By Tom Dyson
Mrs. Watanabe is dumping the yen.
According to a story from Bloomberg this week, Japanese businessmen, housewives, and pensioners are dumping the yen against foreign currencies, especially the Australian dollar, the New Zealand dollar, and the euro. Women control the family finances in the typical Japanese household, so the international media has nicknamed the Japanese individual investor "Mrs. Watanabe."
Bloomberg says Mrs. Watanabe is now short 153,326 contracts against the yen. That's 35 times the short interest on March 4, the day the dumping began.
There's so much excess saving in Japan, the country's interest rates are miniscule. Right now, the interest rate on a one-year CD is Japan is 0.25%. Compare Japanese rates to foreign rates: The Aussie dollar yields 3%. The Brazilian real yields 10.25%.
Bloomberg explains Mrs. Watanabe's rush out of the yen as "yield hunting." This explanation makes sense. Japanese investors can make 12 times as much interest in the Australian dollar. Plus, all the foreign currencies made huge falls against the yen last year... The Aussie dollar fell 40% against the yen last year, for example. So to the Japanese investor, they must look cheap.
Here's the thing: The Japanese government is broke and can't pay back its debts. I think the gargantuan fall in the yen comes when Mrs. Watanabe figures out Japan's government will never pay back the $7 trillion she loaned it.
Check out the table from the IMF's World Economic Outlook published last month... It shows the debt-to-GDP ratio for the world's industrial nations. Japan is clearly the world's most broke major government...
(Zimbabwe has the world's most indebted government with a 2008 debt-to-GDP ratio of 241%, according to the CIA World Factbook.)
General Government Gross Debt as % of GDP
2005 2006 2007 2008e 2009e 2010e
Canada 71% 68% 64% 64% 75% 77%
France 66% 64% 64% 67% 75% 80%
Germany 66% 66% 64% 67% 79% 87%
Italy 106% 107% 104% 106% 115% 121%
Japan 192% 191% 188% 196% 217% 227%
UK 42% 43% 44% 52% 63% 73%
U.S. 63% 62% 63% 71% 87% 98%
Euroland 70% 68% 66% 69% 79% 85%
Source: IMF World Economic Outlook, April 2009
Another way of looking at the indebtedness of a government is debt per capita. In the U.S., for example, Uncle Sam owes $11 trillion... $4 trillion more than the Japanese government owes. If you express the debt per capita, the U.S. government owes $36,700 for every American citizen. The Japanese government owes almost twice as much: $70,000 per Japanese citizen.
Not only has the Japanese government built the world's largest and growing debt, but its ability to collect tax income is about to take a big hit. Japan is in a deep recession, and its businesses aren't able to sell goods abroad right now. Plus, Japan's population is shrinking and aging at the same time. Tax revenues will plummet just as the government's social security liabilities are ramping up. The Japanese government is in a hopeless situation.
Because the Japanese government is broke, I think Japan is the world's most likely candidate for hyperinflation. When Mrs. Watanabe realizes her government's credit is irreparably damaged, she'll dump her government bond and currency holdings and seek tangible assets...
Mrs. Watanabe's yield hunting could be the trigger that sets off the inflationary fireball in Japan. Consider shorting the yen ETF (FXY) to play this trend. Also, don't expect inflation in America until you see it in Japan first. After 20 years of deflation, Japan is much closer to the turning point than America is...
Monday, May 18, 2009
Thomas Sowell: Regulators Started Housing Crisis
Thomas Sowell: Regulators Started Housing Crisis
Sunday, May 17, 2009 5:18 PM
to read the full article click on the heading above
Respected economist Dr. Thomas Sowell, author of the new book "The Housing Boom and Bust," tells Newsmax that the current housing crisis can be blamed on pressure from government officials seeking to remedy a "problem that didn't exist."
Dr. Sowell also said politicians' stated concern about that so-called problem — a lack of affordable housing — is "a farce."
Editor’s Note: To see the full Thomas Sowell interview, Go Here Now.
Newsmax.TV's Kathleen Walter asked Sowell what caused the "house of cards" in the housing market to collapse.
"The most fundamental thing is that the money that was normally paid for monthly housing payments stopped coming in, or stopped coming in in the volumes that it had in the past," said Sowell, a senior fellow at the Hoover Institution at Stanford University.
"The question then is, why did that happen? And the reason that happened was that banks and other lending institutions began lending to people who did not meet the traditional standards for mortgage loans, but were given those loans under pressure from government regulators, and even in some cases under threats from the Department of Justice if their statistics didn't match what the Department of Justice thought they should be — for example, in terms of income levels, race, what communities they invested in, and so on."
Walter noted that Sowell asserts in his book that politicians in Washington were trying to solve a problem that didn't exist.
"The problem that didn't exist was a national problem of unaffordable housing," Sowell explained.
"The housing in particular areas, particularly coastal California and some other areas around the country, were just astronomically high. It was not uncommon for people to have to pay half of their family income just to put a roof over their head. So that was a very serious problem where it existed.
"But it existed in various coastal communities primarily and a couple of other places. Unfortunately, the elites whose strongholds are on the East and West Coasts don't seem to understand that there's a whole country in between, and in most of that country housing was quite affordable by all historical standards.
"So they set out to solve the problem by setting up a federal program to bring down the mortgage requirements, the 20 percent down payment and that sort of thing, and by forcing Fannie Mae and Freddie Mac to buy up those mortgages from the people who no longer had to meet the same requirements.
"The banks had no choice but to go along because the regulators controlled their fate. So the banks would simply sign up people, sell the mortgages to Fannie Mae and Freddie Mac. It now became Fannie Mae and Freddie Mac's problem. And that meant it became the taxpayers' problem."
Walter asked: "Who is really responsible for all this?"
"There are a lot of people who were irresponsible," Sowell responded.
"But the fundamental problem, the problem of reduced lending standards, with people buying houses even with no money down in some cases, that all came precisely from the regulators that people are now talking about as the salvation of the housing market.
"There's no such thing as regulation in the abstract. There are certain kinds of regulation that can have beneficial effects. Canada does not have the same problem that we have even though they have regulations. But their regulators are trying to make sure that the banks and other lending institutions are obeying clear-cut rules. Ours were trying to produce higher statistics on home ownership in general, and in particular trying to reduce the gap between low-income people and high-income people, blacks and whites, et cetera."
Walter asked what Americans can do to ensure that the housing boom and bust will not happen again.
"First and foremost the voters have to learn to be skeptical and to find out what the facts are," Sowell said.
"There is not the slightest incentive for a politician to behave better in the future. If voters don't understand that, it's going to happen again.
"This is the worst housing crisis we've had but it is not the first. This very same drive to increase home ownership occurred under the Republicans in the '20s. It occurred under the Democrats in the '30s, and it occurred under both parties in the '40s and '50s.
"There is not the slightest incentive for politicians to learn from their mistakes because they pay no price for it. And they'll never pay a price for it as long as the voters don't make an effort to find out what is going on."
Sowell added: "I see absolutely no reason why politicians should take charge of which way prices go. That's precisely what led to the current disaster. . .
"When you realize how long politicians have been talking about a need for affordable housing, you realize what a farce it is."
Editor’s Note: To see the full Thomas Sowell interview, Go Here Now.
© 2009 Newsmax. All rights reserved.
Sunday, May 17, 2009 5:18 PM
to read the full article click on the heading above
Respected economist Dr. Thomas Sowell, author of the new book "The Housing Boom and Bust," tells Newsmax that the current housing crisis can be blamed on pressure from government officials seeking to remedy a "problem that didn't exist."
Dr. Sowell also said politicians' stated concern about that so-called problem — a lack of affordable housing — is "a farce."
Editor’s Note: To see the full Thomas Sowell interview, Go Here Now.
Newsmax.TV's Kathleen Walter asked Sowell what caused the "house of cards" in the housing market to collapse.
"The most fundamental thing is that the money that was normally paid for monthly housing payments stopped coming in, or stopped coming in in the volumes that it had in the past," said Sowell, a senior fellow at the Hoover Institution at Stanford University.
"The question then is, why did that happen? And the reason that happened was that banks and other lending institutions began lending to people who did not meet the traditional standards for mortgage loans, but were given those loans under pressure from government regulators, and even in some cases under threats from the Department of Justice if their statistics didn't match what the Department of Justice thought they should be — for example, in terms of income levels, race, what communities they invested in, and so on."
Walter noted that Sowell asserts in his book that politicians in Washington were trying to solve a problem that didn't exist.
"The problem that didn't exist was a national problem of unaffordable housing," Sowell explained.
"The housing in particular areas, particularly coastal California and some other areas around the country, were just astronomically high. It was not uncommon for people to have to pay half of their family income just to put a roof over their head. So that was a very serious problem where it existed.
"But it existed in various coastal communities primarily and a couple of other places. Unfortunately, the elites whose strongholds are on the East and West Coasts don't seem to understand that there's a whole country in between, and in most of that country housing was quite affordable by all historical standards.
"So they set out to solve the problem by setting up a federal program to bring down the mortgage requirements, the 20 percent down payment and that sort of thing, and by forcing Fannie Mae and Freddie Mac to buy up those mortgages from the people who no longer had to meet the same requirements.
"The banks had no choice but to go along because the regulators controlled their fate. So the banks would simply sign up people, sell the mortgages to Fannie Mae and Freddie Mac. It now became Fannie Mae and Freddie Mac's problem. And that meant it became the taxpayers' problem."
Walter asked: "Who is really responsible for all this?"
"There are a lot of people who were irresponsible," Sowell responded.
"But the fundamental problem, the problem of reduced lending standards, with people buying houses even with no money down in some cases, that all came precisely from the regulators that people are now talking about as the salvation of the housing market.
"There's no such thing as regulation in the abstract. There are certain kinds of regulation that can have beneficial effects. Canada does not have the same problem that we have even though they have regulations. But their regulators are trying to make sure that the banks and other lending institutions are obeying clear-cut rules. Ours were trying to produce higher statistics on home ownership in general, and in particular trying to reduce the gap between low-income people and high-income people, blacks and whites, et cetera."
Walter asked what Americans can do to ensure that the housing boom and bust will not happen again.
"First and foremost the voters have to learn to be skeptical and to find out what the facts are," Sowell said.
"There is not the slightest incentive for a politician to behave better in the future. If voters don't understand that, it's going to happen again.
"This is the worst housing crisis we've had but it is not the first. This very same drive to increase home ownership occurred under the Republicans in the '20s. It occurred under the Democrats in the '30s, and it occurred under both parties in the '40s and '50s.
"There is not the slightest incentive for politicians to learn from their mistakes because they pay no price for it. And they'll never pay a price for it as long as the voters don't make an effort to find out what is going on."
Sowell added: "I see absolutely no reason why politicians should take charge of which way prices go. That's precisely what led to the current disaster. . .
"When you realize how long politicians have been talking about a need for affordable housing, you realize what a farce it is."
Editor’s Note: To see the full Thomas Sowell interview, Go Here Now.
© 2009 Newsmax. All rights reserved.
Quotable: risk asset investment train is leaving the station and you’d better hop on.
“Last Friday the European Commission published what were arguably the most catastrophic economic statistics produced by any official institution in the capitalist world since 1945. These figures showed that Germany has suffered the steepest economic collapse ever recorded in a major industrialised country; and that several of the countries in Central Europe and on the periphery of the eurozone are now in a state of economic and financial meltdown comparable with Argentina, Indonesia and Russia in the 1990s or with Iceland last year.”
Anatole Kaletsky
On Friday, German reported some very nasty economic news—their economy fell at a 16% annualized rate during the first quarter of 2009. An excellent summary of the key problems now facing Germany and the Eurozone is provided by Anatole Kaletsky, an economic commentator for the UK Times and resident guru for GaveKal. We have provided the key points below for your perusal[our emphasis]:
Last Friday the European Commission published what were arguably the most catastrophic economic statistics produced by any official institution in the capitalist world since 1945. These figures showed that Germany has suffered the steepest economic collapse ever recorded in a major industrialised country; and that several of the countries in Central Europe and on the periphery of the eurozone are now in a state of economic and financial meltdown comparable with Argentina, Indonesia and Russia in the 1990s or with Iceland last year.” I have described repeatedly the three interacting elements now hitting Europe in a “perfect storm”. The first element is Germany's dependence on exports, especially of capital goods, cars and other consumer durables. … The second element of the perfect storm has been the reckless lending to Central Europe and the Baltic States, especially by banks based in Austria, Sweden, Greece and Italy, which in turn have been large borrowers from German investors and banks. … The third component of the economic hurricane is the euro itself. … The ultimate result is that the European economy will be caught in a 1930s-style deflationary spiral of deteriorating credit, deflationary government policies, falling wages and even further declines in credit. The most plausible way for Europe to escape from this vicious circle will be for Germany to abandon its age-old philosophy of fiscal rigour, to embark on a large-scale fiscal stimulus and to guarantee the debts of all its partners in the eurozone. A 16% annualized beating in the economy on Friday and the euro is flat at the moment after clawing back from losses earlier this morning.Fundamentals do matter. But as we know, what matters most is the perception of the fundamentals by traders. The idea that the worst is over means the rear view mirror bad news, such as a 16% annualized fall in the economy, marks the bottom because “it can’t get any worse.” At least that’s what the move in the stocks is telling the currency crowd—risk asset investment train is leaving the station and you’d better hop on.
Fundamentals do matter. But as we know, what matters most is the perception of the fundamentals by traders. The idea that the worst is over means the rear view mirror bad news, such as a 16% annualized fall in the economy, marks the bottom because “it can’t get any worse.” At least that’s what the move in the stocks is telling the currency crowd—risk asset investment train is leaving the station and you’d better hop on.
Click on the link to read the full article.
Thanks to Black Swan Trading.
Anatole Kaletsky
On Friday, German reported some very nasty economic news—their economy fell at a 16% annualized rate during the first quarter of 2009. An excellent summary of the key problems now facing Germany and the Eurozone is provided by Anatole Kaletsky, an economic commentator for the UK Times and resident guru for GaveKal. We have provided the key points below for your perusal[our emphasis]:
Last Friday the European Commission published what were arguably the most catastrophic economic statistics produced by any official institution in the capitalist world since 1945. These figures showed that Germany has suffered the steepest economic collapse ever recorded in a major industrialised country; and that several of the countries in Central Europe and on the periphery of the eurozone are now in a state of economic and financial meltdown comparable with Argentina, Indonesia and Russia in the 1990s or with Iceland last year.” I have described repeatedly the three interacting elements now hitting Europe in a “perfect storm”. The first element is Germany's dependence on exports, especially of capital goods, cars and other consumer durables. … The second element of the perfect storm has been the reckless lending to Central Europe and the Baltic States, especially by banks based in Austria, Sweden, Greece and Italy, which in turn have been large borrowers from German investors and banks. … The third component of the economic hurricane is the euro itself. … The ultimate result is that the European economy will be caught in a 1930s-style deflationary spiral of deteriorating credit, deflationary government policies, falling wages and even further declines in credit. The most plausible way for Europe to escape from this vicious circle will be for Germany to abandon its age-old philosophy of fiscal rigour, to embark on a large-scale fiscal stimulus and to guarantee the debts of all its partners in the eurozone. A 16% annualized beating in the economy on Friday and the euro is flat at the moment after clawing back from losses earlier this morning.Fundamentals do matter. But as we know, what matters most is the perception of the fundamentals by traders. The idea that the worst is over means the rear view mirror bad news, such as a 16% annualized fall in the economy, marks the bottom because “it can’t get any worse.” At least that’s what the move in the stocks is telling the currency crowd—risk asset investment train is leaving the station and you’d better hop on.
Fundamentals do matter. But as we know, what matters most is the perception of the fundamentals by traders. The idea that the worst is over means the rear view mirror bad news, such as a 16% annualized fall in the economy, marks the bottom because “it can’t get any worse.” At least that’s what the move in the stocks is telling the currency crowd—risk asset investment train is leaving the station and you’d better hop on.
Click on the link to read the full article.
Thanks to Black Swan Trading.
Friday, May 15, 2009
Weekly Market Update
HEADLINE NEWS WEEK ENDING 5/15/09
Overview
The sprouting “green shoots” may turn out to be closer in color to yellow—at least for now. Investor hope for an economic stabilization faded slightly as the retail sales and employment data disappointed this week. more...
US MARKETS
Treasury/Economics
US Treasury yields headed lower this week after a reprieve from new supply brought buyers back into the market. more...
Large-Cap Equities
The equity market fell sharply due to weak economic data and a plethora of secondary offerings by public companies. more...
