Archive - Jan 2010 - Story

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.

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.

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.

The most anticipated event in New York commercial real estate, the (technical) default of long-suffering Stuyvesant Town is finally a fact. Bloomberg reports: "Tishman Speyer Properties LP and BlackRock Inc. will miss a bond payment today on debt from their $5.4 billion purchase of Stuyvesant Town and Peter Cooper Village in 2006, according to a spokesman for New York City Councilman Daniel Garodnick."

A note released earlier by Citi analyst Keith Horowitz continues Citi's attempts at whacking the prevailing dogma, after the firm's recent downgrade of AA. Horowitz' primary conclusion: "Based on our analysis of the five main revenue pools, we see 2010 FICC revenues down 15-20% y/y – or closer to a 1H07 run-rate." As a result, Citi cut its EPS estimates for MS by $0.30 to $0.36, for GS by $0.25 to $5.25, form JPM by $0.15 to $0.55 and left BAC unchanged at a loss of ($0.66).

By now Zero Hedge readers should be aware of the distinction between the national debt and the national debt that is subject to statutory limits.  Limits like the newest ceiling of $12.394 billion signed into existence by President Obama just before New Year and after a strict party line vote.  Before the vote, most debt clocks shattered the old limit effortlessly and kept going.  Of course, this is because most debt clocks aren't aware of the distinction between debt, and "debt subject to limit."  (Not to mention on budget and off budget debt).  Stone & McCarthy, however, get the difference.  Their report, issued today, does a deep dive into the statutory limit, how long the new limit is likely to last, the political ramifications to the administration of raising, once again, the limit, and the nature of fiscal policy in the United States in general.

The chart below demonstrates the plunge in the civilian labor force participation: in December 153.059 million were in the labor force, 15.267 million were unemployed and 83.865 million were not in the labor force: a 64.6% participation rate. Now keep in mind the 5 year average participation rate has been 65.9% (including December's data, 66% excluding). That is a 3.073 million delta, and the definition of labor force attachment is probably a loose combination of government semantics. Had those 3 million still be in the labor force (and, of course, not employed), the number of unemployed workers would have been 18.340 million, which in turn would result in an unemployment rate of 12%.

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.