Archive - Apr 2010 - Story

The NFIB Small Business Optimism index came in at 86.8, a decline from the March's read. As the NFIB itself confirms: "The persistence of index readings below 90 is unprecedented in survey history. “The March reading is very low and headed in the wrong direction,” said Bill Dunkelberg, NFIB chief economist. “Something isn’t sitting well with small business owners. Poor sales and uncertainty continue to overwhelm any other good news about the economy.” Main Street America's optimism is at an 8 month low, ignoring completely any sense of optimism the algo, Fed and momo rally may be attempting to generate. "The index has posted 18 consecutive monthly readings below 90. In March, nine of the 10 Index components fell or were unchanged from February’s not-so-great readings." As for credit condition: "Regular NFIB borrowers (35 percent accessing capital markets at least once a quarter) continued to report difficulties in arranging credit. A net 15 percent reported loans harder to get than in their last attempt, up three points from February. However, 89 percent of the owners reported all their credit needs met or they did not want to borrow." Even Goldman Sachs is unable to spin this information in a favorable light.

• Propaganda: Tim Geithner Op-Ed in WaPo - How to prevent the next financial crisis (WaPo) - start by voting me out of office
• The bank bailouts created the crisis (RCM)
• More surprising revalations about Lehman book-cooking which the SEC has and will ignore - Lehman channeled risks through alter ego firm (NYT)
• Hu tells Obama: China to make its own call on yuan (Reuters)
• JPMorgan profit may show decline on consumer lending (Bloomberg)
• UK market may face turmoil as overnight-count campaign fails (Bloomberg)
• Small business confidence hits 8 month low as mirage economic imporvements (i.e. DJIA) have no bearing with reality (Bloomberg)

Greg Peters, and other strategists from Morgan Stanley are out warning anyone who will listen that what is going on in the economy is a fool's rush (we would add predicated by momos who know nothing about reading financial statements but everything about dollowing a trend) and that MS' core advise to clients is to "sell into strength." Here is how Morgan Stanley differs from the consensus. Also discussed are returns before and after the EPS season, and how to hedge surging implied asset correlations.

Greece is giddy about not only placing 3 and 6 month Bills, but also upsizing the issues from €600 to €780 million. Well, when the yield involved is more than double that of just 3 months ago, and an all time records, and the country has the full backing of the EMU, and the IMF just created a $550 billion new bailout credit facility to make sure nobody ever fails, we are shocked it took yields of 4.55% and 4.85% to get these done. To be sure, without the bailout of Germany et al, Greece would have been paying 7% on both, meaning the 2% differential is now implicitly (for now) borne by German and American taxpayers - that amounts to $42 million. Next up: let's see if Greece can price something beyond the immediate near-term horizon, especially past the guaranteed 3 year point.

• Asia stocks, metals decline as Alcoa sales miss estimates; Yen strengthens.
• China may float Yuan by June 30, avoid one-off revaluation, Bloomberg survey.
• China's biggest banks face $70B capital shortfall, ICBC's Yang says.
• Global IT spending expected to rise 5.3% in 2010 - Gartner.
• Hu says China to follow own path on Yuan as Obama pushes for 'market' rate.
• Profits for big banks dimmed by home-equity loan loss seen at $30B
• World oil demand to hit record high this year

RANsquawk 13th April Morning Briefing - Stocks, Bonds, FX etc.

RANsquawk 13th April Morning Briefing - Stocks, Bonds, FX etc.

And all the pundits thought that the IMF would be on the hook for just €10 billion... The IMF has just announced that it is expanding its New Arrangement to Borrow (NAB) multilateral facility from its existing $50 billion by a whopping $500 billion (SDR333.5 billion), to $550 billion. The current lending participant group of 26 entities will be increased by 13 new members all of whom will contribute token amount of capital to the NAB. The one country most on the hook in the new and revised NAB - the United States of America, will provide over $105 billion in total commitments, or 20% of the total facility. The US is currently on the hook for just $10 billion, meaning its participation in global bail outs just increased by $95 billion. And the bulk of these bailouts will certainly be located across the Atlantic. What is most troublesome is the massive expansion of the NAR. If the IMF believes that over half a trillion in short-term funding is needed imminently, is all hell about to break loose.