Corporate Bonds
Investment-grade primary activity shot out of the gates this week with over $11.5 billion pricing on Monday alone. more...
Mortgage-Backed Securities
Mortgages enjoyed another week of easing credit conditions, robust demand, and declining volatility. more...
Municipal Bonds
The municipal bond market enjoyed another solid week as risk aversion continued to abate across credit markets. more...
High-Yield
The high yield market momentum of the prior eight weeks appears to be fading a bit. The Merrill Lynch High Yield Constrained Index is down 1.0% over the past week, after a stunning 20% rally from mid-March 2009 to early May. more...
INTERNATIONAL MARKETS
Western European Equities
Stocks in Western Europe lost ground over the past week. The stocks with the worst performance were basic resources (-9.7%) and real estate (-8.4%). more...
Eastern European Equities
The CECE index of equities traded in Central Europe (Czech Republic, Hungary, and Poland) lost -6.2% this week, while the Russian stock index RTS went down -0.2%. more...
Global Bonds and Currencies
Disappointment with the week’s global economic data triggered a return to risk aversion which benefited all major government bond markets in the past week. more...
Emerging-Market Bonds
Emerging markets sold off this week following weaker equity markets in the US. Dollar-pay debt spreads widened by 30 bps, taking a breather after several weeks of rally. more...
For more information, please contact 800 5-PAYDEN or visit payden.com.
If you have difficulties viewing this e-mail and would prefer the Weekly Market Update in plain text format, please e-mail us at paydenrygel@payden-rygel.com. To unsubscribe from this email, please email us at unsubscribe@payden-rygel.com.
Have a great weekend!
All rights reserved. Legal terms. Payden & Rygel respects your privacy. Privacy policy.
The investment strategy and investment management information presented on this email and related Web site, payden.com, should not be construed to be formal financial planning advice or the formation of a financial manager/client relationship. Payden.com is an informative Web site designed to provide information to the general public based on our recommendations of investment management and investment strategies and is not designed to be representative of your own financial needs. Nor does the information contained herein constitute financial management advice. The firm makes no warranty or representation regarding the accuracy or legality of any information contained in this Web site, and assumes no liability for the use of said information. Be advised that as Internet communications are not always confidential, you provide our Web site your personal information at your own risk. Please do not make any decisions about any investment management or investment strategy matter without consulting with a qualified professional.
Overview
The sprouting “green shoots” may turn out to be closer in color to yellow—at least for now. Investor hope for an economic stabilization faded slightly as the retail sales and employment data disappointed this week. more...
US MARKETS
Treasury/Economics
US Treasury yields headed lower this week after a reprieve from new supply brought buyers back into the market. more...
Large-Cap Equities
The equity market fell sharply due to weak economic data and a plethora of secondary offerings by public companies. more...
Corporate Bonds
Investment-grade primary activity shot out of the gates this week with over $11.5 billion pricing on Monday alone. more...
Mortgage-Backed Securities
Mortgages enjoyed another week of easing credit conditions, robust demand, and declining volatility. more...
Municipal Bonds
The municipal bond market enjoyed another solid week as risk aversion continued to abate across credit markets. more...
High-Yield
The high yield market momentum of the prior eight weeks appears to be fading a bit. The Merrill Lynch High Yield Constrained Index is down 1.0% over the past week, after a stunning 20% rally from mid-March 2009 to early May. more...
INTERNATIONAL MARKETS
Western European Equities
Stocks in Western Europe lost ground over the past week. The stocks with the worst performance were basic resources (-9.7%) and real estate (-8.4%). more...
Eastern European Equities
The CECE index of equities traded in Central Europe (Czech Republic, Hungary, and Poland) lost -6.2% this week, while the Russian stock index RTS went down -0.2%. more...
Global Bonds and Currencies
Disappointment with the week’s global economic data triggered a return to risk aversion which benefited all major government bond markets in the past week. more...
Emerging-Market Bonds
Emerging markets sold off this week following weaker equity markets in the US. Dollar-pay debt spreads widened by 30 bps, taking a breather after several weeks of rally. more...
For more information, please contact 800 5-PAYDEN or visit payden.com.
If you have difficulties viewing this e-mail and would prefer the Weekly Market Update in plain text format, please e-mail us at paydenrygel@payden-rygel.com. To unsubscribe from this email, please email us at unsubscribe@payden-rygel.com.
Have a great weekend!
All rights reserved. Legal terms. Payden & Rygel respects your privacy. Privacy policy.
The investment strategy and investment management information presented on this email and related Web site, payden.com, should not be construed to be formal financial planning advice or the formation of a financial manager/client relationship. Payden.com is an informative Web site designed to provide information to the general public based on our recommendations of investment management and investment strategies and is not designed to be representative of your own financial needs. Nor does the information contained herein constitute financial management advice. The firm makes no warranty or representation regarding the accuracy or legality of any information contained in this Web site, and assumes no liability for the use of said information. Be advised that as Internet communications are not always confidential, you provide our Web site your personal information at your own risk. Please do not make any decisions about any investment management or investment strategy matter without consulting with a qualified professional.
Quotable
“Anything in any way beautiful derives its beauty from itself and asks nothing beyond itself. Praise is no part of it, for nothing is made worse or better by praise.”
Marcus Aurelius
Marcus Aurelius
Market Reflections 5/14/2009
A rise in jobless claims didn't scare accounts away from the stock market where bargain hunting, following three days of selling, pushed the S&P 500 up 1% to 893. Auto sector layoffs, likely centered at Chrysler, drove initial jobless claims up 32,000 to 637,000 while continuing claims continue to mount, now at 6.56 million. Remember, the S&P move to 930 last week was based on expectations that job contraction was easing. Producer prices showed wide gains, easing questions over deflation but raising new ones on inflation.
Given gains in stocks, demand softened for the safety of the dollar which fell about 3/4 of a cent to $1.3640 against the euro. Oil rose about 50 cents to $58.50 while gold held firm at $925. Treasury yields were little changed with the 2-year ending at 0.84 percent
Given gains in stocks, demand softened for the safety of the dollar which fell about 3/4 of a cent to $1.3640 against the euro. Oil rose about 50 cents to $58.50 while gold held firm at $925. Treasury yields were little changed with the 2-year ending at 0.84 percent
Thursday, May 14, 2009
The State of Housing Markets Around The World: Not Bottoming Yet?
Only two countries (Germany and Switzerland) out of 32 main property markets saw positive momentum in 2008 (a slower downward house price movement or faster upward movement), while 28 countries saw momentum deteriorating. Around 8 out of 32 countries saw house prices rise, adjusting for inflation, while 20 countries experienced house price falls with the sharpest in Latvia (37%), Lithuania (27%), U.S. (20%), UK (18%), Iceland (16%), Ireland (12%), and Ukraine (Kiev) (12%). Downward price momentum accelerated in Q4 2008 (Global Property Guide)
While stock market recoveries often precede an economic recovery, a key driver of property occupancy - employment - is often one of the last economic indicators to turn. This suggests that 2009 will remain a difficult year for commercial and residential property globally (Jones Lasalle)
While stock market recoveries often precede an economic recovery, a key driver of property occupancy - employment - is often one of the last economic indicators to turn. This suggests that 2009 will remain a difficult year for commercial and residential property globally (Jones Lasalle)
Market Reflections 5/13/2009
In a setback for the economic outlook, retail sales proved weak for a second month. Accounts moved to safety, exiting the stock market where the S&P 500 fell 2.7 percent to end at just under 884. The dollar gained 1/2 cent against the euro to $1.3584 while Treasury yields fell 1 to 7 basis points in steepening trade. Oil fell back on demand concerns, ending down $1 to just under $58 despite big draws in weekly inventory data. Gold, benefiting from steady concern over financial-system risk, held firm ending at $926.
The Correction Finally Arrives
Don Worden:
"The markets have finally made up their minds what they want to do. In so doing it gave me a feeling of relief.It seemed to me that the market was acting too resistant to decline in view of the grim trading stats.In situations like that, I realize people are bombarded with bullish opinions (from experts). This leads to widespread confusion and ans a futile search for justification for a new wave of opinion.
"The markets have finally made up their minds what they want to do. In so doing it gave me a feeling of relief.It seemed to me that the market was acting too resistant to decline in view of the grim trading stats.In situations like that, I realize people are bombarded with bullish opinions (from experts). This leads to widespread confusion and ans a futile search for justification for a new wave of opinion.
Wednesday, May 13, 2009
Retail Sales
Released on 5/13/2009 8:30:00 AM For April, 2009
Previous Consensus Consensus Range Actual
Retail Sales - M/M change -1.1 % 0.1 % -0.6 % to 0.6 % -0.4 %
Retail Sales less autos - M/M change -0.9 % 0.3 % -0.2 % to 0.8 % -0.5 %
Highlights
Retail sales in April were surprisingly negative, dashing market expectations significantly for two months in a row. Overall retail sales fell another 0.4 percent in April after dropping 1.3 percent the month before. The April decrease was sharply below the market forecast for a 0.1 percent increase. Excluding motor vehicles, retail sales posted a 0.5 percent decline, after a 1.2 percent plunge in March. The fall in ex-auto sales was far worse than the consensus expectation for a 0.3 percent increase.
Declines in sales were broad based but led by electronics & appliance stores, down 2.8 percent; gasoline stations, down 2.3 percent; and food & beverage stores, down 1.0 percent. The downward tug by gasoline sales hardly explains the overall weakness. Excluding motor vehicles and gasoline, retail sales fell 0.3 percent after declining 1.0 percent in March.
Overall retail sales on a year-on-year basis in April were down 10.1 percent, down from minus 9.6 percent in March. Excluding motor vehicles, the year-on-year rate worsened to down 7.7 percent from down 6.3 percent in March.
Equities will not like today's retail sales numbers. The green shoots view of the economy holds true only if the consumer sector stabilizes. Look for possible flight to safety in the bond market.
Market Consensus Before Announcement
Retail sales dropped 1.1 percent in March after a 0.3 percent gain in February. Sales were weak across the board. But the strongest declines were seen in electronics & appliance stores, motor vehicles, and miscellaneous store retailers. Excluding motor vehicles, retail sales decreased 0.9 percent, after a 1.0 percent boost the month before. Our first glimpse at consumer spending for April was not good, hinting retail sales could decline further for the month. Unit new motor vehicle sales fell back to a 9.32 million unit annualized pace for the month after a 9.86 million unit rate in March - a 5.5 percent monthly decline.
Definition
Retail sales measure the total receipts at stores that sell durable and nondurable goods. Consumer spending accounts for two-thirds of GDP and is therefore a key element in economic growth. Why Investors Care
Data Source: Haver Analytics
Previous Consensus Consensus Range Actual
Retail Sales - M/M change -1.1 % 0.1 % -0.6 % to 0.6 % -0.4 %
Retail Sales less autos - M/M change -0.9 % 0.3 % -0.2 % to 0.8 % -0.5 %
Highlights
Retail sales in April were surprisingly negative, dashing market expectations significantly for two months in a row. Overall retail sales fell another 0.4 percent in April after dropping 1.3 percent the month before. The April decrease was sharply below the market forecast for a 0.1 percent increase. Excluding motor vehicles, retail sales posted a 0.5 percent decline, after a 1.2 percent plunge in March. The fall in ex-auto sales was far worse than the consensus expectation for a 0.3 percent increase.
Declines in sales were broad based but led by electronics & appliance stores, down 2.8 percent; gasoline stations, down 2.3 percent; and food & beverage stores, down 1.0 percent. The downward tug by gasoline sales hardly explains the overall weakness. Excluding motor vehicles and gasoline, retail sales fell 0.3 percent after declining 1.0 percent in March.
Overall retail sales on a year-on-year basis in April were down 10.1 percent, down from minus 9.6 percent in March. Excluding motor vehicles, the year-on-year rate worsened to down 7.7 percent from down 6.3 percent in March.
Equities will not like today's retail sales numbers. The green shoots view of the economy holds true only if the consumer sector stabilizes. Look for possible flight to safety in the bond market.
Market Consensus Before Announcement
Retail sales dropped 1.1 percent in March after a 0.3 percent gain in February. Sales were weak across the board. But the strongest declines were seen in electronics & appliance stores, motor vehicles, and miscellaneous store retailers. Excluding motor vehicles, retail sales decreased 0.9 percent, after a 1.0 percent boost the month before. Our first glimpse at consumer spending for April was not good, hinting retail sales could decline further for the month. Unit new motor vehicle sales fell back to a 9.32 million unit annualized pace for the month after a 9.86 million unit rate in March - a 5.5 percent monthly decline.
Definition
Retail sales measure the total receipts at stores that sell durable and nondurable goods. Consumer spending accounts for two-thirds of GDP and is therefore a key element in economic growth. Why Investors Care
Data Source: Haver Analytics
MBA Purchase Applications
Not really good news.
Released on 5/13/2009 7:00:00 AM For wk5/8, 2009
Previous Actual
Purchase Index - Level 264.3 265.7
Highlights
MBA's purchase index is improving but not much at 265.7 in the May 8 week vs. 264.3 in the prior week. These results, along with levels in April, are not pointing to a major pickup in home sales, suggesting that low interest rates and falling home prices are, as yet, giving only a limited boost to home sales. Low interest rates have had a big impact on refinancing, though demand has been slowing in recent weeks with the index down 11.2 percent to 4,588.6. Mortgage rates are at rock bottom with 30-year fixed loans averaging 4.76 percent for a 3 basis point decline.
Definition
The Mortgage Bankers' Association compiles various mortgage loan indexes. The purchase applications index measures applications at mortgage lenders. This is a leading indicator for single-family home sales and housing construction.
Why we care about this:
Why Investor's Care
This provides a gauge of not only the demand for housing, but economic momentum. People have to be feeling pretty comfortable and confident in their own financial position to buy a house. Furthermore, this narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments. By tracking economic data such as the Mortgage Bankers Association purchase applications, investors can gain specific investment ideas as well as broad guidance for managing a portfolio.
Each time the construction of a new home begins, it translates to more construction jobs, and income which will be pumped back into the economy. Once a home is sold, it generates revenues for the home builder and the realtor. It brings a myriad of consumption opportunities for the buyer. Refrigerators, washers, dryers and furniture are just a few items new home buyers might purchase. The economic "ripple effect" can be substantial especially when you think a hundred thousand new households around the country are doing this every month.
Since the economic backdrop is the most pervasive influence on financial markets, housing construction has a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the MBA purchase applications index carries valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies.
Frequency
Weekly
Revisions
Weekly, data for previous week are revised to reflect more complete information.
Definition
The Mortgage Bankers' Association compiles various mortgage loan indexes. The purchase applications index measures applications at mortgage lenders. This is a leading indicator for single-family home sales and housing construction.
Released on 5/13/2009 7:00:00 AM For wk5/8, 2009
Previous Actual
Purchase Index - Level 264.3 265.7
Highlights
MBA's purchase index is improving but not much at 265.7 in the May 8 week vs. 264.3 in the prior week. These results, along with levels in April, are not pointing to a major pickup in home sales, suggesting that low interest rates and falling home prices are, as yet, giving only a limited boost to home sales. Low interest rates have had a big impact on refinancing, though demand has been slowing in recent weeks with the index down 11.2 percent to 4,588.6. Mortgage rates are at rock bottom with 30-year fixed loans averaging 4.76 percent for a 3 basis point decline.
Definition
The Mortgage Bankers' Association compiles various mortgage loan indexes. The purchase applications index measures applications at mortgage lenders. This is a leading indicator for single-family home sales and housing construction.
Why we care about this:
Why Investor's Care
This provides a gauge of not only the demand for housing, but economic momentum. People have to be feeling pretty comfortable and confident in their own financial position to buy a house. Furthermore, this narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments. By tracking economic data such as the Mortgage Bankers Association purchase applications, investors can gain specific investment ideas as well as broad guidance for managing a portfolio.
Each time the construction of a new home begins, it translates to more construction jobs, and income which will be pumped back into the economy. Once a home is sold, it generates revenues for the home builder and the realtor. It brings a myriad of consumption opportunities for the buyer. Refrigerators, washers, dryers and furniture are just a few items new home buyers might purchase. The economic "ripple effect" can be substantial especially when you think a hundred thousand new households around the country are doing this every month.
Since the economic backdrop is the most pervasive influence on financial markets, housing construction has a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the MBA purchase applications index carries valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies.
Frequency
Weekly
Revisions
Weekly, data for previous week are revised to reflect more complete information.
