Goldman Sachs

Be Careful What You Hope For - Buy-Back Mountain

We noted yesterday the apparent perfect (ill)-market-timing of increases in corporate buybacks and nowhere is this more evident than across Europe. The following chart might just make all those activist shareholder mom-and-pops, demanding CEOs 'use' their cash hordes, think twice... it appears the CEOs really don't have better crystal balls than the rest of us...

Shiller On Housing: Back? On Track? Or Still Cracked?

Following on from our earlier discussion of the boomerang foreclosure problem, we thought a recent interview between Goldman and Bob Shiller well worth considering - given his relative independence and honesty - on the reality of the housing 'recovery' - he is not gung ho. Has the US housing market bottomed? "Maybe, but I still worry about further price declines. There’s no really concrete reason for an upturn now... are all clouds on the horizon. That’s why I think home prices may still go down," and on the recent improvement in prices, "I also think that price increases that were likely caused by the decline in foreclosures may have been mistakenly taken by the public as a note of optimism." And with Obama pushing homeownership and refinancing acts once again, Shiller adds: "We were so single-mindedly pursuing home ownership that we allowed our lending practices to deteriorate to a tragic end. And there are many advantages to renting, which oftentimes allows more flexibility and more convenience." 

Santelli: "In This Day And Age, Being A Trader Is Downright Impossible"

With central banks sponsoring their own (and each other's) bond markets, and every financial entity owning its own and each other's bonds, Santelli pops his lid over the Pollyanna business leaders (like Bob Lutz - proclaiming GM's European business is troughing because Goldman Sachs is buying European bonds) are pointing to market-based bond prices as indicative of optimism and that economically the worst (must) be over. "Forget the wall of worry, this is the wall of weakness", Rick rants, and the interconnectedness of global markets now means if Goldman is right (as we noted yesterday) that Treasuries are 200bps rich then how does that reconcile with growth that is just bumbling along as evidenced with today's GDP prints from around the world (and surging unemployment). Just what is the Fed going to do to save the world this time? - buy $160bn more per month if we see global weakness restart? How do traders react to slowing global growth? Buy Treasuries? Indeed, the good is bad but bad is better meme seems back and being a trader is, as Rick notes, nigh on impossible.

Home Prices Are Back... To 1894's Levels

Six years after the onset of the traumatic US housing crisis, the optics are there that suggest a stabilization is occurring. Whether real or manufactured by record-low foreclosures, bank supply withdrawals, and fed-subsidized cash REO-to-rent trades, the sad truth is that jobs (and the GDP-enhancing multiplier effect that they create) are just not coming. Even Bob Shiller prefers the potential for 4% gains in stocks over housing risk in the medium-term as he points out that - inflation-adjusted - house prices are back at levels first seen in 1894... now that is a long-term investor.

Frontrunning: February 13

  • Obama Paints Wider Role for Government in Middle Class Revival (BBG)
  • Obama to Seek a New Trade Deal With EU (WSJ)... or this is strawman why 2016 GDP will be higher
  • Mobile phone sales fall for the first time since 2009 (Telegraph)
  • Sequester Looms, No Deal in Sight (WSJ)
  • Neither US party swallows a compromise (FT)
  • Embattled Economies Cling to Euro (WSJ)
  • For China, Spending Is Harder Than It Looks (WSJ)
  • Bank of England's Sir Mervyn King says recovery in sight (BBC) - just a little more inflation first
  • G7 fails to defuse currency tensions (FT)
  • Japanese Leader Urges Firms to Boost Wages (WSJ) - so does the US one
  • Fed Bank Chiefs Back Money-Fund Overhaul (WSJ), or force everyone out of MMFs and into stocks

Mrs Watanabe Is Back And Now Has Record Margin

It is now clear that Abe and his pals are all-in on the reflation strategy - albeit scorned in their unilateralism by the G-7. Stocks (and oil prices) have surged as the JPY plunged - but things are getting even more critical in the land of the rising sun. The retail investor is all-in too; individual investors’ share (cash transactions only) has risen sharply to 34% - the highest level since June 2009; the combined trading value of the seven major internet brokerages expanding 86% MoM to ¥19.5tn in January, marking the highest level since April 2006; and aggregate margin trading at the seven online brokerage firms has doubled from ¥7.3tn in December 2012 to ¥14.3tn in January 2013. Retail, according to Goldman, tend to focus on low price, small cap stocks - as if the markets' relative beta was not enough. If the BoJ was hoping for a M.A.D. situation - it appears they have it as retail is now fully (and levered) exposed to Abe's endgame (let's just hope energy costs don't crush that dream).

