Everyone who believes the government is "here to help disadvantaged people" needs to wake up and ask what kind of government we have when due process has been replaced with "legal" looting. R.T. reported the income in question on his 2006 Federal and Arizona tax return. Wouldn't common sense, not to mention common law, suggest that the state of California should be required to ask the citizen who now resided in another state if the income in question had been reported in that state? How about notifying the citizen of the state's claim and his/her rights to present facts relating to the state's claim? There was no due process. How can this be legal in a nation that is nominally governed by rule of law? First the state steals the $1,343 and authorizes its parasitic predatory bag-"person" Wells Fargo Bank to steal another $100 for handling the state's theft. A week or two later the citizen is notified of the theft as a fait accompli. Now the onus is on the law-abiding citizen to attempt to reclaim his own money from a distant, all-powerful Kafkaesque state agency. How can this be legal in a nation supposedly operating under rule of law? Let's be very clear about what happens here in America on a daily basis...
After deconstructing the labor report for signs of false positives, Michael Cembalest of JPMorgan, sees muddle-through data in the US as sustaining a below trend growth rate - noting his belief that the US economy would not withstand a withdrawal of stimulus (read promise of liqudity to come) right now. While not as ebulient as many on the street, the JPM CIO sees a US job market that is gradually getting better - as is spending. However, what keeps him up at night is the budget deficit (as we noted very specifically last night). Critically, jobless claims have just crossed a threshold that in the past has signaled risk-on is primed to pay-off as the business cycle becomes self-sustaining but at the same time, the budget deficit is at massively 'different-this-time' levels. As he notes: "But as Big Bird used to say, one of these things is not like the other: the US primary budget deficit which supports this recovery is a bigger now", and so the US economy had better improve markedly in order to merely 'pay-the-freight'. "I lose a lot of sleep over this, but I don’t know a lot of other people that do."
After a disappointing home sales print in the US (as the shadow overhang remains heavy), some perspective on just how bad it is in Europe is worthwhile. With Spanish yields starting to blow out again, it likely comes as no surprise that, as Goldman notes, the Spanish housing market (and for that matter the periphery in general) is bad and getting worse. However, Ireland remains the worst of the worst and Goldman sees yet another growing divide between the haves and have-nots of Europe as the residential property price performance can essentially be split into four groups: Strong, Recovering, Weak, and Ireland/Spain; with the latter perceived as considerably worse than the 'reported' data would suggest. Is it any wonder that Spain trades wide of Italy again now and as Citi's Buiter noted earlier, Spain is now the fulcrum market (Spanish 10Y spreads +30bps from Friday's tights).
Earlier today, Goldman's Peter Oppenheimer made the news following publication of his report "The Long Good Buy" posted here. In itself, that would be nothing spectacular - just one man's opinion. However, when taken in the entirety of Goldman's views on the world, it bears some criticism, because while on one hand we have a key Goldman strategist telling the world it is all clear in stocks, virtually at the same time Goldman's chief economic strategist, Jan Hatzius, who is German, gave the following interview to Handelsblatt, in which he lays out his "doubts about an early recovery of the U.S. economy. In this interview he explains why positive unemployment figures are deceptive, and why the real estate crisis will have lasting effect." Perhaps his most important observation, when asked if Americans have learned anything from the crisis: "I do not think there has been a big change in behavior. During the crisis, Americans simply responded to the realities. They could no longer borrow as much money. Now again a little more credit is available, and you can borrow some more money again. But I do not think there has been a fundamental change." Alas he is correct, and incidentally the reason why Goldman has such a massive credibility problem is that while on one hand one part of the firm goes ahead and pitches equities, on the other, a respected economist says that the economy is so sluggish that he gives a greater than 50% chance of more QE. Perhaps at this point it is bear reminding what a third Goldman strategist said back in October 2010: "Goldman Sachs Admits The Truth: "The Economy Is Not The Market And QE2 Is Not A Panacea." Then again, with career risk once again paramount for every money manager out there, as the bulk of hedge funds once again underperform the market, perhaps not.