Definition
The Mortgage Bankers' Association compiles various mortgage loan indexes. The purchase applications index measures applications at mortgage lenders. This is a leading indicator for single-family home sales and housing construction.
Market Reflections 5/12/2009
Tuesday was a quiet session for the stock market on caution ahead of tomorrow's retail sales report. Trade data showed deepening weakness for exports reflecting recessionary effects in other nations. In a separate report, the Treasury posted its first deficit in the tax month of April since 1983. The S&P 500 slipped 0.1 percent to 908.
The biggest news came from oil which hit $60 before edging back below $59. Traders stress that gains in oil do not reflect current supply/demand fundamentals, reflecting instead strength in the stock market and weakness in the dollar which slipped 1/2 cent to $1.3637 against the euro. Weakness in the dollar is tied to increasing appetite for risk, the result of optimism in the U.S. and tangible signs of strength in China.
The biggest news came from oil which hit $60 before edging back below $59. Traders stress that gains in oil do not reflect current supply/demand fundamentals, reflecting instead strength in the stock market and weakness in the dollar which slipped 1/2 cent to $1.3637 against the euro. Weakness in the dollar is tied to increasing appetite for risk, the result of optimism in the U.S. and tangible signs of strength in China.
Tuesday, May 12, 2009
Will the Fed buy more bonds?
U.S. Treasury bonds have fallen over half a percentage point in the past seven weeks, the biggest fall since 1994. Mortgages rates on 30-year fixed loans are back to more than 5%... This sets the stage for a showdown between the government's lenders (bond buyers) and the Federal Reserve, which wants interest rates to remain low. The Street (BlackRock, American Century, Federated, and Pioneer Investment) thinks the Fed will buy Treasury bonds again (like it did last month) in order to force rates lower. No matter what the Fed does, long-term interest rates are going much higher and the bond market is going to get crushed.
What will more and more creditworthy borrowers do when they see the Fed engineering a huge new inflation? Borrow as much money as they can, at fixed rates. Take Microsoft, for example. Bill Gates' company has never borrowed a penny before – ever. It has no need for debt financing whatsoever – it's sitting on more than $20 billion in cash reserves. Nevertheless, Microsoft will borrow billions in five, 10, and 30-year debt. It will use the money from this sale to help fund a $40 billion share repurchase program – nearly 25% of the company's outstanding shares. Follow Bill Gates' lead: Buy high-quality equity. Sell government debt.
Another member of the ultra-wealthy, Bond King Bill Gross, is also betting on inflation. Gross reduced U.S. government-related debt holdings (which include Treasuries, agency debt, and government-backed bank debt) in his PIMCO Total Return Fund for the first time since January. His holdings are now 26% of the fund down from 28% in March - the most he's owned since April 2007. If his May 8 interview with CNBC is any clue, Gross may shift some assets into senior bank debt now that the government's stress tests are done... "The banking system is enduring," Gross said. "These types of spreads on the senior debt level are historic and quite attractive."
From Bloomberg:
BlackRock Inc., American Century Investments, Federated Investors and Pioneer Investment Management say it's time to buy Treasuries because the Fed will need to expand its purchases to keep consumer borrowing costs from rising further."
While government buying of Treasuries will temporarily keep yields down, and could make for a good short-term trade, it won't stop the eventual massive inflation hangover.
What will more and more creditworthy borrowers do when they see the Fed engineering a huge new inflation? Borrow as much money as they can, at fixed rates. Take Microsoft, for example. Bill Gates' company has never borrowed a penny before – ever. It has no need for debt financing whatsoever – it's sitting on more than $20 billion in cash reserves. Nevertheless, Microsoft will borrow billions in five, 10, and 30-year debt. It will use the money from this sale to help fund a $40 billion share repurchase program – nearly 25% of the company's outstanding shares. Follow Bill Gates' lead: Buy high-quality equity. Sell government debt.
Another member of the ultra-wealthy, Bond King Bill Gross, is also betting on inflation. Gross reduced U.S. government-related debt holdings (which include Treasuries, agency debt, and government-backed bank debt) in his PIMCO Total Return Fund for the first time since January. His holdings are now 26% of the fund down from 28% in March - the most he's owned since April 2007. If his May 8 interview with CNBC is any clue, Gross may shift some assets into senior bank debt now that the government's stress tests are done... "The banking system is enduring," Gross said. "These types of spreads on the senior debt level are historic and quite attractive."
From Bloomberg:
BlackRock Inc., American Century Investments, Federated Investors and Pioneer Investment Management say it's time to buy Treasuries because the Fed will need to expand its purchases to keep consumer borrowing costs from rising further."
While government buying of Treasuries will temporarily keep yields down, and could make for a good short-term trade, it won't stop the eventual massive inflation hangover.
Was It a Sucker's Rally?
You can have a jobless recovery but you can't have a profitless one.
By ANDY KESSLER
The Dow Jones Industrial Average has bounced an astounding 30% from its March 9 low of 6547. Is this the dawn of a new era? Are we off to the races again?
I'm not so sure. Only a fool predicts the stock market, so here I go. This sure smells to me like a sucker's rally. That's because there aren't sustainable, fundamental reasons for the market's continued rise. Here are three explanations for the short-term upswing:
- Armageddon is off the table. It has been clear for some time that the funds available from the federal government's Troubled Asset Relief Program (TARP) were not going to be enough to shore up bank balance sheets laced with toxic assets.
On Feb. 10, Treasury Secretary Timothy Geithner rolled out another, much hyped bank rescue plan. It was judged incomplete -- and the market sold off 382 points in disgust.
Citigroup stock flirted with $1 on March 9. Nationalizations seemed inevitable as bears had their day.
Still, the Treasury bought time by announcing on the same day as Mr. Geithner's underwhelming rescue plan that it would conduct "stress tests" of 19 large U.S. banks. It also implied, over time, that no bank would fail the test (which was more a negotiation than an audit). And when White House Chief of Staff Rahm Emanuel clearly stated on April 19 that nationalization was "not the goal" of the administration, it became safe to own financial stocks again.
It doesn't matter if financial institution losses are $2 trillion or the pessimists' $3.6 trillion. "No more failures" is policy. While the U.S. government may end up owning maybe a third of the equity of Citi and Bank of America and a few others, none will be nationalized. And even though future bank profits will be held back by constant write downs of "legacy" assets (we don't call them toxic anymore), the bears have backed off and the market rallied -- Citi is now $4.
- Zero yields. The Federal Reserve, by driving short-term rates to almost zero, has messed up asset allocation formulas. Money always seeks its highest risk-adjusted return. Thus in normal markets if bond yields rise they become more attractive than risky stocks, so money shifts. And vice versa. Well, have you looked at your bank statement lately?
Savings accounts pay a whopping 0.2% interest rate -- 20 basis points. Even seven-day commercial paper money-market funds are paying under 50 basis points. So money has shifted to stocks, some of it automatically, as bond returns are puny compared to potential stock returns. Meanwhile, both mutual funds and hedge funds that missed the market pop are playing catch-up -- rushing to buy stocks.
- Bernanke's printing press. On March 18, the Federal Reserve announced it would purchase up to $300 billion of long-term bonds as well as $750 billion of mortgage-backed securities. Of all the Fed's moves, this "quantitative easing" gets money into the economy the fastest -- basically by cranking the handle of the printing press and flooding the market with dollars (in reality, with additional bank credit). Since these dollars are not going into home building, coal-fired electric plants or auto factories, they end up in the stock market.
A rising market means that banks are able to raise much-needed equity from private money funds instead of from the feds. And last Thursday, accompanying this flood of new money, came the reassuring results of the bank stress tests.
The next day Morgan Stanley raised $4 billion by selling stock at $24 in an oversubscribed deal. Wells Fargo also raised $8.6 billion that day by selling stock at $22 a share, up from $8 two months ago. And Bank of America registered 1.25 billion shares to sell this week. Citi is next. It's almost as if someone engineered a stock-market rally to entice private investors to fund the banks rather than taxpayers.
Can you see why I believe this is a sucker's rally?
The stock market still has big hurdles to clear. You can have a jobless recovery, but you can't have a profitless recovery. Consider: Earnings are subpar, Treasury's last auction was a bust because of weak demand, the dollar is suspect, the stimulus is pork, the latest budget projects a $1.84 trillion deficit, the administration is berating investment firms and hedge funds saying "I don't stand with them," California is dead broke, health care may be nationalized, cap and trade will bump electric bills by 30% . . . Shall I go on?
Until these issues are resolved, I don't see the stock market going much higher. I'm not disagreeing with the Fed's policies -- but I won't buy into a rising stock market based on them. I'm bullish when I see productivity driving wealth.
For now, the market appears dependent on a hand cranking out dollars to help fund banks. I'd rather see rising expectations for corporate profits.
Mr. Kessler, a former hedge-fund manager, is the author of "How We Got Here" (Collins, 2005).
Please add your comments to the Opinion Journal forum.
Printed in The Wall Street Journal, page A17
By ANDY KESSLER
The Dow Jones Industrial Average has bounced an astounding 30% from its March 9 low of 6547. Is this the dawn of a new era? Are we off to the races again?
I'm not so sure. Only a fool predicts the stock market, so here I go. This sure smells to me like a sucker's rally. That's because there aren't sustainable, fundamental reasons for the market's continued rise. Here are three explanations for the short-term upswing:
- Armageddon is off the table. It has been clear for some time that the funds available from the federal government's Troubled Asset Relief Program (TARP) were not going to be enough to shore up bank balance sheets laced with toxic assets.
On Feb. 10, Treasury Secretary Timothy Geithner rolled out another, much hyped bank rescue plan. It was judged incomplete -- and the market sold off 382 points in disgust.
Citigroup stock flirted with $1 on March 9. Nationalizations seemed inevitable as bears had their day.
Still, the Treasury bought time by announcing on the same day as Mr. Geithner's underwhelming rescue plan that it would conduct "stress tests" of 19 large U.S. banks. It also implied, over time, that no bank would fail the test (which was more a negotiation than an audit). And when White House Chief of Staff Rahm Emanuel clearly stated on April 19 that nationalization was "not the goal" of the administration, it became safe to own financial stocks again.
It doesn't matter if financial institution losses are $2 trillion or the pessimists' $3.6 trillion. "No more failures" is policy. While the U.S. government may end up owning maybe a third of the equity of Citi and Bank of America and a few others, none will be nationalized. And even though future bank profits will be held back by constant write downs of "legacy" assets (we don't call them toxic anymore), the bears have backed off and the market rallied -- Citi is now $4.
- Zero yields. The Federal Reserve, by driving short-term rates to almost zero, has messed up asset allocation formulas. Money always seeks its highest risk-adjusted return. Thus in normal markets if bond yields rise they become more attractive than risky stocks, so money shifts. And vice versa. Well, have you looked at your bank statement lately?
Savings accounts pay a whopping 0.2% interest rate -- 20 basis points. Even seven-day commercial paper money-market funds are paying under 50 basis points. So money has shifted to stocks, some of it automatically, as bond returns are puny compared to potential stock returns. Meanwhile, both mutual funds and hedge funds that missed the market pop are playing catch-up -- rushing to buy stocks.
- Bernanke's printing press. On March 18, the Federal Reserve announced it would purchase up to $300 billion of long-term bonds as well as $750 billion of mortgage-backed securities. Of all the Fed's moves, this "quantitative easing" gets money into the economy the fastest -- basically by cranking the handle of the printing press and flooding the market with dollars (in reality, with additional bank credit). Since these dollars are not going into home building, coal-fired electric plants or auto factories, they end up in the stock market.
A rising market means that banks are able to raise much-needed equity from private money funds instead of from the feds. And last Thursday, accompanying this flood of new money, came the reassuring results of the bank stress tests.
The next day Morgan Stanley raised $4 billion by selling stock at $24 in an oversubscribed deal. Wells Fargo also raised $8.6 billion that day by selling stock at $22 a share, up from $8 two months ago. And Bank of America registered 1.25 billion shares to sell this week. Citi is next. It's almost as if someone engineered a stock-market rally to entice private investors to fund the banks rather than taxpayers.
Can you see why I believe this is a sucker's rally?
The stock market still has big hurdles to clear. You can have a jobless recovery, but you can't have a profitless recovery. Consider: Earnings are subpar, Treasury's last auction was a bust because of weak demand, the dollar is suspect, the stimulus is pork, the latest budget projects a $1.84 trillion deficit, the administration is berating investment firms and hedge funds saying "I don't stand with them," California is dead broke, health care may be nationalized, cap and trade will bump electric bills by 30% . . . Shall I go on?
Until these issues are resolved, I don't see the stock market going much higher. I'm not disagreeing with the Fed's policies -- but I won't buy into a rising stock market based on them. I'm bullish when I see productivity driving wealth.
For now, the market appears dependent on a hand cranking out dollars to help fund banks. I'd rather see rising expectations for corporate profits.
Mr. Kessler, a former hedge-fund manager, is the author of "How We Got Here" (Collins, 2005).
Please add your comments to the Opinion Journal forum.
Printed in The Wall Street Journal, page A17
Market Reflections 5/11/2009
Monday prove to be a quiet defensive session. The administration, citing the slow economy, raised its fiscal-year deficit projection by $89 billion to $1.8 trillion, borrowing 46 cents for each dollar the government spends. The 2010 deficit is pegged at $1.3 trillion. Otherwise, the only news in the session was stock and debt issuance. Several banks issued stock following stress-test related issuance on Friday where demand proved very strong. Microsoft also tapped the debt market for the first time, selling $3.75 billion in 5-, 10-, and 30-year notes.
Stocks fell back amid questions whether Friday's big gains were overdone. The S&P 500 fell 2.2% to 909. Oil also fell back a bit, ending at $58.15. Gold was steady at $914. The dollar firmed slightly from Friday's selloff to end at $1.3582 against the euro. Demand for the safety of Treasuries picked up with the 10-year yield down 12 basis points to 3.16 percent.
Stocks fell back amid questions whether Friday's big gains were overdone. The S&P 500 fell 2.2% to 909. Oil also fell back a bit, ending at $58.15. Gold was steady at $914. The dollar firmed slightly from Friday's selloff to end at $1.3582 against the euro. Demand for the safety of Treasuries picked up with the 10-year yield down 12 basis points to 3.16 percent.
Saturday, May 9, 2009
Weekly Market Update (5/8/09)
HEADLINE NEWS WEEK ENDING 5/8/09
Overview
Nonfarm payroll employment declined by 539,000 in April and the unemployment rate rose from 8.5 to 8.9%, the Bureau of Labor Statistics (BLS) reported today. more...
US MARKETS
Treasury/Economics
Treasury yields continued to head higher this week, with demand abating as investors favor other sectors. more...
Large-Cap Equities
The stock market soared higher as the results of the government stress tests and better-than-expected economic data signaled signs of an economic stabilization. more...
Corporate Bonds
Investment grade primary activity finally shifted gears and issuers released a wide range of paper this week. more...
Mortgage-Backed Securities
The wild ride in US Treasuries failed to spoil the party in agency mortgages. Although Treasury yields soared on another round of economic 'green shoots', mortgage prices oscillated in a narrow range. more...
Municipal Bonds
Although AAA-rated general obligation (GO) municipal bond yields were unchanged over the last week, the sell-off in Treasuries pushed municipal/Treasury yield ratios back toward historical norms (i.e., well under 100%). more...
High-Yield
The high yield market continued its momentum of April in May 2009. The trend remained similar, with the lower-quality, CCC-rated end of the market rallying strong. . more...
INTERNATIONAL MARKETS
Western European Equities
Stocks in Western Europe gained ground over the past week. The stocks with the best performance were basic resources (+14.0%) and banks (+11.6%). more...
Eastern European Equities
The CECE index of equities traded in Central Europe (Czech Republic, Hungary, and Poland) gained +11.4% this week, while the Russian stock index RTS went up +12.7%. more...
Global Bonds and Currencies
With equity markets continuing to rise and confidence mounting that the worst of the global recession has passed, major non-US government bond markets weakened in line with their US counterparts in the past week. . more...
Emerging-Market Bonds
Emerging market dollar-pay debt spreads tightened by 58 bps this week. more...
For more information, please contact 800 5-PAYDEN or visit payden.com.
If you have difficulties viewing this e-mail and would prefer the Weekly Market Update in plain text format, please e-mail us at paydenrygel@payden-rygel.com. To unsubscribe from this email, please email us at unsubscribe@payden-rygel.com.
Have a great weekend!
All rights reserved. Legal terms. Payden & Rygel respects your privacy. Privacy policy.
