Archive - Jan 2010

How high can home prices go with a ten year inventory overhang? Baby boomers are about to suck the life out of this market. No “rosebud” for me. The first in a series of seven on The Mad Hedge Fund Trader’s Annual Asset Allocation review.

Nonfarm payroll employment edged down (-85,000) in December, and the unemployment rate was unchanged at 10.0 percent. In December, both the number of unemployed persons, at 15.3 million, and the unemployment rate, at 10.0 percent, were unchanged. Among the unemployed, the number of long-term unemployed (those jobless for 27 weeks and over) continued to trend up, reaching 6.1 million. In December, 4 in 10 unemployed workers were jobless for 27 weeks or longer. About 2.5 million persons were marginally attached to the labor force in December, an increase of 578,000 from a year earlier. Among the marginally attached, there were 929,000 discouraged workers in December, up from 642,000 a year earlier. In December, the average workweek for production and nonsupervisory workers on private nonfarm payrolls was unchanged at 33.2 hours. The change in total nonfarm payroll employment for October was revised from -111,000 to -127,000, and the change for November was revised from -11,000 to +4,000. In December, average hourly earnings of production and nonsupervisory workers on private nonfarm payrolls rose by 3 cents, or 0.2 percent, to $18.80. The civilian labor force participation rate fell to 64.6 percent in December. The employment-population ratio declined to 58.2 percent.

"8:30: Employment report for Dec…will payrolls rise or fall? GS: -25k, median forecast (of 76): flat, ranging from -100k to +85k; last -11k. Economists are evenly divided on this question as last month’s near stabilization and ongoing improvement in claims for unemployment insurance has prompted half of the forecasters to predict an increase for December. In our case, we think the drop in continuing claims, which has historically been helpful in forecasting payroll changes, should be heavily discounted as the sharp rise in workers receiving extended benefits indicates that much of this decline is simply the expiration of eligibility for the regular 26-week program" - Goldman Sachs

• Asian stocks gain, led by retailers, Japanese exporters; Copper declines.
• Beijing's per capita GDP expected to top $10,000.
• China central bank hiked interest rate on its 3-month T-bills by about 0.04 point, to 1.3684%
• China's exports may post first gain in 14 months, highlighting Yuan policy.
• Gold declines for second day as dollar gain curbs alternative asset demand.
• India expects GDP to grow at 7-7.5% for the fiscal year ending March 2010.
• Office vacancies in the U.S. surged to a 15-year high in the Q4-- Reis Inc.

A healthy smattering of today's "news", fit for digital consumption.

RANsquawk 8th January Morning Briefing - Stocks, Bonds, FX etc.

Hold on to your hat, the bond vigilantes will be out full force on Friday. And when the bond market goes 'boo', its chill will be felt across all asset classes.

While the domestic money printing syndicate refuses to accept the glaring reality that endless money printing causes unavoidable hyperinflation (the only question being when), China has decided it is time to start closing the spigot. Bloomberg reports that, "China’s central bank began to roll back its monetary stimulus for an economy poised to become the world’s second-biggest this year, seeking to reduce the danger of asset-price inflation after a record surge in credit. The People’s Bank of China yesterday sold three-month bills at a higher interest rate for the first time in 19 weeks." Ah the benefits of a planned economy: controlling the supply and the demand at the same time. And further, being pegged to the dollar, China receives all the secondary benefits of the Chairman's endless dollar printing. Ain't life grand in Beijing...

Yup ...

"Computerized algorithmic market making works in any type of oscillating market, as the computer can keep flipping out of it’s longs, and covering it’s shorts. It works in a trending market, as long as there is some type of choppy trade. The problem lies, when the computer system can’t flip out of the position. Most algorithmic systems are programmed with some type of risk parameter. If this risk parameter is breached, the computer will dump it’s position and cut it’s losses. This is what may have happened in RMBS today. An algorithmic system making markets on the long side, got too long, and was unable to wiggle out of the position because of the follow-through in selling pressure. Once it was down so much in the position (the risk parameter was breached), it dumped. This simply added fuel to the fire. That is why the sudden plunge to $16 happened. If you check the chart, you will not see this, because Nasdaq busted all trades under $22. But don’t kid yourself, these trades happened, and we should be very alarmed, because it will happen again, and it may happen to the entire stock market." Dennis Dick, Stock Trading

Dangerous to try to handicap this number. I have tried and failed. I'll try again.

A surreal harbinger of what may well transpire in the US some day was today's firing of the president of Argentina's Central Bank Martin Redrado by president Cristina Fernandez de Kirchner. The action followed his refusal to release reserves to the government to be used for debt service payments, as well as his refusal to resign. At least in Argentina the Central Bank is answerable to the president, instead of the other way around. The odd development follows Kirchner's enactment of a "Bicentennial Fund" which was to be funded with $6.6 billion of the $17 billion reserves, in order to make debt payments this year: the Argentine government has $13 billion in debt service payments due in 2010. One can imagine their jealously of the US, where such a situation would be met with merely a little more cash printing and a few more $40 billion 3 year auctions.

Morgan Stanley, which recently made the daring call for a 5.5% yield on the 10 year by the end of 2010, and which has recently caught the attention of many finance pundits, provides some more projections for 10 year rates not only in the US but globally. Curiously, out of all countries, Morgan Stanley only sees Japan lower by the end of 2010, with all developed countries higher, but none moving as much as the US. Furthermore, by the end of 2010, only Australia will sport a 10 year rate wider than the US, predicts MS.

Looks as if some girlfriends are getting traded in for some hotter models this week. Even as GOOG, PCLN, AMZN are getting smoked, money never leaves the market. It simply moves on to other sectors. Doesn't matter what the sector's prospects are, just as long as its "hot" and moving up.

Update: The LA Times adds that according to the suit, on the day TCW fired him, the firm found “inappropriate contraband” in his offices, “consisting of marijuana, drug paraphernalia . . . and a collection of 12 sexual devices, 34 hardcore pornographic magazines and 36 hardcore sexually explicit DVDs and videocassettes.”

Dear Valued Clients,

I am writing to inform you that today TCW filed a lawsuit against certain former members of its previous fixed income portfolio management team, as well as their new company, DoubleLine Capital Group LLC.

The charges in the complaint are serious, disturbing and specific, and confirm TCW's reasons for relieving Jeffrey Gundlach, and his colleagues Cris Santa Ana, Barbara VanEvery and Jeffrey Mayberry of their duties. There is no reason to recount these charges here, but they clearly support TCW's conclusion that members of TCW's previous fixed income portfolio management team engaged in a pattern of breaches of fiduciary duty and other unlawful activity, which threatened TCW¹s business and reputation. Specifically, and among other things, TCW learned that persons close to Mr. Gundlach, now involved with DoubleLine, systematically downloaded very large volumes of TCW proprietary information over a period of weeks before Mr.Gundlach's termination.