fixed income products and the respective portfolio managers, effective today. We expect you will notice a more collaborative, team-based approach to portfolio management. We believe this culture of cooperation will facilitate a quick, effective integration of our fixed income teams into a single unit.

We anticipated possible resignations as a result of this announcement. However, as of today, we have retained 70% of our mortgage-backed securities team." - TCW

Ken Lewis may think everyone has forgotten about him... But we haven't. Tomorrow's hearing before the House Oversight Committee will see the SEC's Robert Khuzami field questions about BofA's "criminal" acquisition of Merrill, which according to Dennis Kucinich represented an "egregious violation of securities laws." Consider it an appetizer ahead of the full blown jury trial before one Judge Jed Rakoff, coming soon to a publicly accessible courtroom near you.

November saw bullish ETF action, with over $8 billion in top 10 inflows, spread primarily among emerging markets, commodities (specifically GLD), and, surprisingly, the dollar, via the UUP. In the outflow category, the Russell 2000 (IWM) continues to be the biggest loser at ($775) million, even as its S&P sibling, the SPY saw an inflow of $857. We believe this confirms the activity which has started in recent months, of rotation from higher beta stocks (RUT) into merely high beta ones (SPY).

Several months ago Zero Hedge did an exhaustive study of relative contributions to GDP by consumer class decile: the conclusion was that even though it accounts for a mere 10% of US population, the ultra rich are responsible for over 40% of consumption in the US (yes David Bianco, that ever critical 70% of GDP, get over it). Of course, they end up being taxed for the privilege of consuming so much, but that's irrelevant for this post. What is, however, is a recent GALLUP poll which proves that Rosenberg's theme of "new normal frugality" is now entrenched in the consumer's psyche, and not just among the lower- and middle-classed, but, most surprisingly, in the higher income brackets as well. In November the richest Americans reported a 14% drop in average daily discretionary spending to $117. This is a far cry, and 30% off, from the peak of $185/day report in April of 2008. It also represents a disappointing downward inflection from October 2009, when hopes prevailed that upper income spending would once again take off courtesy of 33 Liberty.

Some thoughts on where the Greece story may go. Two possible outcomes. They both have significant impacts.

Dumb ... or complicit?

"Early readings for tomorrow's retail sales indicate the number could disappoint. As many have pointed out already, the index of positive/negative surprises have been flashing red for the past few weeks: an indication the recovery could be losing momentum. Also, indications from retailers following black Friday were not exactly rosy. Macro economic models using available data are pointing to a possible flat number which could well rattle the market. This was confirmed by my friend Jonas Thulin, head of research for Nordea, as his forecasting arsenal points to a possibly negative number." - Nic Lenoir, ICAP

Once again, another boring tape. Hi-Fi traders are buying and selling bank stocks trading in the narrowest or ranges. Of particular interest is the CRE-infested regional bank index, wound up tighter than the wet skin on a bongo drum. Which way will it break?