The investment strategy and investment management information presented on this email and related Web site, payden.com, should not be construed to be formal financial planning advice or the formation of a financial manager/client relationship. Payden.com is an informative Web site designed to provide information to the general public based on our recommendations of investment management and investment strategies and is not designed to be representative of your own financial needs. Nor does the information contained herein constitute financial management advice. The firm makes no warranty or representation regarding the accuracy or legality of any information contained in this Web site, and assumes no liability for the use of said information. Be advised that as Internet communications are not always confidential, you provide our Web site your personal information at your own risk. Please do not make any decisions about any investment management or investment strategy matter without consulting with a qualified professional.
Overview
Nonfarm payroll employment declined by 539,000 in April and the unemployment rate rose from 8.5 to 8.9%, the Bureau of Labor Statistics (BLS) reported today. more...
US MARKETS
Treasury/Economics
Treasury yields continued to head higher this week, with demand abating as investors favor other sectors. more...
Large-Cap Equities
The stock market soared higher as the results of the government stress tests and better-than-expected economic data signaled signs of an economic stabilization. more...
Corporate Bonds
Investment grade primary activity finally shifted gears and issuers released a wide range of paper this week. more...
Mortgage-Backed Securities
The wild ride in US Treasuries failed to spoil the party in agency mortgages. Although Treasury yields soared on another round of economic 'green shoots', mortgage prices oscillated in a narrow range. more...
Municipal Bonds
Although AAA-rated general obligation (GO) municipal bond yields were unchanged over the last week, the sell-off in Treasuries pushed municipal/Treasury yield ratios back toward historical norms (i.e., well under 100%). more...
High-Yield
The high yield market continued its momentum of April in May 2009. The trend remained similar, with the lower-quality, CCC-rated end of the market rallying strong. . more...
INTERNATIONAL MARKETS
Western European Equities
Stocks in Western Europe gained ground over the past week. The stocks with the best performance were basic resources (+14.0%) and banks (+11.6%). more...
Eastern European Equities
The CECE index of equities traded in Central Europe (Czech Republic, Hungary, and Poland) gained +11.4% this week, while the Russian stock index RTS went up +12.7%. more...
Global Bonds and Currencies
With equity markets continuing to rise and confidence mounting that the worst of the global recession has passed, major non-US government bond markets weakened in line with their US counterparts in the past week. . more...
Emerging-Market Bonds
Emerging market dollar-pay debt spreads tightened by 58 bps this week. more...
For more information, please contact 800 5-PAYDEN or visit payden.com.
If you have difficulties viewing this e-mail and would prefer the Weekly Market Update in plain text format, please e-mail us at paydenrygel@payden-rygel.com. To unsubscribe from this email, please email us at unsubscribe@payden-rygel.com.
Have a great weekend!
All rights reserved. Legal terms. Payden & Rygel respects your privacy. Privacy policy.
The investment strategy and investment management information presented on this email and related Web site, payden.com, should not be construed to be formal financial planning advice or the formation of a financial manager/client relationship. Payden.com is an informative Web site designed to provide information to the general public based on our recommendations of investment management and investment strategies and is not designed to be representative of your own financial needs. Nor does the information contained herein constitute financial management advice. The firm makes no warranty or representation regarding the accuracy or legality of any information contained in this Web site, and assumes no liability for the use of said information. Be advised that as Internet communications are not always confidential, you provide our Web site your personal information at your own risk. Please do not make any decisions about any investment management or investment strategy matter without consulting with a qualified professional.
Friday, May 8, 2009
Investment strategy and a prediction
Predictions don't figure in my investment strategy. Instead, I compound our money. We collect the safest income-paying stocks in the market, augment our income by selling covered calls, and protect our capital with stop losses. The stock market's short-term fluctuations have no bearing on our decision-making. That said, sometimes I can't help myself...
I think we're seeing a classic bear-market rally in the stock market, for three reasons. First, the "junkiest" stocks are leading the rally. If this were a new bull market, I'd expect leadership from a new and exciting batch of stocks... not the dogs of the old bubble, like leveraged real estate companies and bloated banks.
I think we're seeing a classic bear-market rally in the stock market, for three reasons. First, the "junkiest" stocks are leading the rally. If this were a new bull market, I'd expect leadership from a new and exciting batch of stocks... not the dogs of the old bubble, like leveraged real estate companies and bloated banks.
Big Inflation coming
I am more convinced than ever before that the government's efforts to stimulate the economy have gone way too far.
There will be a period of rampant inflation.
There will be price controls.
There will be currency controls.
There will be shortages.
You would think the wealthiest nation on Earth would understand the basics of economics and avoid these pitfalls… but politics rule our country, not economics.
It will be a long time before policymakers react appropriately by raising interest rates significantly.
This gives us plenty of time to rack up very large gains in equities.
I hope you've taken my warnings seriously. It's coming.
There will be a period of rampant inflation.
There will be price controls.
There will be currency controls.
There will be shortages.
You would think the wealthiest nation on Earth would understand the basics of economics and avoid these pitfalls… but politics rule our country, not economics.
It will be a long time before policymakers react appropriately by raising interest rates significantly.
This gives us plenty of time to rack up very large gains in equities.
I hope you've taken my warnings seriously. It's coming.
The Great Re-Leveraging
It's time to buy.
Over the last 30 days, a new wave of liquidity has hit Wall Street. Real estate companies are suddenly able to raise new equity at attractive prices. And big banks, which the government says need billions in additional capital, have seen their share prices rally substantially - a sign that plenty of money is now available. That clearly shows the government's efforts to stimulate the economy and provide more liquidity to the market is now working.
Over the last 30 days, a new wave of liquidity has hit Wall Street. Real estate companies are suddenly able to raise new equity at attractive prices. And big banks, which the government says need billions in additional capital, have seen their share prices rally substantially - a sign that plenty of money is now available. That clearly shows the government's efforts to stimulate the economy and provide more liquidity to the market is now working.
Stress Test and MetLife, an odd reult
So much for my MetLife short... It's among the six institutions the stress-test results indicate won't need to raise new capital.
Why MetLife rallied is beyond me. It's holding more than $30 billion in commercial real estate exposure – half of all its loans are commercial real estate.
Commercial real estate deals are defaulting at a rate of more than $200 billion a year. And get this: Subprime, the straw that broke the banking system's back, was about a $1.3 trillion market when it started blowing up. Commercial real estate loans total more than $3.5 trillion and are probably in even worse shape. The worst is yet to come.
I find it difficult to believe MetLife will remain untouched. And by passing the stress test, it'll probably get complacent and not raise the capital it'll need once the commercial deals start becoming OTTI: "other than temporary impairments." That'll take time because nobody wants to sell at current prices, which indicate impairments of 50%-65%. They'd rather hang on as long as possible and be forced into bankruptcy.
On Tuesday, I watched a scary presentation by Igor Lotsvin of Soma Asset Management. Igor says 25% of commercial real estate in Nevada is impaired... and when 25% is impaired, the entire market is impaired.
Why MetLife rallied is beyond me. It's holding more than $30 billion in commercial real estate exposure – half of all its loans are commercial real estate.
Commercial real estate deals are defaulting at a rate of more than $200 billion a year. And get this: Subprime, the straw that broke the banking system's back, was about a $1.3 trillion market when it started blowing up. Commercial real estate loans total more than $3.5 trillion and are probably in even worse shape. The worst is yet to come.
I find it difficult to believe MetLife will remain untouched. And by passing the stress test, it'll probably get complacent and not raise the capital it'll need once the commercial deals start becoming OTTI: "other than temporary impairments." That'll take time because nobody wants to sell at current prices, which indicate impairments of 50%-65%. They'd rather hang on as long as possible and be forced into bankruptcy.
On Tuesday, I watched a scary presentation by Igor Lotsvin of Soma Asset Management. Igor says 25% of commercial real estate in Nevada is impaired... and when 25% is impaired, the entire market is impaired.
Stress from the "stress test"
A friend called late yesterday to ask me what I thought about the "stress test." I told him it seemed to be working, I was pretty stressed out by the market thanks to the carnival act we call the Treasury and Fed.
Top short seller: Short bank stocks now
From Newsmax:
Hedge fund manager Doug Kass said he is selectively shorting U.S. financial stocks, which have more than doubled since bottoming in early March, on the belief that they have been "priced to perfection" ahead of the banks' stress test results later on Thursday.
"From my perch, investors should sober up and reduce their holdings in financials now," Kass said in a note to clients. "Financial stocks are now priced to perfection."
Hedge fund manager Doug Kass said he is selectively shorting U.S. financial stocks, which have more than doubled since bottoming in early March, on the belief that they have been "priced to perfection" ahead of the banks' stress test results later on Thursday.
"From my perch, investors should sober up and reduce their holdings in financials now," Kass said in a note to clients. "Financial stocks are now priced to perfection."
Treasury bond yields soar this week... inflationary boom coming
Bond bear market watch: U.S. Treasury bond yields soared yesterday after few eager buyers showed up to bid on the latest round of debt.
As the FT reports: The 30-year Treasury yield rose to 4.30 per cent on Thursday from 4.10 per cent the day before after bids at the government auction came at lower prices than expected. The 30-year Treasury is now at its highest level since last November. The rise in bond yields has raised questions about whether the Federal Reserve will step up efforts - which began in March - to keep yields down through direct purchases of government bonds.
The funny money printing crew in Washington is starting to lose control...
As the FT reports: The 30-year Treasury yield rose to 4.30 per cent on Thursday from 4.10 per cent the day before after bids at the government auction came at lower prices than expected. The 30-year Treasury is now at its highest level since last November. The rise in bond yields has raised questions about whether the Federal Reserve will step up efforts - which began in March - to keep yields down through direct purchases of government bonds.
The funny money printing crew in Washington is starting to lose control...
Market Reflections 5/7/2009
Thursday was a wild session. Volatility and volumes were extreme, making traders, who were very busy executing orders, refer back fondly to last summer's market peaks. The only fundamentals at play are expectations that the global economy, fueled by new improvement in the U.S. and China, will emerge from recession in the months ahead.
Oil put on a show, breaking out suddenly to new 2009 highs over $58 then just as suddenly breaking back to $55 before ending at $56.50. Sidelined money from around the globe is pouring into commodities including grains and industrial metals. Sidelined money is also pouring back into the stock market which also put on a show, rising sharply at the opening before sliding to end at its lows with a 1.3% drop on the S&P 500 to 907.
It was near the close that the only economic data that moved the markets was posted -- the sharpest fall in consumer credit since early in World War II for stunning confirmation that consumers are taking cover. Chain stores, benefiting from the Easter shift, posted strong sales in April but probably no stronger than anticipated by Commerce Department adjustments.
There weren't any fireworks in the dollar which ended little changed at $1.3388 against the euro. But there was action in the Treasury market where the 30-year bond auction, due to buyer exhaustion after a week of auctions, proved a messy flop. The yield on the 30-year jumped 21 basis points to 4.29 percent.
Oil put on a show, breaking out suddenly to new 2009 highs over $58 then just as suddenly breaking back to $55 before ending at $56.50. Sidelined money from around the globe is pouring into commodities including grains and industrial metals. Sidelined money is also pouring back into the stock market which also put on a show, rising sharply at the opening before sliding to end at its lows with a 1.3% drop on the S&P 500 to 907.
It was near the close that the only economic data that moved the markets was posted -- the sharpest fall in consumer credit since early in World War II for stunning confirmation that consumers are taking cover. Chain stores, benefiting from the Easter shift, posted strong sales in April but probably no stronger than anticipated by Commerce Department adjustments.
There weren't any fireworks in the dollar which ended little changed at $1.3388 against the euro. But there was action in the Treasury market where the 30-year bond auction, due to buyer exhaustion after a week of auctions, proved a messy flop. The yield on the 30-year jumped 21 basis points to 4.29 percent.
Thursday, May 7, 2009
Freddie Mac could be exposed for hiding accounting
Freddie Macs' (FRE) regulator pressed the company to withhold information related to the proposal from a federal filing, concerned that this seemingly arcane discussion of accounting practices could add billions of dollars to the government's cost of bailing out financial firms, according to sources. The Washington Post reports that the company's executives refused and that could expose them to accusations that they hid required details from regulators.
Stocks yield less than U.S. gov't bonds!
From Bespoke Investment Group:
Since the March 9th low, the indicated dividend yield of the S&P 500 has dropped from 4.12% to 3.12%. At the same time, the yield on the "risk-free" 10-Year Treasury Note has risen from a low of just over 2% to its current level of 3.15%.
Since the March 9th low, the indicated dividend yield of the S&P 500 has dropped from 4.12% to 3.12%. At the same time, the yield on the "risk-free" 10-Year Treasury Note has risen from a low of just over 2% to its current level of 3.15%.
Global Crisis ‘Vastly Worse’ Than 1930s, Taleb Says (Update1)
By Shiyin Chen and Liza Lin
May 7 (Bloomberg) -- The current global crisis is “vastly worse” than the 1930s because financial systems and economies worldwide have become more interdependent, “Black Swan” author Nassim Nicholas Taleb said.
“This is the most difficult period of humanity that we’re going through today because governments have no control,” Taleb, 49, told a conference in Singapore today. “Navigating the world is much harder than in the 1930s.”
The International Monetary Fund last month slashed its world economic growth forecasts and said the global recession will be deeper than previously predicted as financial markets take longer to stabilize. Nouriel Roubini, 51, the New York University professor who predicted the crisis, told Bloomberg News yesterday that analysts expecting the U.S. economy to rebound in the third and fourth quarter were “too optimistic.”
“Certainly the rate of economic contraction is slowing down from the freefall of the last two quarters,” Roubini said. “We are going to have negative growth to the end of the year and next year the recovery is going to be weak.”
Federal Reserve Chairman Ben S. Bernanke told lawmakers May 5 that the central bank expects U.S. economic activity “to bottom out, then to turn up later this year.” Another shock to the financial system would undercut that forecast, he added.
‘Big Deflation’
The global economy is facing “big deflation,” though the risks of inflation are also increasing as governments print more money, Taleb told the conference organized by Bank of America- Merrill Lynch. Gold and copper may “rally massively” as a result, he added.
Taleb, a professor of risk engineering at New York University and adviser to Santa Monica, California-based Universa Investments LP, said the current global slump is the worst since the Great Depression that followed Wall Street’s 1929 crash.
The Great Depression saw an increase in global trade barriers and was only overcome after President Franklin D. Roosevelt’s New Deal policies helped revive the U.S. economy.
The world’s largest economy may need additional fiscal stimulus to emerge from its current recession, Kenneth Rogoff, former chief economist at the International Monetary Fund, told Bloomberg News yesterday.
“We’re going to get to the point where recovery is just not soaring and they’re going to do the same again,” he said. “We’re going to have a very slow recovery from here.”
Fiscal Stimulus
The U.S. economy plunged at a 6.1 percent annual pace in the first quarter, making this the worst recession in at least half a century. President Barack Obama signed a $787 billion stimulus plan into law in February that included increases in spending on infrastructure projects and a reduction in taxes.
Gold, copper and other assets “that China will like” are the best investment bets as currencies including the dollar and euro face pressures, Taleb said. The IMF expects the global economy to shrink 1.3 percent this year.
Gold, which jumped to a record $1,032.70 an ounce March 17, 2008, is up 3.6 percent this year. Copper for three-month delivery on the London Metal Exchange has surged 55 percent this year on speculation demand will rebound as the global economy recovers from its worst recession since World War II.
Commodity prices are also gaining amid signs that China’s 4 trillion yuan ($585 billion) stimulus package is beginning to work in Asia’s second-largest economy. Quarter-on-quarter growth improved significantly in the first three months of 2009, the Chinese central bank said yesterday, without giving figures.
Credit Derivatives
China will avoid a recession this year, though it will not be able to pull Asia out of its economic slump as the region still depends on U.S. demand, New York University’s Roubini said.
Equity investments are preferable to debt, a contributor to the current financial crisis, Taleb said. Deflation in an equity bubble will have smaller repercussions for the global financial system, he added.
“Debt pressurizes the system and it has to be replaced with equity,” he said. “Bonds appear stable but have a lot of hidden risks. Equity is volatile, but what you see is what you get.”
Currency and credit derivatives will cause additional losses for companies that hold more than $500 trillion of the securities worldwide, Templeton Asset Management Ltd.’s Mark Mobius told the same Singapore conference today.
“There are going to be more and more losses on the part of companies that have credit derivatives, those who have currency derivatives,” Mobius, who helps oversee $20 billion in emerging-market assets at Templeton, said at the conference. “This is something we’re going to have to watch very, very carefully.”