Now that healthcare "reform|takeover" has passed, Obama is rightfully shifting his attention on tax "reform|takeover" for the very simple reason that America is getting bankrupter by the day. We take this opportunity to disclose the massive pain that lies in store for those who are currently benefiting the most from the endless stock market rally, of course assuming the president keeps his #1 campaign promise (which is a vast assumption). As the charts below demonstrate, American society is currently stratified beyond repair. In this vein, the Tax Policy Center calculates, that for a return to economic normalcy, or deficits at a "mere" 2% of GDP, households earnings more than $200/250k would see their tax rates going up to a stunning 91%. If the economic underperformance target is reduced to more palatable deficits at 3% of GDP, then the top earners would be hit with "only" 77% taxes.

A casual reminder of what Joaquin Almunia said just over two months ago goes to show the caliber of intellect of those running the show. Needless to say, Zero Hedge was skeptical of Joaquin's bullshit. Speaking of said bureaucrat, we wonder - did he fall off the face of the earth recently? With statesmen like this, who create soundbites such as "We have no Plan B - Plan A is on the the table, it is fiscal adjustment" who needs enemies like Ben Bernanke. Oh yeah, Europe. Nevermind.

Spreads rallied today after positive headlines in Europe and some spread-compressing single-name M&A activity in the US. HY14 closed at its best since inception, below 500bps, as IG closed only at last Tuesday's levels but notably IG outperformed intrinsics and HY underperformed intrinsics suggesting some possible HY-IG decompression was at play.

All-in-all, given the supposed clarification that we got from Europe, today's performance was notably dull with idiosyncratic moves dominating any systemic strength (which is not what many expected). Spreads opened tighter following last night's Greece news (see yesterday's note for our perspective) but it was clear that while the rally in EUR, compression in front-end bonds, and gap in 5Y CDS was exactly what we expected, much as we also expected, these improvements were less than many thought and did not last. 5Y CDS gapped 50bps or so tighter (back only to last Tuesday's levels) and even short-end bonds only managed 100bps compression and around 43bps in GGBs over Bunds (as we pointed out this was not unexpected and does nothing to solve longer-term instability).

We here at Zero Hedge have gotten tired of the endless propaganda and lies coming from the US Treasury regarding its "prudent" cash management. As we demonstrate weekly, gross tax withholdings have collapsed in 2010 compared to the even disastrous 2009. Through the 14th week of the calendar year (not fiscal), cumulative tax withholdings in 2010 are $477.9 billion, $13.5 billion less than the $491.4 billion in 2009. Yet regardless of what the only organic source of revenue for the Treasury looks like, the Treasury (and IRS) are issuing ever increasing tax refunds with the abandon of a drunken sailor. The chart below compares how many more refunds on a cumulative basis have been issued in 2010 compared to 2009. Oddly, it is also $13 billion, however in the wrong direction.

In some parallel universe, the Congressional Budget Office is boasting about how its revenues were only x billion less than outlays. We have not seen these numbers, nor do we care: we always and only look at the cash. And so far in April, things are getting scary (almost as scary as March's $333 billion in net debt issuance): The Treasury just reported that its Federal Reserve Account is down to just $9 billion, after starting the month at $91.5 billion, and the year at $108.3 billion: Tim Geithner has burned over $80 billion in cash in just one week, financing aside. This has occurred even as the Treasury has so far recognized about $53 billion in net settled debt, all of its Bills, for net funding deficit of about $145 billion. As we know that almost a hundred billion in Coupons have been issued and pending settlement, as well as another $100 billion + in Bills will settle after this week, we adjust our estimate of net cash burn and believe that total outlays as funded by cash (not much left) on hand and new issuance will hit $300 billion. This delta is also a function of various Trust programs which are now in net need of funding, courtesy of yet another Ponzi scheme created by the great John Maynard Keynes.

At 27 minutes into his show, John McLaughlin predicts that Obama "will enact a new national sales tax in January, February or March of 2011." As we pointed out recently, tax withholdings, contrary to what the budget office or flawed groupthink will have you believe, were down in February and March compared to 2009. Alas, Obama will have no choice but to institute some form of VAT unless he has absolute faith that China will buy US debt into perpetuity. Yet what people in D.C. should remember, is that Japan's hike of the VAT in 1997 and increase in out-of-pocket medical expenses is often credited with prompting their 1997 recession.

For every question you may have on the outlook for the industrial side of the economy, especially if you are a HY analyst, here is the answer (at least from a groupthink perspective) in 167 pages.