Archive - Dec 2010

UMichigan consumer confidence came on top of expectations, at 74.5, a slight increase from the prior read of 74.2. Market snoozes as expected as nothing trades on news right now. The notable observation is that while the conditions component of 85.3 actually declined from prior (85.7) and missed expectations of 86, inflation expectations rose once again, with 1 year inflation rising from 2.9% to 3.0%, and the 5 year up from 2.7% to 2.8%. Perhaps cotton prices doubling in 2010 may actually not have a deflationary impact.

Pure euphoria has officially set in. According to the December 23 AAII sentiment survey, the bullish mood soared from 50.23% to 63.28%, the highest reading since November 18, 2004. Bearish sentiment plunges from 27.15% to 16.41%, the lowest since November 24, 2005. The difference between bullish and bearish sentiment is 46.87%: the highest since April 15, 2004. There is no point in commenting on these results. There is a point in highlighting, though, that retail continues to refuse to be suckered in and becoming the hot potato buyer of last resort: 33 consecutive weeks of outflows from mutual funds indicates that the social split between bankers and everyone else, is now translating into the stock market, as only professionals, and robots, "trade" now.

Summarizing today's econ data barrage:

• Initial claims at 420, on expectations of 420k. Prior revised higher (duh), from 420K to 423K.
  • Continuing claims at 4,064K vs expectations of 4,105K. Previous revised higher (duh), from 4133K to 4167K
• Durable goods down 1.3% on expectations of -0.5%, prior read of -3.3% is revised to -3.1%
  • Ex transportation 2.4% vs expectations of 1.8%
• Personal Income at 0.3%, just above expectations of 0.2%, and a drop from the prior 0.5%; Personal spending of 0.4% lower than expectations of 0.5%, and the same as the prior reading.
• US PCE Core 0.1% M/M, in line with expectations
  • US PCE Core 0.8% Y/Y, vs Exp 0.9%, previous 0.8%
  • US PCE Deflator Y/Y 1.0%, on expectations of 1.1%, of 1.3%

BDIY was 1830 yesterday. It is now down 1.9% to 1,795. it would be only fitting if the index closed the year below its 2010 lows of 1,700. Would go well with year wides in sovereign risk, with gold at near all time highs, and with stocks at two year highs. Carry on.

As America continues to keep its head firmly planted in the sand, if not somewhere much worse, Europe is falling apart. Hungary was just downgraded by Fitch to BBB-, and still kept its rating outlook negative, meaning the country is about to enter junk territory. And what is sure not helping is the record strength of the CHF, which is making life for borrowers in Hungary a living hell, whose debt is denominated primarily in Swiss Francs. And as US stocks hit 2010 highs, so does the SovX index of sovereign spreads. In other words, equities and sovereign bankruptcy risk are now positively correlated with an R2 that would make 1.000 almost blush.

“God Bless Bankstas, each and every one!” said Tiny Timmah...

• Asia stocks rise for a third day as US growth report bolsters confidence.
• China believes its foreign trade will grow at a moderate pace next year.
• Crude oil rises a fifth day after US inventories drop, economy expands.
• Dubai may sell more assets as $20B in debt comes due in next year.
• Electronic shipments from Asia to US rose at 15% pace in Oct - less than half the Jan-June rate.
• Fed may need to trim $600B stimulus as economy grows, Plosser says.

Quick stop review of all the events shaping today's trading (and that's using the term loosely) action.

A raft of data before the Christmas weekend, including claims, personal income and spending (and the core PCE index), durable goods orders, confidence, and new home sales…There is no POMO today.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 23/12/

Having had a little too much first hand exposure to the world's biggest bankruptcy, we were delighted to peruse the alternative Lehman bankruptcy plan proposed by the likes of Fir Tree, Calpers, Owl Creek, Taconic and of course, Paulson & Co, who now own $9.4 billion in Unsecured Claims against the monster that is LBHI. Why monster? The graphic below, which could just as easily come from a Richard Feynman lecture on quantum chromodynamics, explains it all. While we will present a far more detailed summary of what is contained in the Paulson Plan as we affectionately call it, which if effected will likely result in about a $1 billion pay day to the ad hocs due to the materially higher GUC recovery should the sought substantive consolidation be enacted, the chart below which summarizes the labyrinth of simply intercompany claims between the various filed entities, demonstrates just how deranged an even modestly simple bank hold co looks like when undressed to its bare bones. And this is the kind of structure that Paulson (Hank) et al believed could be contained when they decided to cede to Goldman's purported demand to let Dick's baby fold... Instead of focusing on removing precisely the kind of complexity interwoven within financial organizations, created for the sole purpose of fooling regulators and shareholders that a given firm is in better financial shape than it truly is, or to afford it to take on exponentially more debt than legally allowed, Dodd Frank has done absolutely nothing to mitigate that one key problem that continues to reside at the heart of the American financial system: unprecedented and irreconcilable complexity, where the parts take on a life of their own, and fall out consequences are completely and utterly unpredictable. We may have a resolution mechanism, but this chart demonstrates why we will never use it.

Tonight's must read piece of introspection comes from the keyboard of Russ Certo over at Gleacher, who has compiled a fantastic look back at the key events that transpired and shaped 2010, and summarizes the key market themes that prevailed in the now past year. In summary: "the answer to the question of what were the main themes in the market
is ...............valuations in equities, credit spreads, sovereign
spreads, exchange rates, mortgage interest costs, bank earnings, net
interest margin, accounting schemes, tax code, debt ceiling and more are
all related.  Related to the ebb and flow of monetary and fiscal policy
aspiring to make adjustments to imbalances caused by earlier failed
fiscal and monetary policies.  How, circular indeed." In other words, not only does history not only rhyme, but chases its tail, and the more things change, the more absolutely nothing has changed. We are where we started, and in fact are in a far worse position, as increasingly fewer last resort levers to push and pull are available to the fiscal and monetary authorities. We jest when we suggest that a Martian bail out of plant Earth will soon be required, but pretty soon, in our Onion (or is that Douglas Adams?) reality, NASA may find itself with the prerogative to rapidly find semi-intelligent and very wealthy life on other located within a few parsecs. We can only hope that the restaurant at the edge of the universe is an In and Out Burger.

The economic problem is not caused by sovereign debt but by bad bank loans, deceptive financial practice and neoliberal bank deregulation...

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You might think that with home prices off by 30% or more since the housing/credit bubble popped in 2006, property taxes would have declined by a similar percentage. But you'd be wrong: they've gone up. As if the massive reduction in home equity wasn't enough of a blow to the Middle Class, they're also paying higher property taxes. Though house prices have declined roughly 30% nationally since the 2006 peak of the housing bubble, property taxes have continued their decade-long rise, jumping $45 billion (over 10%) since 2008. Local governments are responding to declining revenues by jacking up all taxes and fees. To counteract sharp declines in property values, municipalities are raising their property tax rates, squeezing more out of properties even as they drop in value. Though there are local variations, the result is the same: property taxes are rising.