Taleb is best known for his book “The Black Swan: The Impact of the Highly Improbable.” The book, named after rare and unforeseen events known as “black swans,” was published in 2007, just before the collapse of the subprime market roiled global financial institutions.
To contact the reporters on this story: Chen Shiyin in Singapore at schen37@bloomberg.net; Liza Lin in Singapore at Llin15@bloomberg.net.
Last Updated: May 7, 2009 05:35 EDT
May 7 (Bloomberg) -- The current global crisis is “vastly worse” than the 1930s because financial systems and economies worldwide have become more interdependent, “Black Swan” author Nassim Nicholas Taleb said.
“This is the most difficult period of humanity that we’re going through today because governments have no control,” Taleb, 49, told a conference in Singapore today. “Navigating the world is much harder than in the 1930s.”
The International Monetary Fund last month slashed its world economic growth forecasts and said the global recession will be deeper than previously predicted as financial markets take longer to stabilize. Nouriel Roubini, 51, the New York University professor who predicted the crisis, told Bloomberg News yesterday that analysts expecting the U.S. economy to rebound in the third and fourth quarter were “too optimistic.”
“Certainly the rate of economic contraction is slowing down from the freefall of the last two quarters,” Roubini said. “We are going to have negative growth to the end of the year and next year the recovery is going to be weak.”
Federal Reserve Chairman Ben S. Bernanke told lawmakers May 5 that the central bank expects U.S. economic activity “to bottom out, then to turn up later this year.” Another shock to the financial system would undercut that forecast, he added.
‘Big Deflation’
The global economy is facing “big deflation,” though the risks of inflation are also increasing as governments print more money, Taleb told the conference organized by Bank of America- Merrill Lynch. Gold and copper may “rally massively” as a result, he added.
Taleb, a professor of risk engineering at New York University and adviser to Santa Monica, California-based Universa Investments LP, said the current global slump is the worst since the Great Depression that followed Wall Street’s 1929 crash.
The Great Depression saw an increase in global trade barriers and was only overcome after President Franklin D. Roosevelt’s New Deal policies helped revive the U.S. economy.
The world’s largest economy may need additional fiscal stimulus to emerge from its current recession, Kenneth Rogoff, former chief economist at the International Monetary Fund, told Bloomberg News yesterday.
“We’re going to get to the point where recovery is just not soaring and they’re going to do the same again,” he said. “We’re going to have a very slow recovery from here.”
Fiscal Stimulus
The U.S. economy plunged at a 6.1 percent annual pace in the first quarter, making this the worst recession in at least half a century. President Barack Obama signed a $787 billion stimulus plan into law in February that included increases in spending on infrastructure projects and a reduction in taxes.
Gold, copper and other assets “that China will like” are the best investment bets as currencies including the dollar and euro face pressures, Taleb said. The IMF expects the global economy to shrink 1.3 percent this year.
Gold, which jumped to a record $1,032.70 an ounce March 17, 2008, is up 3.6 percent this year. Copper for three-month delivery on the London Metal Exchange has surged 55 percent this year on speculation demand will rebound as the global economy recovers from its worst recession since World War II.
Commodity prices are also gaining amid signs that China’s 4 trillion yuan ($585 billion) stimulus package is beginning to work in Asia’s second-largest economy. Quarter-on-quarter growth improved significantly in the first three months of 2009, the Chinese central bank said yesterday, without giving figures.
Credit Derivatives
China will avoid a recession this year, though it will not be able to pull Asia out of its economic slump as the region still depends on U.S. demand, New York University’s Roubini said.
Equity investments are preferable to debt, a contributor to the current financial crisis, Taleb said. Deflation in an equity bubble will have smaller repercussions for the global financial system, he added.
“Debt pressurizes the system and it has to be replaced with equity,” he said. “Bonds appear stable but have a lot of hidden risks. Equity is volatile, but what you see is what you get.”
Currency and credit derivatives will cause additional losses for companies that hold more than $500 trillion of the securities worldwide, Templeton Asset Management Ltd.’s Mark Mobius told the same Singapore conference today.
“There are going to be more and more losses on the part of companies that have credit derivatives, those who have currency derivatives,” Mobius, who helps oversee $20 billion in emerging-market assets at Templeton, said at the conference. “This is something we’re going to have to watch very, very carefully.”
Taleb is best known for his book “The Black Swan: The Impact of the Highly Improbable.” The book, named after rare and unforeseen events known as “black swans,” was published in 2007, just before the collapse of the subprime market roiled global financial institutions.
To contact the reporters on this story: Chen Shiyin in Singapore at schen37@bloomberg.net; Liza Lin in Singapore at Llin15@bloomberg.net.
Last Updated: May 7, 2009 05:35 EDT
Time for caution: 200 day moving averages reached
The DOW: The rally since early March has almost reached its 200-day moving average. That could be a possible target for the rally to end.
The S&P 500: has virtually reached reached its 200-day moving average.
The Nasdaq has risen slightly above its 200-day moving average.
A time for caution? I think so, yes indeed. I dont see anything implying a devestating setback is about to occur. But this flirting with the 200-day moving average is not exactly a message from the Angels. Since the Bear market began,the Nasdaq composite has touched the 200-day moving average three times and has been turned back each time. This is now the fourth touch.
The S&P 500 has only touched the 200-day MA once and been repelld. This would be touch no 2. Same for the DOW.
For all four major averages,the current rally has retraced a higher percentage of the preceeding weakness than achiebed by any rally so farin this bear market.
That suggests a market that has been expecting good news according to Don Worden (www.worden.com)
The S&P 500: has virtually reached reached its 200-day moving average.
The Nasdaq has risen slightly above its 200-day moving average.
A time for caution? I think so, yes indeed. I dont see anything implying a devestating setback is about to occur. But this flirting with the 200-day moving average is not exactly a message from the Angels. Since the Bear market began,the Nasdaq composite has touched the 200-day moving average three times and has been turned back each time. This is now the fourth touch.
The S&P 500 has only touched the 200-day MA once and been repelld. This would be touch no 2. Same for the DOW.
For all four major averages,the current rally has retraced a higher percentage of the preceeding weakness than achiebed by any rally so farin this bear market.
That suggests a market that has been expecting good news according to Don Worden (www.worden.com)
Market Reflections 5/6/2009
In a memorable, if not predictable, mis-handling of information, the results of the government's stress tests were released en masse a day early, apparently by the individual financial firms involved. A burst of midday headlines saw differing news outlets issuing reports on separate banks, raising questions, later denied, that government officials were orchestrating a piece-by-piece dissemination. But the bottom line is that fewer financial firms than expected will be forced to raise capital. For the ones that do, a group that includes Citigroup and Bank of America, it's still uncertain how much capital they will have to raise. Momentum accounts flooded the financial sector where the Financial SPDR ended 7.6 percent higher at $12.44. By day's end, the Treasury was still sticking to its previously revised schedule, holding the official results until after tomorrow's close. But who knows?
Economic data included improved job readings from ADP and Challenger, results that point to smaller-than-expected job losses on Friday. Stocks ended near their highs with the S&P 500 up 1.7 percent at 919.47. Improving economic data both here and in China tripped a big move into commodities especially copper which ended at $2.17/lb, up 10 cents on the day. Silver was another big gainer, up 68 cents at $13.71 as it played catch up to copper. Gold ended firmer at $910 with oil, tracking the stock market, adding $2 to just over $56.
The dollar was little changed at $1.3331 against the euro. Treasury yields were also little changed despite a strong 10-year note auction. Tomorrow the Treasury will auction 30-year bonds which ended Wednesday at a yield of 4.08 percent.
Economic data included improved job readings from ADP and Challenger, results that point to smaller-than-expected job losses on Friday. Stocks ended near their highs with the S&P 500 up 1.7 percent at 919.47. Improving economic data both here and in China tripped a big move into commodities especially copper which ended at $2.17/lb, up 10 cents on the day. Silver was another big gainer, up 68 cents at $13.71 as it played catch up to copper. Gold ended firmer at $910 with oil, tracking the stock market, adding $2 to just over $56.
The dollar was little changed at $1.3331 against the euro. Treasury yields were also little changed despite a strong 10-year note auction. Tomorrow the Treasury will auction 30-year bonds which ended Wednesday at a yield of 4.08 percent.
Wednesday, May 6, 2009
U.S. Stocks: How Long Will the Rally Last?
Markets are getting very close to being irrationally exuberant. Although there are some positive indicators, like the narrowing of credit spreads, and some stock market rebound from the March 2009 lows maybe justified by potential green shoots of economic recovery, other indicators paint a much bleaker picture. The rise in oil prices, and the significant rebound in banking stocks may prove in hindsight to be overly optimistic (Breakingviews)
The stock market’s latest “dead cat bounce” may last a while longer, but three factors will, in due course, lead it to turn south again. First, macroeconomic indicators will be worse than expected, with growth failing to recover as fast as the consensus expects. Second, the profits and earnings of corporations and financial institutions will not rebound as fast as the consensus predicts, as weak economic growth, deflationary pressures, and surging defaults on corporate bonds will limit firms’ pricing power and keep profit margins low. Third, financial shocks will be worse than expected (Nouriel Roubini)
The stock market’s latest “dead cat bounce” may last a while longer, but three factors will, in due course, lead it to turn south again. First, macroeconomic indicators will be worse than expected, with growth failing to recover as fast as the consensus expects. Second, the profits and earnings of corporations and financial institutions will not rebound as fast as the consensus predicts, as weak economic growth, deflationary pressures, and surging defaults on corporate bonds will limit firms’ pricing power and keep profit margins low. Third, financial shocks will be worse than expected (Nouriel Roubini)
Banks to lose further $216bil by end 2010
As part of the bank stress tests, the Fed is projecting losses of up to 12% on commercial real estate loans over two years. If the Fed is right, the country's banks, which hold $1.8 trillion of commercial real estate debt, would lose $216 billion by the end of 2010.
The ominous forecast isn't news to Sam Zell, who liquidated his enormous commercial real estate holdings in early 2007. According to Zell, "Very few '03 to '07 financings are above water... You have more debt than you have value." As a result, the market for commercial property is frozen. REITs won't sell a property with negative equity... They'd only have to contribute more equity to cover the loan. So troubled REITs are holding out as long as they can, hoping the government's actions will "reflate" property values and rents, helping them cover ballooning interest payments.
So... we have a race between the government's efforts to reflate the property bubble and the coming maturities of commercial real estate loans. Some of the stronger REITs, like Simon Property Group and Kimco Realty, are raising equity hoping to take advantage of the coming bankruptcy sales.
The ominous forecast isn't news to Sam Zell, who liquidated his enormous commercial real estate holdings in early 2007. According to Zell, "Very few '03 to '07 financings are above water... You have more debt than you have value." As a result, the market for commercial property is frozen. REITs won't sell a property with negative equity... They'd only have to contribute more equity to cover the loan. So troubled REITs are holding out as long as they can, hoping the government's actions will "reflate" property values and rents, helping them cover ballooning interest payments.
So... we have a race between the government's efforts to reflate the property bubble and the coming maturities of commercial real estate loans. Some of the stronger REITs, like Simon Property Group and Kimco Realty, are raising equity hoping to take advantage of the coming bankruptcy sales.
Few escape blame over subprime explosion
These are largely the same people in Congress who are now trying to "fix" the mess they created and must surely carry a good measure of the blame!
Published in the Financial Times (the Pink Paper)
By Edward Luce
Published: May 6 2009 05:02 | Last updated: May 6 2009 05:02
Chronicling the explosion of subprime mortgages is a bit like reading Murder on the Orient Express. As in the novel, in which everyone is revealed to have had a hand in the murder, America’s subprime story implicates almost every power centre – including the Bush administration, the Federal Reserve and the Democratic party.
Take Roland Arnall, founder and chief executive of Ameriquest Mortgage Co, the California-based company that made more than $80bn in subprime mortgages between 2005 and 2007.
Ameriquest was repeatedly held up by regulators and courts for abusive lending practices, most recently in 2006 when it agreed to pay a $325m fine after it was shown it had misled borrowers, falsified documents and pressed appraisers to inflate home values.
The company, which has since closed, gave $263,000 to George W. Bush in campaign contributions. Mr Arnall, who died last year, went on to become Mr Bush’s ambassador to the Netherlands. To keep things even-handed, his company donated $1.57m to the Democratic party.
Between 2005 and 2007, which was the peak of subprime lending, the top 25 subprime originators made almost $1,000bn in loans to more than 5m borrowers, many of whom have had their homes repossessed, says the Center for Public Integrity, a Washington-based journalistic watchdog.
CPI contacted the chief executives or former CEOs of all of the 25 originators. Most did not respond. Of those that did, Goldman Sachs said in a statement: “As an industry, we collectively neglected to raise enough questions about whether some of the trends and practices that became commonplace really served the public’s long-term interest.”
Those loans lit the fuse that led to the global financial meltdown. The Fed, which refused to tighten regulation of these non-bank companies, since it is charged only with direct regulation of banks, told Congress it would be too expensive to provide oversight.
Last October Alan Greenspan, former Fed chairman, told a congressional committee: “Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself especially, are in a state of shocked disbelief.” But resistance to regulation went deeper than Mr Greenspan’s ideological objections.
The CPI investigation shows most originators spent millions of dollars lobbying Washington in the mid-1990s, much of it to prevent new legislation that would tighten restrictions on subprime lending.
The financial sector has spent $3.5bn in the past decade lobbying in Washington and made $2.2bn in campaign donations, says the Center for Responsive Politics, an independent watchdog.
The CPI investigation shows that at least 21 of the 25 top subprime originators, most of which are bankrupt, were either owned or financed by the biggest recipients of troubled asset relief funds, including Citibank, Bank of America, Wells Fargo and JPMorgan – also the largest political donors in Washington.
HSBC, the British bank, is listed as the eighth largest subprime originator because of its purchase of Decision One in 1999 and Household International in 2003. From 1999 to 2008 HSBC donated more than $6.4m and spent $21m on lobbying activities in Washington.
“The largest American and European banks made the bubble in subprime lending possible by financing it on the front end, so they could reap the huge rewards from securitising and selling mortgage-backed securities on the back end,” says Bill Buzenberg, who led the investigation. “Washington was warned repeatedly over the last decade that these high-cost loans represented a systemic risk to the economy. It is hard to believe the major banks were unaware of what was going on, or what the consequences might ultimately be.”
Among the other top originators were New Century Financial Corp, which was alleged by investigators in its 2007 bankruptcy proceedings to have had an “aggressive manner that elevated the risks to dangerous and ultimately fatal levels”. Its largest financial backer was Goldman Sachs, which has received $10bn in Tarp bail-out funds.
One of the few to remain in business is Wells Fargo Financial, which is owned by the bank, which made $51bn in subprime loans between 2005 and 2007 and which spent almost $18m on election donations and lobbying – again almost equally between Democrats and Republicans. Barack Obama was its largest individual recipient with $201,000 in election expenses.
According to the CPI, all the laws that helped fuel the subprime crisis remain. Since the late 1990s there have been attempts to tighten up regulation through legislation. But each time it was shot down.
The report highlights a new bill, sponsored by Barney Frank, a Democratic congressman, which would create “assignee liability provisions” that would make mortgage securitisers res-ponsible for abuses in the original mortgages.
If such a law had been on the books earlier, says CPI, the subprime crisis might never have happened.
Copyright The Financial Times Limited 2009
Published in the Financial Times (the Pink Paper)
By Edward Luce
Published: May 6 2009 05:02 | Last updated: May 6 2009 05:02
Chronicling the explosion of subprime mortgages is a bit like reading Murder on the Orient Express. As in the novel, in which everyone is revealed to have had a hand in the murder, America’s subprime story implicates almost every power centre – including the Bush administration, the Federal Reserve and the Democratic party.
Take Roland Arnall, founder and chief executive of Ameriquest Mortgage Co, the California-based company that made more than $80bn in subprime mortgages between 2005 and 2007.
Ameriquest was repeatedly held up by regulators and courts for abusive lending practices, most recently in 2006 when it agreed to pay a $325m fine after it was shown it had misled borrowers, falsified documents and pressed appraisers to inflate home values.
The company, which has since closed, gave $263,000 to George W. Bush in campaign contributions. Mr Arnall, who died last year, went on to become Mr Bush’s ambassador to the Netherlands. To keep things even-handed, his company donated $1.57m to the Democratic party.
Between 2005 and 2007, which was the peak of subprime lending, the top 25 subprime originators made almost $1,000bn in loans to more than 5m borrowers, many of whom have had their homes repossessed, says the Center for Public Integrity, a Washington-based journalistic watchdog.
