Today's Breakfast with Dave has an updated perspective on the contraction of the US consumer, after yesterday's income and spending update. And good news for Amazon: Americans are finally rememberizing how to read good. "While people did spend more on luxury items and things to help them improve their mood during these tumultuous times, there was still very much a frugal ‘stay at home’ cocooning theme in the spending report. For example, there was less spending activity on sports events (-0.7%), amusement parks (-0.3%) and movie theaters (-4.2%). Instead, people spent more money on books (+2.1%), cable (+0.9%) and television sets (+0.7%)."
I found a funny connection between the sellers of REO for HUD and the FDIC. Surprised? Nah!
Timing The Exit As Competitve Devaluation Looms; Is The Euro 25% Overvalued? More Thoughts From Albert EdwardsSubmitted by Tyler Durden on 02/19/2010 13:33 -0400
Soc Gen's Albert Edwards, who has never been shy about his cautious stance on equities, has released another report taking his cautionary posture to the next degree. This ties in perfectly with earlier observations by David Rosenberg which unmask the market for the jittery, volatile, headline-driven knee-jerk automaton it has become. Also, Edwards provides a response to readers who are confused by the strategist's endorsement of Richard Koo's mantra of fiscal stimulus as pertains to both Japan and the US. Somewhat tying it all together is the argument that the euro has yet to experience a 25% drop from current levels. That expectation makes the Morgan Stanley euro target of $1.25 seem timid by comparison. Yet in a world of competitive devaluation, as Albert Edwards points out, "it is the nation that devalues last which suffers the deepest deflation." We are confident that Ben Bernanke is all too aware of this mantra.
David Rosenberg, and several other economists, as well as Steve Liesman, share their first perspectives on the sudden (yet oh so "telegraphed") discount rate hike. David can not be too happy as a tightening policy will likely not be very beneficial to a dated-Treasury long position. The question that everyone is grappling with: if this is a first step to "normalization", with every aspect of the market being abnormal, just how far will the Fed really go?
Investors are growing more risk averse as they question the macroeconomic outlook as the government withdraws its support. Moreover, as last year’s sugar high continues to wear off, what we can expect to see is a return to what can only be described as heightened volatility in the markets, and the need to shift towards less cyclical and more defensive and income-oriented strategies that work well in a period of increased economic uncertainty. Overall, if the primary trend for the economy, credit and equity prices is down and 2009 was indeed a countertrend bounce, then the appropriate exercise is to consider ways to capitalize on the spectacular rally in risk assets off the lows last March and determine how we can all still make money in 2010 on a risk adjusted basis.- David Rosenberg
This is the first report of a series of 3 reports on the state of the economy as we enter 2010. Part II will appear Wednesday, and Part III will be posted on Thursday. Econophile, as usual, has a different take.
Whether or not large nations actually go bankrupt, one thing is clear . . . Larry Summers, Ben Bernanke, Tim Geithner and their foreign counterparts have failed ...
It's very hard to tell if this increase in employment is real, a temporary bump from stimulus, or a fiction arising from incorrect assumptions used by the BLS. Here's how to read the numbers.
5.7% GDP growth for Q4 2009 is a phantom. Understand that a normal part of the business cycle is to replenish shelves when retailers realize that 90% (or 84%, depending on what you believe) of Americans are working and buy some stuff. But the fundamentals are still bad. It's just the foam off the stimulus brew.
As David Rosenberg points out, "what a difference a year makes." Here is the compare and contrast. And some observations on why real GDP, absent non-recurring stimulus benefits, was more than 7% lower in Q4 compared to the disclosed number.
Zero Hedge has compiled Treasury Auction data going back to early 2008, for the 3 very critical "no man's land" bonds - the 2 year, 5 Year and 7 Year. We observe that notional increases with each subsequent auction, yet an interesting paradox is that with every single auction (juxtaposed with an ever-greater cumulative sovereign leverage), the demand metrics for auctions have consistently been improving. We compare Bid-To-Cover, Direct Bidder and Tail data. We find as supply increases, both in notional and as a portion of total GDP, demand for USTs increases incrementally more, resulting in ever better auction ratios. We have picked the 2-7 Year points on the curve, as this is where the presumed inflation inflection point will most likely strike based on market expectations. So while purchasing a 30 Year Bond certainly presents inflation expectations considerations as part of the purchase process, the same is not true of 52-week Bills. And the further up the curve one moves, the more of a factor inflation worries become.
Yet oddly, over the past year, it would appear accounts both international and domestic have invested ever more money into the 2-7Y interval. Following today's unprecedented GDP number (which one has the choice of ignoring as David Rosenberg pointed out, due to the certainty that it will not repeat in a long time), one immediate measure of the credibility of this economic data point will be observing the performance of future 2-7 Year bonds (and especially the 7 Year, which has the greatest duration-adjusted sensitivity to yield moves on the curve). If historical trends persist, there is no reason to be concerned that the Treasury will not find a multitude of willing buyers: did Geithner finally figure out how to use Say's law properly? Or is this merely the magic touch of the Federal Reserve and the Primary Dealers, greasing up the market? You decide.
Yesterday's uptick in the housing inventory backlog (from 7.6 months supply to 8.1) has another corollary, which, as David Rosenberg points out, is the median amount of time it takes builders to sell a completed unit. The number is now 13.9 months: an all time record, and 50% higher than a year ago. Good thing all that shadow inventory is nothing to be worried about as Cramer says.
Mom and Pop investors aren't buying stocks ...
By now everyone knows about the Rip Van Winkle effect in stocks: the "noughties" were a snoozer, with the stock market lower on December 31, 2009 than on January 1, 2000. Yet what may have escaped most people is that the decade was also a scratch in terms of employment: the country now has essentially the same number of employed people as it did 10 years ago.
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.