Archive - Aug 2010

The most damning words on the recent horrendous housing data come from David Rosenberg: and since he has long been spot on in his macro observations, the 15% or so in additional price losses anticipated, will make this depression a truly memorable one (we will investigate not only the surging supply side of the housing equation, but the plunging demand side in a later post), and will leave the Fed with absolutely no choice than the nuclear option: "If the truth be told, if we are talking about reversing all the bubble appreciation that began a decade ago, then we are talking about another 15% downside from here. The excess inventory data alone tell us that this has a realistic chance of occurring...The high-end market, in particular, is under tremendous pressure. In fact, it is becoming non-existent. Guess how many homes prices above $750k managed to sell in July. Answer — zero, nada, rien; and for the second month in a row."

From the man who is better than pretty much anyone in calling the inflection points in the EURUSD. "As the world is still recovering from the 2008 recession – and another seems on the way – and a major equity market decline is in our future, the outlook for Mexico is dire. A 50% collapse in the value of the peso would be an optimistic outcome and the odds favor a more significant weakening over a five year timeframe." - John Taylor, FX Concepts

BOTTOM LINE: Initial claims fall, adding support to claims that distortions could have been a factor in the preceding increases. Although continuing claims also decline, the number of recipients of extended/emergency benefits posts another large increase, pushing total claimants closer to the highs reached earlier this year... The number of people receiving extended or emergency benefits rose another 301k. In our view, this offsets the positive surprise from this part of the report, leading to the judgmental adjustment on the US-MAP reading for this part of the report.

The latest anticipated weekly outflow from equity mutual funds just hit a one month high of $2.7 billion, as reported by ICI, and with that, YTD redemptions by equity investors have hit over $50 billion. Domestic equity mutual funds have not seen a net positive retail inflow since April 28, yet despite this the market has been substantially rangebound and until last week. What is notable is that even during times of relative stock outperformance, courtesy of whoever it is that is left buying stocks, be it HFT algos, or Primary Dealers pumped with cheap Fed liquidity (and don't forget today is another "free $2 billion courtesy of POMO" day), the investing public refuses to be drawn into owning stocks. CNBC has now failed to sucker its viewers into the stock ponzi for 16 weeks in a row and rising. The clear capital rotation winner- the bond bubble, but that is the topic for another week.

• NYSE Confirms Price Reporting Delays That Contributed to the Flash Crash (ai5000)
• Ireland's `Vicious Circle' Leaves Banks Facing Higher Debt Cost (Bloomberg)
• Hungary’s Communication Faux Pas Dashes Hopes for IMF Deal (WSJ)
• Glencore Said to Value Gold Unit at More Than $5 Billion in IPO (Bloomberg)
• Ozawa to challenge Kan for PM position (FT)
• Capital Investment Slowdown in U.S. Signals Reluctance to Hire (Bloomberg)
• Japan May Have Supplementary Budget to Fund Stimulus Plan, Nikkei Reports (Bloomberg)

Futures spike immediately as the economy is now losing just around 73k jobs per month instead of the expected 100k, truly a miraculous result. Continuing claims come at 4,456k on expectations of 4,496k, as yet again more unemployed move to the extended ranks: extended rise by 102k and EUC by just under 200k. The US transition to a welfare state continues 300k jobless at a time

• Asian shares trade mostly higher, though action proves choppy.
• New-home sales slid to a record low and a slower-than-f'cast rise in durable-goods orders cast doubt on the US recovery.
• Official China data masks surge in housing, food prices.
• Roubini: Q3 growth in US to be 'well below' 1%.
• SEC votes to boost power over boards.
• Treasury sells 5-year notes at lowest yield ever.
• Agricultural Bank of China temporarily stops lending to property developers.
• Ahold reports 3% rise in Q2 profits.

Goldman's Ed McKelvey is trying to salvage his team's reputation as the biggest gloom and doomer on Wall Street by explaining why facts and not noise will be responsible for a revised drop of Q2 GDP by not 50%... but 45% of something. What is more interesting are the reasons for the contraction: i) A significantly reduced pace of inventory accumulation; ii) An even wider trade deficit than was first estimated; and iii) A small shift in the composition of final sales to domestic purchasers. Yet those expecting this note to be a start of an optimistic shift, prepare to be disappointed. As McKevley says, "such a conclusion would be premature given the information currently available on the economy’s transition into the third quarter," and in looking at Q3 GDP, the firm gets even gloomier than ever: i) Growth in real consumer spending appears to have softened from an already sluggish pace; ii) Real residential investment has resumed falling at a double-digit pace, iii) Real business investment is roughly on track for our 10% annualized growth assumption, but with risks now tilting to the low side, iv) The trade deficit ended the second quarter in a deep hole, and the conclusion is :"Thus, the key components of private final demand suggest that our 1.7% estimate for annualized growth in real final sales this quarter is more likely to be too high than too low." A lot of words for not saying we are in a double dip.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 26/08/10

Hedge fund honcho, Kyle Bass, says that time has run out for Japan. This year, the Ministry of Finance will see ¥40 trillion in receivables against ¥97 trillion in spending. The tipping point is close, and when it hits, Japan will have to borrow from abroad in size. Foreign investors subject to tougher investing criteria than domestic institutions, won’t take it. Both the JGB market and the yen can only collapse in the face of these developments.

As if the Fannie and Freddie debacle wasn't enough, two Fed economists are now proposing that the government insure the entire ABS market. Of course they have a foolproof scheme that won't repeat the old mistakes. This is not speculation. It is a serious proposal that is being considered as part of the discussions about the future of the GSEs

Courtesy of Tom Cochrane, we know that life is a highway. But did you know that so is the stock market? BNY's Nicholas Colas explains...

James Altucher’s work is supremely two things: bullish (permanently so) and flawed. It is on the latter that I wish to briefly comment.

With millions of words already uttered and/or written on the topic of an inevitable convergence between the fates of the US and of Japan, there is a certain fatigue in the Broca area when merely the topic of deflation is uttered, which causes frontal lobe Na/K pumps to immediately downshift to half capacity. Which is why we have decided to present this far more easily digestible presentation of 39 pretty and contrast-colored slides prepared by Bank of America, titled "Is the US Becoming Japan" for all those who are of the visual learner persuasion and happen to still wonder how long before a Shinto shrine is erected in the middle of Las Vegas.

According to Laurence Kotlikoff, Social Security is broke. He estimates its fiscal gap is $16 trillion. If you factor the trillion dollar gap of underfunded state plans, the US Pension Ponzi scheme is a lot worse. What can be done to address the looming retirement crisis?