CPI contacted the chief executives or former CEOs of all of the 25 originators. Most did not respond. Of those that did, Goldman Sachs said in a statement: “As an industry, we collectively neglected to raise enough questions about whether some of the trends and practices that became commonplace really served the public’s long-term interest.”
Those loans lit the fuse that led to the global financial meltdown. The Fed, which refused to tighten regulation of these non-bank companies, since it is charged only with direct regulation of banks, told Congress it would be too expensive to provide oversight.
Last October Alan Greenspan, former Fed chairman, told a congressional committee: “Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself especially, are in a state of shocked disbelief.” But resistance to regulation went deeper than Mr Greenspan’s ideological objections.
The CPI investigation shows most originators spent millions of dollars lobbying Washington in the mid-1990s, much of it to prevent new legislation that would tighten restrictions on subprime lending.
The financial sector has spent $3.5bn in the past decade lobbying in Washington and made $2.2bn in campaign donations, says the Center for Responsive Politics, an independent watchdog.
The CPI investigation shows that at least 21 of the 25 top subprime originators, most of which are bankrupt, were either owned or financed by the biggest recipients of troubled asset relief funds, including Citibank, Bank of America, Wells Fargo and JPMorgan – also the largest political donors in Washington.
HSBC, the British bank, is listed as the eighth largest subprime originator because of its purchase of Decision One in 1999 and Household International in 2003. From 1999 to 2008 HSBC donated more than $6.4m and spent $21m on lobbying activities in Washington.
“The largest American and European banks made the bubble in subprime lending possible by financing it on the front end, so they could reap the huge rewards from securitising and selling mortgage-backed securities on the back end,” says Bill Buzenberg, who led the investigation. “Washington was warned repeatedly over the last decade that these high-cost loans represented a systemic risk to the economy. It is hard to believe the major banks were unaware of what was going on, or what the consequences might ultimately be.”
Among the other top originators were New Century Financial Corp, which was alleged by investigators in its 2007 bankruptcy proceedings to have had an “aggressive manner that elevated the risks to dangerous and ultimately fatal levels”. Its largest financial backer was Goldman Sachs, which has received $10bn in Tarp bail-out funds.
One of the few to remain in business is Wells Fargo Financial, which is owned by the bank, which made $51bn in subprime loans between 2005 and 2007 and which spent almost $18m on election donations and lobbying – again almost equally between Democrats and Republicans. Barack Obama was its largest individual recipient with $201,000 in election expenses.
According to the CPI, all the laws that helped fuel the subprime crisis remain. Since the late 1990s there have been attempts to tighten up regulation through legislation. But each time it was shot down.
The report highlights a new bill, sponsored by Barney Frank, a Democratic congressman, which would create “assignee liability provisions” that would make mortgage securitisers res-ponsible for abuses in the original mortgages.
If such a law had been on the books earlier, says CPI, the subprime crisis might never have happened.
Copyright The Financial Times Limited 2009
The Price of Things
Resource Last 1 Week Ago 3 Months Ago 1 Year Ago
Gold 898.00 893.90 916.00 873.10
Silver 13.33 12.48 12.89 16.71
Platinum 1127.00 1087.00 975.00 1924.00
Palladium 220.00 214.00 201.00 424.00
Copper 2.06 1.89 1.49 3.87
Nickel 5.32 4.87 5.07 12.72
Zinc 0.50 0.50 0.50 0.98
Uranium 44.00 42.00 48.00 65.00
Oil 54.27 49.62 47.97 118.17
Gas 3.61 3.32 4.65 11.19
Gold 898.00 893.90 916.00 873.10
Silver 13.33 12.48 12.89 16.71
Platinum 1127.00 1087.00 975.00 1924.00
Palladium 220.00 214.00 201.00 424.00
Copper 2.06 1.89 1.49 3.87
Nickel 5.32 4.87 5.07 12.72
Zinc 0.50 0.50 0.50 0.98
Uranium 44.00 42.00 48.00 65.00
Oil 54.27 49.62 47.97 118.17
Gas 3.61 3.32 4.65 11.19
Long Bond Yield Rising: Problem times a coming
The "long bond" is the nickname for the 30-year Treasury bond.
Long-bond prices are plummeting right now. They have just broken down to new five-month lows... and the selling pressure is so strong, not even the Fed's printing press can hold prices up.
When the long bond falls in price, its interest rate rises... The long bond's yield was as low as 2.5% in December. It has now risen past 4%. This could be a huge problem for income investors.
The government is going broke... and to delay the inevitable, the Federal Reserve will likely start buying Treasuries. If the Federal Reserve steps in - which Marc Faber says is a certainty - it will add liquidity to the government bond market, keep yields low (allowing the government to continue funding worthless bailout projects), and eventually cause massive inflation.
"Yields have already backed up pretty substantially and I tell you, I think the US government bond market is a disaster waiting to happen for the simple reason that the requirements of the government to cover its fiscal deficit will be very, very high," says Faber.
But there will be a time when the Federal Reserve will have to increase interest rates to fight inflation, and it will be reluctant to do so because the cost of servicing government debt will rise substantially.
"So we'll go into high inflation rates one day," Faber said
The long bond competes with other income investments for investor capital. So a rise in the long bond's interest rate can crush certain income investments. Let me explain...
If the long bond's yield rises from 4% to 8%, the yield on all other income investments must also rise by 4%. A 12% junk bond would become a 16% junk bond. A 14% dividend payer would have to become an 18% dividend payer.
Here's the problem: For yields to rise that much, prices must fall – a lot.
So right now, as long-bond rates rise, buying income investments is a treacherous proposition.
The "junkiest" bonds and high-yield stocks will suffer the most from a long-bond bear market. Avoid risky income investments that use debt and financial engineering to pay large dividends. Stick with only the best-quality, high-cash-flow businesses that relentlessly raise their dividends.
Long-bond prices are plummeting right now. They have just broken down to new five-month lows... and the selling pressure is so strong, not even the Fed's printing press can hold prices up.
When the long bond falls in price, its interest rate rises... The long bond's yield was as low as 2.5% in December. It has now risen past 4%. This could be a huge problem for income investors.
The government is going broke... and to delay the inevitable, the Federal Reserve will likely start buying Treasuries. If the Federal Reserve steps in - which Marc Faber says is a certainty - it will add liquidity to the government bond market, keep yields low (allowing the government to continue funding worthless bailout projects), and eventually cause massive inflation.
"Yields have already backed up pretty substantially and I tell you, I think the US government bond market is a disaster waiting to happen for the simple reason that the requirements of the government to cover its fiscal deficit will be very, very high," says Faber.
But there will be a time when the Federal Reserve will have to increase interest rates to fight inflation, and it will be reluctant to do so because the cost of servicing government debt will rise substantially.
"So we'll go into high inflation rates one day," Faber said
The long bond competes with other income investments for investor capital. So a rise in the long bond's interest rate can crush certain income investments. Let me explain...
If the long bond's yield rises from 4% to 8%, the yield on all other income investments must also rise by 4%. A 12% junk bond would become a 16% junk bond. A 14% dividend payer would have to become an 18% dividend payer.
Here's the problem: For yields to rise that much, prices must fall – a lot.
So right now, as long-bond rates rise, buying income investments is a treacherous proposition.
The "junkiest" bonds and high-yield stocks will suffer the most from a long-bond bear market. Avoid risky income investments that use debt and financial engineering to pay large dividends. Stick with only the best-quality, high-cash-flow businesses that relentlessly raise their dividends.
Goldman Sachs Updates Its Conviction Buy List
Here's the caveat with this coverage: We don't normally place a ton of weight on individual analyst calls and upgrades/downgrades. That said, we are very cognizant that Goldman often moves markets and has to at least be monitored. As such, we've covered Goldman Sachs' (GS) list because for whatever reason, everyone loves a "V.I.P." or "Best of" and "Worst of" list. So, Goldman's lists are essentially the cream of the crop in either direction. If Goldman adds it to its Conviction Buy List, then it loves it, and if the bank adds it to the Conviction Sell List, it (at least for the moment) hates it. That much is self-explanatory but we just wanted to give a preface for those unaware. Now, to the changes:
Conviction Buy List
The bulk of the recent changes were made to Goldman's Conviction Buy List. As the month of May begins, Goldman has decided to ambush everyone with a ton of changes.
Here are the names it has just recently added to its Conviction Buy List: Liz Claiborne (LIZ), Massey Energy (MEE), Joy Global (JOYG), and Research in Motion (RIMM).
And, here are the names that Goldman has removed from its Conviction Buy List: Mastercard (MA).
Conviction Buy List
The bulk of the recent changes were made to Goldman's Conviction Buy List. As the month of May begins, Goldman has decided to ambush everyone with a ton of changes.
Here are the names it has just recently added to its Conviction Buy List: Liz Claiborne (LIZ), Massey Energy (MEE), Joy Global (JOYG), and Research in Motion (RIMM).
And, here are the names that Goldman has removed from its Conviction Buy List: Mastercard (MA).
U.S. Says BofA Needs $33.9 Billion Cushion
When will this end?
The government has told Bank of America it needs $33.9 billion in capital to withstand any worsening of the economic downturn, The New York Times’s Louise Story and Eric Dash reported, citing an executive at the bank.
If the bank is unable to raise the capital cushion by selling assets or stock, it would have to rely on the government, which has provided $45 billion in capital through the Troubled Asset Relief Program.
It could satisfy regulators’ demands simply by converting non-voting preferred shares it gave the government in return for the capital, into common stock.
But that would make the government one of the bank’s largest shareholders.
Executives at the bank, one of the largest being examined, sparred with the government over the amount, which is higher than executives believed the bank needed.
But J. Steele Alphin, the bank’s chief administrative officer, said Bank of America would have plenty of options to raise the capital on its own before it would have to convert any of the taxpayer money into common stock.
“We’re not happy about it because it’s still a big number,” Mr. Alphin told The Times. “We think it should be a bit less at the end of the day.”
The government’s determination that Bank of America doesn’t need as much capital as it has already received from taxpayers is an indication that even some of the most troubled banks may not need more government money than has been allocated to them.
The Treasury Department declined to comment on Tuesday evening, The Times said.
Citigroup, by contrast, has already decided to allow the government to convert some of its investment into common stock.
Under the arrangement worked out between the Treasury and Citigroup earlier this year, the Treasury will receive mandatory convertible preferred shares, meaning preferred shares that can be converted to voting shares of common stock at the will of the government.
If Bank of America relied on that conversion for the majority of the capital it needs to maintain, the government would become one of the bank’s largest shareholders.
Regulators have told the banks that the common shares would bolster their “tangible common equity,” a measure of capital that places greater emphasis on the resources that a bank has at its disposal than the more traditional measure of “Tier 1” capital.
Citigroup, the largest and most deeply troubled of the banks, is expected to need to raise capital as insurance against any further downturn in the economy.
The government told the bank it would need $50 billion to $55 billion in capital, a requirement that would force it to raise $5 billion to $10 billion in new capital, The Times said, citing people briefed on the final results.
Citigroup executives say the bank can easily cover any shortfall, and is considering several options to close that gap.
The Obama administration plans to publicize the results of stress tests on Thursday.
The results are expected to reveal that a number of them need additional capital, and many banks have negotiated with the government on what the actual capital requirements should be since they learned of the preliminary findings last week.
The tests are also expected to show that several banks, including Bank of New York Mellon, Goldman Sachs and JPMorgan Chase, are healthy enough to repay TARP funds.
Mr. Alphin noted that the $34 billion figure is well below the $45 billion in capital that the government has already allocated to the bank, although he said the bank has plenty of options to raise the capital on its own.
“There are several ways to deal with this,” Mr. Alphin told The Times. “The company is very healthy.”
Bank executives estimate that the company will generate $30 billion a year in income, once a normal environment returns.
The company has faced criticism over its acquisition of Merrill Lynch, the troubled investment bank, and last week, shareholders voted to strip the bank’s chief executive, Kenneth D. Lewis, of his title as chairman of the board. The board said last week that it still unanimously supports Mr. Lewis in his role as chief executive.
Mr. Alphin said since the government figure is less than the $45 billion provided to Bank of America, the bank will now start looking at ways of repaying the $11 billion difference over time to the government.
In the case of Citigroup, which has also received two taxpayer lifelines, executives say the bank can easily cover any shortfall, and is considering several options to close that gap.
Among them are efforts to accelerate the sales of several businesses within Citi Holdings, a holding tank for assets it plans to shed, or to expand its common stock conversion plans to a broader base of private investors who hold Citigroup preferred stock. Both measures would avoid an increase in the government’s expected 36 percent ownership stake.
Taxpayer-supported Banks have been eager to wean themselves from the government’s purview, and many analysts have questioned how useful the stress tests will be in assessing their true health.
Also Tuesday, senior government officials told The Times that the Treasury Department is planning to require taxpayer-supported banks seeking to free themselves from the government’s grip to show that they can repay the lifelines without additional subsidies that have helped them survive the financial crisis.
Banks have had an indirect subsidy adopted by the government last fall that allows them to issue debt cheaply with the backing of the Federal Deposit Insurance Corporation.
The Treasury is expected to announce as early as Wednesday that healthier banks must show that they can issue debt without the guarantees before they are allowed to exit the Troubled Asset Relief Program, or TARP.
The banks also must demonstrate that they will be able to sell stock to private investors and pass a government stress test to show that they are healthy enough to survive without the taxpayer aid.
Go to Article from The New York Times »
The government has told Bank of America it needs $33.9 billion in capital to withstand any worsening of the economic downturn, The New York Times’s Louise Story and Eric Dash reported, citing an executive at the bank.
If the bank is unable to raise the capital cushion by selling assets or stock, it would have to rely on the government, which has provided $45 billion in capital through the Troubled Asset Relief Program.
It could satisfy regulators’ demands simply by converting non-voting preferred shares it gave the government in return for the capital, into common stock.
But that would make the government one of the bank’s largest shareholders.
Executives at the bank, one of the largest being examined, sparred with the government over the amount, which is higher than executives believed the bank needed.
But J. Steele Alphin, the bank’s chief administrative officer, said Bank of America would have plenty of options to raise the capital on its own before it would have to convert any of the taxpayer money into common stock.
“We’re not happy about it because it’s still a big number,” Mr. Alphin told The Times. “We think it should be a bit less at the end of the day.”
The government’s determination that Bank of America doesn’t need as much capital as it has already received from taxpayers is an indication that even some of the most troubled banks may not need more government money than has been allocated to them.
The Treasury Department declined to comment on Tuesday evening, The Times said.
Citigroup, by contrast, has already decided to allow the government to convert some of its investment into common stock.
Under the arrangement worked out between the Treasury and Citigroup earlier this year, the Treasury will receive mandatory convertible preferred shares, meaning preferred shares that can be converted to voting shares of common stock at the will of the government.
If Bank of America relied on that conversion for the majority of the capital it needs to maintain, the government would become one of the bank’s largest shareholders.
Regulators have told the banks that the common shares would bolster their “tangible common equity,” a measure of capital that places greater emphasis on the resources that a bank has at its disposal than the more traditional measure of “Tier 1” capital.
Citigroup, the largest and most deeply troubled of the banks, is expected to need to raise capital as insurance against any further downturn in the economy.
The government told the bank it would need $50 billion to $55 billion in capital, a requirement that would force it to raise $5 billion to $10 billion in new capital, The Times said, citing people briefed on the final results.
Citigroup executives say the bank can easily cover any shortfall, and is considering several options to close that gap.
The Obama administration plans to publicize the results of stress tests on Thursday.
The results are expected to reveal that a number of them need additional capital, and many banks have negotiated with the government on what the actual capital requirements should be since they learned of the preliminary findings last week.
The tests are also expected to show that several banks, including Bank of New York Mellon, Goldman Sachs and JPMorgan Chase, are healthy enough to repay TARP funds.
Mr. Alphin noted that the $34 billion figure is well below the $45 billion in capital that the government has already allocated to the bank, although he said the bank has plenty of options to raise the capital on its own.
“There are several ways to deal with this,” Mr. Alphin told The Times. “The company is very healthy.”
Bank executives estimate that the company will generate $30 billion a year in income, once a normal environment returns.
The company has faced criticism over its acquisition of Merrill Lynch, the troubled investment bank, and last week, shareholders voted to strip the bank’s chief executive, Kenneth D. Lewis, of his title as chairman of the board. The board said last week that it still unanimously supports Mr. Lewis in his role as chief executive.