Frontrunning: February 12

  • The Man Who Killed Osama bin Laden... Is Screwed (Esquire)
  • G7 fires currency warning shot, Japan sanguine (Reuters)
  • North Korea Confirms It Conducted 3rd Nuclear Test (NYT)
  • Italian Police Arrest Finmeccanica CEO (WSJ)
  • Legacy, political calendar frame Obama's State of the Union address (Reuters)
  • China joins U.S., Japan, EU in condemning North Korea nuclear test (Reuters)
  • Wall Street Fading as Emerging-Market Banks Gain Share (BBG)
  • Berlin Conference 2.0: Drugmakers eye Africa's middle classes as next growth market (Reuters)
  • Barclays to Cut 3,700 Jobs After Full-Year Loss (BBG)
  • US Treasury comment triggers fall in yen (FT)
  • ECB Ready to Offset Banks’ Accelerated LTRO Payback (BBG)
  • Fed's Yellen Supports Stimulus to Spur Jobs (WSJ)
  • Libor Scrutiny Turns to Middlemen (WSJ)
  • Samsung Girds for Life After Apple in Disruption Devotion (BBG)

Guest Post: China Surpasses U.S. As Number One Global Trading Power

U.S. exports and imports last year totaled $3.82 trillion, the U.S. Commerce Department said last week. China’s customs administration reported last month that the country’s total trade in 2012 amounted to $3.87 trillion. China had a $231.1 billion annual trade surplus while the U.S. had a trade deficit of $727.9 billion. For those who are still not aware of why this is such a big deal, it is essentially a turning point moment in global trade.  There is no doubt that China will now be inducted into the SDR, and that their importance as a trade and consumption center will quickly lead to a move away from the dollar.  To put it simply, the dollar is going to lose its world reserve status VERY soon.  Many will cheer this change as necessary progress towards a more “globally conscious” economic system.  However, it’s not that simple.  Total centralization is first and foremost the dream of idiots, and in any mutation (or amputation) there is always considerable pain involved.  The proponents of this “New World Order” (their words, not mine) seem to have placed the U.S. squarely in their crosshairs as the primary recipient of this fiscal pain.

Frontrunning: February 8

  • Rate-Rig Spotlight Falls on 'Rain Man' (WSJ)
  • Blizzard Cancels U.S. Flights, Threatens Snow in New York (BBG)
  • Monti says he did not know of bank probes (FT)
  • Japan's Aso: yen has weakened more than intended (Reuters)
  • Japan Pledges Foreign-Policy Response to Territorial Incursions (BBG)
  • Paratroops mutiny in Bamako in blow to Mali security efforts (Reuters)
  • China, Japan engage in new invective over disputed isles (Reuters)
  • Asteroid to Traverse Earth’s Satellite Zone, NASA Says (BBG)
  • EU leaders haggle over budget tightening (FT)
  • China Trade Tops Forecasts in Holiday-Distorted Month (Bloomberg)
  • Buffett’s Son Says He’s Prepared Whole Life for Berkshire Role (BBG)

Will Japan's "Attempted" Reflation Succeed And Will It Spill Over Into Full-Fledged Currency War?

Yesterday we presented a simplistic analysis of why for Japan "This Time Won't Be Different", a preliminary observation so far validated by the just announced Japanese December current account deficit which was not only nearly double the expected 144.2 billion yen, printing at some 264.1 billion yen, but was only the first back-to-back monthly current account deficit since 1985. But perhaps we are wrong and this time Abe will succeed where he, and so many others, have failed before. And, as is now widely understood, perhaps Japan will succeed in finally launching the necessary and sufficient currency war that would be part and parcel of Japans great reflation, as even various G-8 members have recently acknowledged. The question is will it, and when?  One attempt at an answer comes from the fine folks at Bienville Capital who have compiled the definitive pros and cons presentation on what Japan must do, and how it will play out, at least if all goes according to plan.

Frontrunning: February 7

  • Bersani's lead over Berlusconi continues to erode, now just 3.6 Pts, or inside error margin, in Tecne Poll
  • Spain gears up for U.S. debt investor meetings (Reuters)
  • PBOC Set for Record Weekly Liquidity Injection (WSJ)
  • RBS Trader Helped UBS’s Hayes With Libor Bribes, Regulators Say (BBG)
  • ECB, Ireland reach bank debt deal (Reuters)
  • AMR-US Airways Near Merger Agreement (WSJ)
  • Monte Paschi says no more derivatives losses (Reuters) ... remember this
  • Harvard’s Gopinath Helps France Beat Euro Straitjacket (BBG) - by sliding into recession?
  • Obama Relents on Secret Drone Memo (WSJ)
  • Brennan to face questions on interrogations, drones and leaks (Reuters)
  • Wall Street Success With Germans Boomerangs (BBG)
  • Khamenei rebuffs U.S. offer of direct talks (Reuters)
  • Boeing Preps Redesign to Get 787 Flying  (WSJ)

ECB Preview - Scope For Disappointment?

Thursday’s ECB meeting is important in the context of recent market moves and statements regarding the level of the euro. Citi notes that the rise in short-dated vol indicates considerable investor focus on the meeting. Expectations have been building that ECB President Draghi may offer a more cautious tone to ‘talk down’ the moves seen in the short-term rates and FX. In light of President Hollande’s advocation of an exchange rate policy aimed at ‘safeguarding competitiveness’, Draghi will likely face further questioning on FX. However, Citi does not believe that he will reverse his position and explicitly talk the currency down. Goldman also notes that while 'Taylor-Rule' users might infer a 30-50bps lowering of rates (thanks to growth, FX, and inflation) the improvement in 'fiscal risk premium' balances that dovishness leaving Draghi likely on hold. However, he is unlikely to stand 'idly by' without some comment on the ensuing currency wars.