Going into the US open, most major European bourses are trading in modest positive territory this follows the publication of a Goldman Sachs research note titled “The Long Good Buy” in which the bank outlines its thoughts that equities will embark on an upward trend over the next few years, recommending dropping fixed-income securities. We have also seen the publication of the Bank of England’s minutes from March’s rate-setting meeting in which board members voted unanimously to keep the base rate unchanged at 0.50%; however there was some indecision concerning the total QE, with members Miles and Posen voting for a further increase to GBP 350bln, however the other seven members voted against the increase. Following the release, GBP/USD spiked lower 35 pips but has regained in recent trade and is now in positive territory. Looking elsewhere in the session, UK Chancellor Osborne will present his budget for this financial year at 1230GMT. We will also be looking out for US existing home sales and the weekly DOE inventories.
- So much for that: Obama to fast track southern portion of Keystone XL Pipeline (1600 Report)
- French Police Say They Have Cornered Suspect in School Shooting (NYT); French shooting suspect had been arrested in Afghanistan (Reuters); Suspect in French shootings says he’ll surrender to end standoff (Globe & Mail), Toulouse suspect escaped from Kandahar jail in mass Taliban jailbreak in 2008 (BBC)
- Bernanke Says Europe Must Aid Banks Even as Strains Ease (Bloomberg)
- Monti faces clash with unions over reform (FT)
- UK budget to balance tax breaks with austerity (Reuters)
- Romney scores big win over Santorum in Illinois (Reuters)
- U.S. Exempts Japan, 10 EU Nations From Iran Oil Sanctions (Bloomberg)
- Bernanke Says Fed Failed to Meet Goals During Great Depression (Bloomberg)
- Revised tax deal reached on Swiss accounts (FT)
There are those who, not illogically, thought that the second interest rates start creeping up, that there would be a rush of mortgage activity to lock in rates as low as possible before 30 year mortgages roll ever higher. Of course, for that plan to work, one Benjamin Shalom Bernanke would need to have broad credibility among the general population, as he would need to be perceived as one who would not rush to purchase bonds in the future, should rates jump far too high, in the process impairing banks and PDs which still hold massive amounts of paper. If, however, that plan were to not work, then the latest recent attempt to force a rotation out of stocks and into bonds would have abysmal consequences on housing, as the entire mortgage issuance machinery would grind to a halt. Alas, it appears the latter has happened. Minutes ago we got the latest MBA Mortgage Application data and it was ugly. The broad Mortgage Application index collapsed by 7.4% in the week ending March 16, when rates experienced the bulk of the move downward, which was the 6th consecutive week of declines, following last week's 2.4% drop. And while refis have been down for 5 weeks in a row, with the index slamming 9.3% lower as higher rates have now obviously killed any interest in mortgages, so have purchase applications. MBA Purchasing index was down 4.4%, breaking a trend of 3 weeks of gains. Some other hard statistics: the Average 30 year fixed rate soared to 4.19% from 4.06% last week, while the refi % of number of loans dropped to 73.4% - the lowest since July 2011.
While Working as Obama's Chief Economic Advisor, Austan Goolsbee Didn't Have Access to stlouisfed.orgSubmitted by CrownThomas on 03/20/2012 20:52 -0500
Nope, I wasn't drunk.