Mr. Alphin said since the government figure is less than the $45 billion provided to Bank of America, the bank will now start looking at ways of repaying the $11 billion difference over time to the government.
In the case of Citigroup, which has also received two taxpayer lifelines, executives say the bank can easily cover any shortfall, and is considering several options to close that gap.
Among them are efforts to accelerate the sales of several businesses within Citi Holdings, a holding tank for assets it plans to shed, or to expand its common stock conversion plans to a broader base of private investors who hold Citigroup preferred stock. Both measures would avoid an increase in the government’s expected 36 percent ownership stake.
Taxpayer-supported Banks have been eager to wean themselves from the government’s purview, and many analysts have questioned how useful the stress tests will be in assessing their true health.
Also Tuesday, senior government officials told The Times that the Treasury Department is planning to require taxpayer-supported banks seeking to free themselves from the government’s grip to show that they can repay the lifelines without additional subsidies that have helped them survive the financial crisis.
Banks have had an indirect subsidy adopted by the government last fall that allows them to issue debt cheaply with the backing of the Federal Deposit Insurance Corporation.
The Treasury is expected to announce as early as Wednesday that healthier banks must show that they can issue debt without the guarantees before they are allowed to exit the Troubled Asset Relief Program, or TARP.
The banks also must demonstrate that they will be able to sell stock to private investors and pass a government stress test to show that they are healthy enough to survive without the taxpayer aid.
Go to Article from The New York Times »
Corporate profits bottoming out
Corporate profits bottoming out
Econoday Short Take 5/6/09
By Mark Pender, Senior Financial Writer, Econoday
The first-quarter earnings season has proven to be one of the very best in memory, showing very few negative surprises and helped by major improvement in bank earnings. With about three quarters of the season over, profits for the S&P 500 are down 34.7 percent on the year. That sounds bad of course but it's no surprise, and that's what turns out to be the surprise. During the seven quarters of ongoing profit contraction, final results have routinely come in far below expectations. To what degree current share price gains in the financial sector are tied to the accounting switch to mark-to-model from mark-to-market is uncertain but the switch certainly hasn't hurt. With all the major firms having reported except AIG, financials in the S&P 500 are posting a net $13 billion net profit for the first quarter versus a net $74 billion loss in the fourth quarter of 2008. Two thirds of financial firms are now beating estimates. No wonder bank shares have been rallying strongly over the past three weeks, lifting the whole stock market with them. (Earnings data courtesy of Thomson Reuters unit First Call).
Base effects pending
Profits have been on such a long deep slide that comparisons are now very easy, a factor that looks to make for outsized gains in the quarters ahead. In the graph below, the solid blue bars represent actual year-on-year quarterly profit change over the past six years. The open bars on the right side of the graph are analyst expectations for the coming quarters. The rate of contraction is expected to hold steady in the ongoing quarter and then ease in the third quarter. But against the dreadfully easy comparison of fourth quarter 2008, fourth quarter 2009 profits are expected to jump 165 percent!
The S&P 500 index has really been rallying this year, now holding at 900 and up from a low of 666.79 in early March. That was when word came of income improvements at Citigroup and Bank of America, news that started the whole rally which is now being fed further by the financial sector's actual results. There are plenty of factors behind share values, too long to list. But changes in profits are without a doubt right at the very top.
Profit growth exceeded stock market appreciation through much of 2004 through 2006. Then profit growth slowed and began to contract, this while share prices kept going higher. Note that contraction in S&P profits first appears in third-quarter 2007, preceding the economic recession by more than a full year. For the past year, changes in profits and changes in share prices have been in line. Were the second quarter to end today, profits and share prices would be almost perfectly in line.
Earnings season primer
The two- to three-week approach to an earnings season is often a touchy time for the stock market. Company news is light and the news that is released is often negative as companies who have done poorly come clean in what is known as the confession season. This confession season was actually positive, with the S&P 500 moving from about 780 in late March to over 850 by early April.
The exact dates for an earnings season are difficult to pin down but they're centered in the months immediately following the end of a calendar quarter. The graph below tracks changes in the S&P 500 from the beginning of an earnings season (red bars) to what we'll consider to be the end of the season at month end (gold bars). April 1st may be a day for fools but it also would have been a very good day to have gone long the stock market, as shown on the very right of the graph. The S&P 500 rose 7.6 percent in the month of April and is up 13.3 percent when adding the three trading days of May. But the gain has to be compared against the 11.4 percent loss of January's fourth-quarter 2008 earnings season and the massive 16.6 percent loss in the third-quarter 2008 earnings season of October.
Bottom Line
Profit data definitely support hopes that economic recovery is on the way. But it's important to remember the base effect, namely that the prior contraction has pulled current levels to a much lower level. But levels have stabilized and, as hinted at by the 165 percent gain expected for the fourth quarter, improvement from these levels may very well be something to see. Should profits improve, foreign investment into U.S. equities could become an important factor for the market. Foreigners have been pulling their money out of the U.S. market over the past year-and-a-half. But the emergence of profit growth would no doubt pull foreign money off the sidelines, feeding what could be a very nice rally for U.S. stocks.
Econoday Short Take 5/6/09
By Mark Pender, Senior Financial Writer, Econoday
The first-quarter earnings season has proven to be one of the very best in memory, showing very few negative surprises and helped by major improvement in bank earnings. With about three quarters of the season over, profits for the S&P 500 are down 34.7 percent on the year. That sounds bad of course but it's no surprise, and that's what turns out to be the surprise. During the seven quarters of ongoing profit contraction, final results have routinely come in far below expectations. To what degree current share price gains in the financial sector are tied to the accounting switch to mark-to-model from mark-to-market is uncertain but the switch certainly hasn't hurt. With all the major firms having reported except AIG, financials in the S&P 500 are posting a net $13 billion net profit for the first quarter versus a net $74 billion loss in the fourth quarter of 2008. Two thirds of financial firms are now beating estimates. No wonder bank shares have been rallying strongly over the past three weeks, lifting the whole stock market with them. (Earnings data courtesy of Thomson Reuters unit First Call).
Base effects pending
Profits have been on such a long deep slide that comparisons are now very easy, a factor that looks to make for outsized gains in the quarters ahead. In the graph below, the solid blue bars represent actual year-on-year quarterly profit change over the past six years. The open bars on the right side of the graph are analyst expectations for the coming quarters. The rate of contraction is expected to hold steady in the ongoing quarter and then ease in the third quarter. But against the dreadfully easy comparison of fourth quarter 2008, fourth quarter 2009 profits are expected to jump 165 percent!
The S&P 500 index has really been rallying this year, now holding at 900 and up from a low of 666.79 in early March. That was when word came of income improvements at Citigroup and Bank of America, news that started the whole rally which is now being fed further by the financial sector's actual results. There are plenty of factors behind share values, too long to list. But changes in profits are without a doubt right at the very top.
Profit growth exceeded stock market appreciation through much of 2004 through 2006. Then profit growth slowed and began to contract, this while share prices kept going higher. Note that contraction in S&P profits first appears in third-quarter 2007, preceding the economic recession by more than a full year. For the past year, changes in profits and changes in share prices have been in line. Were the second quarter to end today, profits and share prices would be almost perfectly in line.
Earnings season primer
The two- to three-week approach to an earnings season is often a touchy time for the stock market. Company news is light and the news that is released is often negative as companies who have done poorly come clean in what is known as the confession season. This confession season was actually positive, with the S&P 500 moving from about 780 in late March to over 850 by early April.
The exact dates for an earnings season are difficult to pin down but they're centered in the months immediately following the end of a calendar quarter. The graph below tracks changes in the S&P 500 from the beginning of an earnings season (red bars) to what we'll consider to be the end of the season at month end (gold bars). April 1st may be a day for fools but it also would have been a very good day to have gone long the stock market, as shown on the very right of the graph. The S&P 500 rose 7.6 percent in the month of April and is up 13.3 percent when adding the three trading days of May. But the gain has to be compared against the 11.4 percent loss of January's fourth-quarter 2008 earnings season and the massive 16.6 percent loss in the third-quarter 2008 earnings season of October.
Bottom Line
Profit data definitely support hopes that economic recovery is on the way. But it's important to remember the base effect, namely that the prior contraction has pulled current levels to a much lower level. But levels have stabilized and, as hinted at by the 165 percent gain expected for the fourth quarter, improvement from these levels may very well be something to see. Should profits improve, foreign investment into U.S. equities could become an important factor for the market. Foreigners have been pulling their money out of the U.S. market over the past year-and-a-half. But the emergence of profit growth would no doubt pull foreign money off the sidelines, feeding what could be a very nice rally for U.S. stocks.
Tuesday, May 5, 2009
Redbook
Released on 5/5/2009 8:55:00 AM For wk5/2, 2009
Previous Actual
Store Sales Y/Y change 0.7 % 0.3 %
Highlights
Redbook and ICSC-Goldman are offering differing takes on store sales with Redbook, at a year-on-year +0.3% in the May 2 week, indicating strength while ICSC, reported earlier this morning at -0.8%, indicating weakness. Still Redbook's latest reading is down from the prior week, the result it said of swine flu which kept shoppers at home. Redbook estimates that full month April sales, benefiting from this year's Easter shift, rose 1.5 percent compared to March, a result that points to strength for the non-auto non-gas category of the monthly retail sales report. Redbook sees strength continuing, targeting a 0.5 percent month-to-month rise for May.
Definition
A weekly measure of sales at chain stores, discounters, and department stores. It is a less consistent indicator of retail sales than the weekly ICSC index. It is also calculated differently than other indicators. For instance, figures for the first week of the month are compared with the average for the entire previous month. When two weeks are available, then these are compared with the average for the previous month, and so on. It might be more useful to compare year-over-year figures since these are indeed compared to the comparable week a year ago. This index is correlated with the general merchandise portion of retail sales covering only about 10 percent of total retail sales
Why Investor's CareConsumer spending accounts for two-thirds of the economy, so if you know what consumers are up to, you'll have a pretty good handle on where the economy is headed. Needless to say, that's a big advantage for investors.
The pattern in consumer spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth. This balance was achieved through much of the nineties. For this reason alone, investors in the stock and bond markets enjoyed huge gains during the bull market of the 1990s. Spending at major retail chains did slow down in tandem with the equity market in 2000 and during the 2001 recession. Sales weakened again in 2008 due to the credit crunch and recession.
The Redbook is one of the more timely indicators of consumer spending, since it is reported every week. It gets extra attention around the holiday season when retailers make most of their profits. It is also a useful indicator when special factors can cause economic activity to momentarily slide. For instance, it was widely watched in the aftermath of Hurricanes Katrina and Rita which hit New Orleans and the Gulf Coast in 2005.
Frequency
Weekly
Revisions
Sometimes for the previous week
Definition
A weekly measure of sales at chain stores, discounters, and department stores. It is a less consistent indicator of retail sales than the weekly ICSC index. It is also calculated differently than other indicators. For instance, figures for the first week of the month are compared with the average for the entire previous month. When two weeks are available, then these are compared with the average for the previous month, and so on. It might be more useful to compare year-over-year figures since these are indeed compared to the comparable week a year ago. This index is correlated with the general merchandise portion of retail sales covering only about 10 percent of total retail sales.
Previous Actual
Store Sales Y/Y change 0.7 % 0.3 %
Highlights
Redbook and ICSC-Goldman are offering differing takes on store sales with Redbook, at a year-on-year +0.3% in the May 2 week, indicating strength while ICSC, reported earlier this morning at -0.8%, indicating weakness. Still Redbook's latest reading is down from the prior week, the result it said of swine flu which kept shoppers at home. Redbook estimates that full month April sales, benefiting from this year's Easter shift, rose 1.5 percent compared to March, a result that points to strength for the non-auto non-gas category of the monthly retail sales report. Redbook sees strength continuing, targeting a 0.5 percent month-to-month rise for May.
Definition
A weekly measure of sales at chain stores, discounters, and department stores. It is a less consistent indicator of retail sales than the weekly ICSC index. It is also calculated differently than other indicators. For instance, figures for the first week of the month are compared with the average for the entire previous month. When two weeks are available, then these are compared with the average for the previous month, and so on. It might be more useful to compare year-over-year figures since these are indeed compared to the comparable week a year ago. This index is correlated with the general merchandise portion of retail sales covering only about 10 percent of total retail sales
Why Investor's CareConsumer spending accounts for two-thirds of the economy, so if you know what consumers are up to, you'll have a pretty good handle on where the economy is headed. Needless to say, that's a big advantage for investors.
The pattern in consumer spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth. This balance was achieved through much of the nineties. For this reason alone, investors in the stock and bond markets enjoyed huge gains during the bull market of the 1990s. Spending at major retail chains did slow down in tandem with the equity market in 2000 and during the 2001 recession. Sales weakened again in 2008 due to the credit crunch and recession.
The Redbook is one of the more timely indicators of consumer spending, since it is reported every week. It gets extra attention around the holiday season when retailers make most of their profits. It is also a useful indicator when special factors can cause economic activity to momentarily slide. For instance, it was widely watched in the aftermath of Hurricanes Katrina and Rita which hit New Orleans and the Gulf Coast in 2005.
Frequency
Weekly
Revisions
Sometimes for the previous week
Definition
A weekly measure of sales at chain stores, discounters, and department stores. It is a less consistent indicator of retail sales than the weekly ICSC index. It is also calculated differently than other indicators. For instance, figures for the first week of the month are compared with the average for the entire previous month. When two weeks are available, then these are compared with the average for the previous month, and so on. It might be more useful to compare year-over-year figures since these are indeed compared to the comparable week a year ago. This index is correlated with the general merchandise portion of retail sales covering only about 10 percent of total retail sales.
Pending Home Sales Index
Released on 5/4/2009 10:00:00 AM For March, 2009
Previous Actual
Pending Home Sales Index - Level 82.1 84.6
Pending Home Sales Index - M/M 2.1 % 3.2 %
Highlights
Government efforts to push mortgage rates lower in combination with financing incentives and falling home prices may be turning the housing sector around at long last. The pending sales index rose 3.2 percent to 84.6 in March pointing to improvement in existing sales for April and May. Gains were centered in the Midwest and South, but a decline in the West, where the housing collapse is centered, does pose the only bad news in the report. Construction spending for March was also released at 10:00 ET and shows the first increase in six months. Markets showed no reaction to the reports at least initially, though they should give stocks an extra boost through the session and may also raise talk of easing toxic pressures on banks.
Definition
The National Association of Realtors developed the pending home sales index as a leading indicator of housing activity. As such, it is a leading indicator of existing home sales, not new home sales. A pending sale is one in which a contract was signed, but not yet closed. It usually takes four to six weeks to close a contracted sale.
2009 Release Schedule
Released On: 1/6 2/3 3/3 4/1 5/4 6/2 7/1 8/4 9/1 10/1 11/2 12/1
Released For: Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct
Why Investor's Care
This provides a gauge of not only the demand for housing, but the economic momentum. People have to be feeling pretty comfortable and confident in their own financial position to buy a house. Furthermore, this narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments. By tracking economic data such as the pending home sales index which measures home resales, investors can gain specific investment ideas as well as broad guidance for managing a portfolio.
Even though home resales don't always create new output, once the home is sold, it generates revenues for the realtor. It brings a myriad of consumption opportunities for the buyer. Refrigerators, washers, dryers and furniture are just a few items home buyers might purchase. The economic "ripple effect" can be substantial especially when you think a hundred thousand new households around the country are doing this every month.
Since the economic backdrop is the most pervasive influence on financial markets, home resales have a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the existing home sales data carry valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies.
Frequency
Monthly
Definition
The National Association of Realtors developed the pending home sales index as a leading indicator of housing activity. As such, it is a leading indicator of existing home sales, not new home sales. A pending sale is one in which a contract was signed, but not yet closed. It usually takes four to six weeks to close a contracted sale.
Previous Actual
Pending Home Sales Index - Level 82.1 84.6
Pending Home Sales Index - M/M 2.1 % 3.2 %
Highlights
Government efforts to push mortgage rates lower in combination with financing incentives and falling home prices may be turning the housing sector around at long last. The pending sales index rose 3.2 percent to 84.6 in March pointing to improvement in existing sales for April and May. Gains were centered in the Midwest and South, but a decline in the West, where the housing collapse is centered, does pose the only bad news in the report. Construction spending for March was also released at 10:00 ET and shows the first increase in six months. Markets showed no reaction to the reports at least initially, though they should give stocks an extra boost through the session and may also raise talk of easing toxic pressures on banks.
