Archive - 2010

D'Oh ...

The December nonfarm payroll losses make another stimulus package a sure thing. More deficits and taxes to follow. A new interstate, anyone?

Goldman now anticipates an S&P peak of 1,300 intrayear which is somehow equivalent to a 15x EPS. Of course, that makes sense if one believes Goldman's 2010 S&P EPS of $86 ex provisions and writedowns. Somewhere David Rosenberg is vomiting loudly.

The only chart that matters for the past 3 decades, courtesy of Morgan Stanley.

Spreads are undoubtedly tighter since the New Year as HY has dramatically outperformed IG this week with tighteners in single-names magestically outpacing wideners by 9-to-1. Curves were more mixed with an almost perfect balance between steepeners and flatteners even as index curves steepened significantly (as did the TSY curve). This was the first year since 2003 that the on-the-run IG index rallied in the first week of the year.

More of the same. Last week's girls traded in for some new swingers. It is becoming a desperate run to find the "hot ones" and grab a few more one night stands here and there before this rally flames out.

The topic of the Fed's balance sheet has (rightfully) attained prominent status in recent weeks, due to the T-minus 3 months and counting until the last MBS are purchased on behalf of US taxpayers. Yesterday, the Federal Reserve issued an advisory on interest rate risk management that had the following cautionary language: "In the current environment of historically low short-term interest rates, it is important for institutions to have robust processes for measuring and, where necessary, mitigating their exposure to potential increases in interest rates." Ironically, it is none other than the Fed that due to its $1.8 trillion in outright security holdings may be best advised to heed its own warning, as it is on the hook for at least $1.3 trillion in interest rate risk.

US consumers have said "enough" - in November consumer borrowing plunged by seasonally adjusted $17.5 billion, the largest drop in history, on a -$5 billion consensus... and the market doesn't move one bit. Quants 1: Efficient markets 0. In November total credit dropped at a whopping 8.5% annualized rate, and while auto-related nonrevolving loans dropped a mere -2.9%, revolving credit plunged a stunning 18.5% annualized. This is a full blown consumer borrowing revolt.

Something is going to happen with our pal Tim Geithner. My guess is that it happens sooner versus later. The White house chatter on this is just smoke. The question is, who is coming in and what might they do?

Did someone just leak QE 2.0? More importantly, why are stocks barely budging? Are all correlation models truly broken?

Bloomberg: "Treasury Secretary Timothy Geithner “was not involved” in decisions by the Federal Reserve Bank of New York when it told American International Group Inc. to withhold details from the public about the bailed-out insurer’s payments to banks in 2008, White House press secretary Robert Gibbs said."

The old saying about no use crying over spilled soon to be hyperinflated commodity products will not help the thousands of people with formerly anonymous Swiss bank accounts, but will at least provide some closure. Earlier last year, when the entire financial system was collapsing and the viability of UBS depended on the generosity of the US, the Obama administration did the sneaky thing and in a blatant example of quid pro quo, demanded Swiss banks release the holy grail - full details of their account holders. Today, however, we learn that while the US decision may or may not have been just, the Swiss response to agree to US demands was illegal. Unfortunately, some fatal consequences of this dubious action are already starting to surface.

Nonfarm payroll employment edged down (-85,000) in December, and the unemployment rate was unchanged at 10.0 percent, the U.S.

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

Any way you look at it, 40% of the unemployed, or 4% of the workforce, a record number of people, or 6.1 million, are now unemployed for over 27 weeks. In November this number was 5.9 million, and a year ago it was a meager 2.5 million. Green shoots. The average duration of unemployment has surged to 29.1 weeks, from 28.6 weeks in November, and 19.5 a year ago.