No Record Profits For Old Assets: Jim Montier On Unsustainable Parabolic Margin Expansion For DummiesSubmitted by Tyler Durden on 03/20/2012 20:37 -0500
It is widely known that US corporate profits recently hit an all time high. What is less known is that in Q4, profit margins for the first time rolled over by 27 bps, and double that if one excludes Apple. What is very much irrelevant, is that to Wall Street none of this matters, and the consensus (of which GMO's Jim Montier says "the Wall Street consensus has a pretty good record of being completely and utterly wrong") believes that Q4 will be largely ignored, and margins will continue soaring ever higher. Well, the same Montier, has a thing or two to say about this consensus surge in profits ("it is almost unthinkable that it will remain at current levels over the course of the next few years"). More importantly he looks at the Kalecki profits equation, and finds something rather peculiar. Namely Japan. Because while taking the profits equation at its face value would surely explain the 10.2% in corporate profits, of which a whopping 75% is thanks to America's burgeoning deficit, it would imply that Japanese corporate profitability, where there has been not only a long-running current account surplus, but zero household savings, and massive fiscal deficits, should be off the charts. Instead it is collapsing. Why? Montier has some ideas which may force Wall Street to renounce its bullish views, although probably won't. However, the implications of his conclusion are far more substantial, and if appreciated by corporate America (whose aging asset base is the problem), may ultimately result in a revitalization of the corporate asset base, however not before the dividend chasing frenzy pops in the latest and greatest bubble collapse.
One of the central premises of CDS is that the “basis” package should work. An investor should be able to buy a bond, and buy CDS to the same maturity and expect to get paid close to par – either by the bond being repaid at par and the CDS expiring worthless, or through a Credit Event, where the price of the bonds the investor owns plus the CDS settlement amount add up to close to par. The settlement of the Greek CDS contracts worked well, but that was pure dumb luck. This leaves playing the basis in Portuguese bonds and CDS as a much riskier proposition than before Europe's PSI/ECB decisions - and perhaps explains why at over 300bps, it has not been arbitraged fully away - though today's rally in Portugal bonds suggests a new marginal buyer which given the basis compression suggests they may be getting more comfortable.
Fourteen months, one MF Global carcass and $1.6 billion in "vaporized" funds later, does the CFTC still regulate the futures markets by fax?
Housing remains a mess and recovery continues to be something found best in Disneyland at fantasy land (although not in Disney's movie-making business). The sector is showing only feeble growth as the American nightmare continues to chip away at the American dream. Or If every man's home is his castle, what am I doing in the moat,and why won't my banker lower the drawbridge?
China is best known as the world's export driver as the hopes of every exporting nation in the world are pinned on the eventual transition of the economy to domestic consumption and hence greater imports. While China has contributed most to Global GDP growth in the past few years, some argue that this growth is not as 'helpful' as US growth to other countries - since China does not import much other than commodities (and less steel now). However, as UBS' Tao Wang points out today, that claim is not quite as valid now as before the financials crisis. China's imports have far outpaced exports in the past 4 years, and trade surplus has shrunk from 9% of GDP in 2007 to 3.3% in 2011. China's 2011 import data shows two sets of information that should be common knowledge by now: 1) China imports a lot from East and Southeast Asian economies (and is the largest market for almost all major economies in the region); and 2) China imports a huge amount of energy and resources (metals and minerals) benefiting Australia and Brazil significantly. But exports to China have become increasingly important for developed economies such as Japan, Germany, and the EU in general and perhaps more concerning is the fact that large emerging market economies may find it increasingly difficult to 'decouple' from China. These two charts show just how large an impact any slowing in Chinese growth and demand will have on some of the largest and most 'decoupled' growth nations - it is clear the BRICs are increasingly self-reliant (and potentially self destructive).
Economic Surprise Indices have been rolling over for a month or two now. The trend of US macro data has also disappointed in a period when it would be expected (empirically) to accelerate. However, taken anecdotally or cherry-picked managers can find plenty of ammunition to support the to-infinity-and-beyond Birinyi forecast (though often it relies on the most manipulated and adjusted government provided time-series). Overnight's concerns on China show just how quickly confidence can be upset but Goldman's Jan Hatzius sees three main factors for why their GDP-tracking estimate is weakening already (more like 2% than 3-3.5% growth) and that we are seeing slightly softer data already. The end of the inventory cycle, the pulling forward of demand thanks to the warm weather aberration, and the already clear impact on consumption from higher gasoline prices will likely shift from an overstated economic trajectory to more muddle-through or worse for Q2 onwards.