Definition
The National Association of Realtors developed the pending home sales index as a leading indicator of housing activity. As such, it is a leading indicator of existing home sales, not new home sales. A pending sale is one in which a contract was signed, but not yet closed. It usually takes four to six weeks to close a contracted sale.
2009 Release Schedule
Released On: 1/6 2/3 3/3 4/1 5/4 6/2 7/1 8/4 9/1 10/1 11/2 12/1
Released For: Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct
Why Investor's Care
This provides a gauge of not only the demand for housing, but the economic momentum. People have to be feeling pretty comfortable and confident in their own financial position to buy a house. Furthermore, this narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments. By tracking economic data such as the pending home sales index which measures home resales, investors can gain specific investment ideas as well as broad guidance for managing a portfolio.
Even though home resales don't always create new output, once the home is sold, it generates revenues for the realtor. It brings a myriad of consumption opportunities for the buyer. Refrigerators, washers, dryers and furniture are just a few items home buyers might purchase. The economic "ripple effect" can be substantial especially when you think a hundred thousand new households around the country are doing this every month.
Since the economic backdrop is the most pervasive influence on financial markets, home resales have a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the existing home sales data carry valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies.
Frequency
Monthly
Definition
The National Association of Realtors developed the pending home sales index as a leading indicator of housing activity. As such, it is a leading indicator of existing home sales, not new home sales. A pending sale is one in which a contract was signed, but not yet closed. It usually takes four to six weeks to close a contracted sale.
Construction Spending
Released on 5/4/2009 10:00:00 AM For March, 2009
Previous Consensus Consensus Range Actual
Construction Spending - M/M change -0.9 % -1.0 % -2.0 % to -0.1 % 0.3 %
Construction Spending - Y/Y change -11.1 %
Highlights
Construction spending in March rebounded unexpectedly but housing is still on a downtrend. Construction outlays posted a 0.3 percent gain in March, following a 1.0 percent decrease the month before. The rise in March was much better than the market forecast for a 1.0 percent fall. The rebound in March was led by private nonresidential outlays which jumped 2.7 percent after a 0.7 increase in February. The public component also advanced 1.1 percent, following a 1.3 percent boost the month before. However, the private residential component continued its downward trend, falling 4.2 percent after a 5.9 percent plunge in February.
Within private residential outlays, the single-family component dropped a monthly 8.6 percent while the multifamily component slipped 1.1 percent in the latest month.
On a year-on-year basis, overall construction outlays weakened to down11.1 percent in March, from down 10.1 percent in February.
Construction outlays in March indicate that businesses may be looking ahead toward the end of recession when increased capacity is needed. And we may be seeing a rising in public construction from fiscal stimulus beginning. But the important housing sector has not yet hit bottom. However, today's pending home sales report was moderately positive, indicating that outlays in this sector could be bottoming soon. Equities rose on the news of improvement in both outlays and pending home sales.
Market Consensus Before Announcement
Construction spending in February fell again but not as much as expected. Construction outlays dropped another 0.9 percent in February, after plunging 3.5 percent in January. Weakness in February was led private residential outlays, which fell 4.3 percent. The single-family subcomponent dropped 10.9 percent while the multifamily portion slipped 2.1 percent. The other two major components actually made partial rebounds. The private nonresidential component rose 0.3 percent after a 4.3 percent drop in January. Public outlays rebounded 0.8 percent, following a 2.4 percent decrease the month before. Looking ahead, the drop in the level of housing starts on average over the last three months indicates that the residential component of outlays will likely continue downward in March, pulling down overall construction spending.
Definition
The dollar value of new construction activity on residential, non-residential, and public projects. Data are available in nominal and real (inflation-adjusted) dollars. Why Investors Care
Data Source: Haver Analytics
Over the last year, a decline in residential outlays has pulled down year-on-year growth for overall construction outlays. Nonresidential and public outlays are positive with nonresidential actually strong.
Data Source: Haver Analytics
2009 Release Schedule
Released On: 1/5 2/2 3/2 4/1 5/4 6/1 7/1 8/3 9/1 10/1 11/2 12/1
Released For: Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct
Previous Consensus Consensus Range Actual
Construction Spending - M/M change -0.9 % -1.0 % -2.0 % to -0.1 % 0.3 %
Construction Spending - Y/Y change -11.1 %
Highlights
Construction spending in March rebounded unexpectedly but housing is still on a downtrend. Construction outlays posted a 0.3 percent gain in March, following a 1.0 percent decrease the month before. The rise in March was much better than the market forecast for a 1.0 percent fall. The rebound in March was led by private nonresidential outlays which jumped 2.7 percent after a 0.7 increase in February. The public component also advanced 1.1 percent, following a 1.3 percent boost the month before. However, the private residential component continued its downward trend, falling 4.2 percent after a 5.9 percent plunge in February.
Within private residential outlays, the single-family component dropped a monthly 8.6 percent while the multifamily component slipped 1.1 percent in the latest month.
On a year-on-year basis, overall construction outlays weakened to down11.1 percent in March, from down 10.1 percent in February.
Construction outlays in March indicate that businesses may be looking ahead toward the end of recession when increased capacity is needed. And we may be seeing a rising in public construction from fiscal stimulus beginning. But the important housing sector has not yet hit bottom. However, today's pending home sales report was moderately positive, indicating that outlays in this sector could be bottoming soon. Equities rose on the news of improvement in both outlays and pending home sales.
Market Consensus Before Announcement
Construction spending in February fell again but not as much as expected. Construction outlays dropped another 0.9 percent in February, after plunging 3.5 percent in January. Weakness in February was led private residential outlays, which fell 4.3 percent. The single-family subcomponent dropped 10.9 percent while the multifamily portion slipped 2.1 percent. The other two major components actually made partial rebounds. The private nonresidential component rose 0.3 percent after a 4.3 percent drop in January. Public outlays rebounded 0.8 percent, following a 2.4 percent decrease the month before. Looking ahead, the drop in the level of housing starts on average over the last three months indicates that the residential component of outlays will likely continue downward in March, pulling down overall construction spending.
Definition
The dollar value of new construction activity on residential, non-residential, and public projects. Data are available in nominal and real (inflation-adjusted) dollars. Why Investors Care
Data Source: Haver Analytics
Over the last year, a decline in residential outlays has pulled down year-on-year growth for overall construction outlays. Nonresidential and public outlays are positive with nonresidential actually strong.
Data Source: Haver Analytics
2009 Release Schedule
Released On: 1/5 2/2 3/2 4/1 5/4 6/1 7/1 8/3 9/1 10/1 11/2 12/1
Released For: Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct
ICSC-Goldman Store Sales
Why Investor's Care
Consumer spending accounts for more than two-thirds of the economy, so if you know what consumers are up to, you'll have a pretty good handle on where the economy is headed. Needless to say, that's a big advantage for investors.
The pattern in consumer spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth. This balance was achieved through much of the nineties. For this reason alone, investors in the stock and bond markets enjoyed huge gains during the bull market of the 1990s. Spending at major retail chains did slow down in tandem with the equity market in 2000 and during the 2001 recession. Sales weakened again in 2008 due to the credit crunch and recession.
The ICSC-Goldman index is one of the most timely indicators of consumer spending, since it is reported every week. It gets extra attention around the holiday season when retailers make most of their profits. It is also a useful indicator when special factors can cause economic activity to momentarily slide. For instance, it was widely watched in the aftermath of Hurricanes Katrina and Rita which hit New Orleans and the Gulf Coast in 2005. The ICSC-Goldman Sachs store sales series previously was known as ICSC-UBS before Goldman Sach's involvement with ICSC. The name change took place with the September 30, 2008 release.
Released on 5/5/2009 7:45:00 AM For wk5/2, 2009
Previous Actual
Store Sales - W/W change -0.7 % 0.7 %
Store Sales - Y/Y -1.7 % -0.8 %
Highlights
ICSC-Goldman said hot weather boosted same-store chain store sales by 0.7 percent in the May 2 week though the year-on-year rate remains negative at -0.8 percent. Redbook is up next.
Definition
This weekly measure of comparable store sales at major retail chains, published by the International Council of Shopping Centers, is related to the general merchandise portion of retail sales. It accounts for roughly 10 percent of total retail sales.
Consumer spending accounts for more than two-thirds of the economy, so if you know what consumers are up to, you'll have a pretty good handle on where the economy is headed. Needless to say, that's a big advantage for investors.
The pattern in consumer spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth. This balance was achieved through much of the nineties. For this reason alone, investors in the stock and bond markets enjoyed huge gains during the bull market of the 1990s. Spending at major retail chains did slow down in tandem with the equity market in 2000 and during the 2001 recession. Sales weakened again in 2008 due to the credit crunch and recession.
The ICSC-Goldman index is one of the most timely indicators of consumer spending, since it is reported every week. It gets extra attention around the holiday season when retailers make most of their profits. It is also a useful indicator when special factors can cause economic activity to momentarily slide. For instance, it was widely watched in the aftermath of Hurricanes Katrina and Rita which hit New Orleans and the Gulf Coast in 2005. The ICSC-Goldman Sachs store sales series previously was known as ICSC-UBS before Goldman Sach's involvement with ICSC. The name change took place with the September 30, 2008 release.
Released on 5/5/2009 7:45:00 AM For wk5/2, 2009
Previous Actual
Store Sales - W/W change -0.7 % 0.7 %
Store Sales - Y/Y -1.7 % -0.8 %
Highlights
ICSC-Goldman said hot weather boosted same-store chain store sales by 0.7 percent in the May 2 week though the year-on-year rate remains negative at -0.8 percent. Redbook is up next.
Definition
This weekly measure of comparable store sales at major retail chains, published by the International Council of Shopping Centers, is related to the general merchandise portion of retail sales. It accounts for roughly 10 percent of total retail sales.
Market Reflections 5/4/2009
A strong purchasing report out of China combined with improvement in U.S. construction spending and pending home sales are lifting the economic outlook, in turn lifting the stock market and a host of commodities in Monday's trade. The S&P rose 3.4% to 907, its highest close since early in January.
Accounts moved out of the safety of the dollar, which lost 1-1/2 cents to $1.3406 against the euro, and moved money into commodities. Copper was a big mover, back near $2.10/lb, but oil was a standout, ending $2 higher to $54.50 for its best level since November. But the gains didn't dent gold which firmed slightly to $900. The easing in swine flu concern didn't help hog prices as June lean hogs fell another 2.8% to 63.78 cents/lb.
Banks were very big gainers in the session with the Financial SPDR jumping 10% to $11.73. News that the White House doesn't expect to ask for more bailout money for the banking sector gave a boost as did speculation that the worst news is already out. A report that regulators are telling Wells Fargo it needs to raise more money did not hurt the bank's shares in the least, jumping 24% to $24.25.
Accounts moved out of the safety of the dollar, which lost 1-1/2 cents to $1.3406 against the euro, and moved money into commodities. Copper was a big mover, back near $2.10/lb, but oil was a standout, ending $2 higher to $54.50 for its best level since November. But the gains didn't dent gold which firmed slightly to $900. The easing in swine flu concern didn't help hog prices as June lean hogs fell another 2.8% to 63.78 cents/lb.
Banks were very big gainers in the session with the Financial SPDR jumping 10% to $11.73. News that the White House doesn't expect to ask for more bailout money for the banking sector gave a boost as did speculation that the worst news is already out. A report that regulators are telling Wells Fargo it needs to raise more money did not hurt the bank's shares in the least, jumping 24% to $24.25.
Saturday, May 2, 2009
Weekly Market Update (5/1/09)
HEADLINE NEWS WEEK ENDING 5/1/09
Overview
The US economy shrank at an annual rate of 6.1% in the first quarter of 2009 after contracting at a 6.3% pace in the fourth quarter of 2008. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
US MARKETS
Treasury/Economics
US Treasuries sold-off this week, breaking recent support levels in 10-year and 30-year yields, for several reasons. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
Large-Cap Equities
The stock market rallied modestly this week despite fears of a pandemic flu outbreak and the government stress tests. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
Corporate Bonds
Investment grade primary activity picked up slightly this week despite nearly a third of companies reporting first quarter earnings. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
Mortgage-Backed Securities
A slew of economic reports suggesting a glimmer of hope for financial markets helped mortgages outperform Treasuries. more..http://payden.com/library/weeklyMarketUpdateE.aspx#overview.
Municipal Bonds
Build America Bonds (BABs) finished the week tighter in spread to US Treasuries (the difference in yield between BABs and Treasuries) while the broader municipal bond market struggled. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
High-Yield
The high yield market finished April as one of the best performing global assets classes. The broad high yield indices, such as the Merrill Lynch High Yield Constrained Index, were up over 11% for the month, with the lower end of the market rallying most. more...
http://payden.com/library/weeklyMarketUpdateE.aspx#overview
INTERNATIONAL MARKETS
Western European Equities
Stocks in Western Europe gained ground over the past week. The stocks with the best performance were insurances (+10.2%) and banks (+9.6%). more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
Eastern European Equities
The CECE index of equities traded in Central Europe (Czech Republic, Hungary, and Poland) gained +3.3% this week, while the Russian stock index RTS went up +0.2%. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
Global Bonds and Currencies
Major non-US sovereign bond markets were generally slightly firmer in the past week, although yields remained within their recent ranges in most cases. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
Emerging-Market Bonds
Emerging market dollar-pay debt spreads tightened this week. Credit spreads grinded lower on the back of equity markets maintaining recent gains and further encouraging data releases from the US. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
For more information, please contact 800 5-PAYDEN or visit payden.com.
If you have difficulties viewing this e-mail and would prefer the Weekly Market Update in plain text format, please e-mail us at paydenrygel@payden-rygel.com. To unsubscribe from this email, please email us at unsubscribe@payden-rygel.com.
Have a great weekend!
All rights reserved. Legal terms. Payden & Rygel respects your privacy. Privacy policy.
The investment strategy and investment management information presented on this email and related Web site, payden.com, should not be construed to be formal financial planning advice or the formation of a financial manager/client relationship. Payden.com is an informative Web site designed to provide information to the general public based on our recommendations of investment management and investment strategies and is not designed to be representative of your own financial needs. Nor does the information contained herein constitute financial management advice. The firm makes no warranty or representation regarding the accuracy or legality of any information contained in this Web site, and assumes no liability for the use of said information. Be advised that as Internet communications are not always confidential, you provide our Web site your personal information at your own risk. Please do not make any decisions about any investment management or investment strategy matter without consulting with a qualified professional.
Overview
The US economy shrank at an annual rate of 6.1% in the first quarter of 2009 after contracting at a 6.3% pace in the fourth quarter of 2008. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
US MARKETS
Treasury/Economics
US Treasuries sold-off this week, breaking recent support levels in 10-year and 30-year yields, for several reasons. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
Large-Cap Equities
The stock market rallied modestly this week despite fears of a pandemic flu outbreak and the government stress tests. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
Corporate Bonds
Investment grade primary activity picked up slightly this week despite nearly a third of companies reporting first quarter earnings. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
Mortgage-Backed Securities
A slew of economic reports suggesting a glimmer of hope for financial markets helped mortgages outperform Treasuries. more..http://payden.com/library/weeklyMarketUpdateE.aspx#overview.
Municipal Bonds
Build America Bonds (BABs) finished the week tighter in spread to US Treasuries (the difference in yield between BABs and Treasuries) while the broader municipal bond market struggled. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
High-Yield
The high yield market finished April as one of the best performing global assets classes. The broad high yield indices, such as the Merrill Lynch High Yield Constrained Index, were up over 11% for the month, with the lower end of the market rallying most. more...
http://payden.com/library/weeklyMarketUpdateE.aspx#overview
INTERNATIONAL MARKETS
Western European Equities
Stocks in Western Europe gained ground over the past week. The stocks with the best performance were insurances (+10.2%) and banks (+9.6%). more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
Eastern European Equities
The CECE index of equities traded in Central Europe (Czech Republic, Hungary, and Poland) gained +3.3% this week, while the Russian stock index RTS went up +0.2%. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
Global Bonds and Currencies
Major non-US sovereign bond markets were generally slightly firmer in the past week, although yields remained within their recent ranges in most cases. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
Emerging-Market Bonds
Emerging market dollar-pay debt spreads tightened this week. Credit spreads grinded lower on the back of equity markets maintaining recent gains and further encouraging data releases from the US. more...http://payden.com/library/weeklyMarketUpdateE.aspx#overview
For more information, please contact 800 5-PAYDEN or visit payden.com.
If you have difficulties viewing this e-mail and would prefer the Weekly Market Update in plain text format, please e-mail us at paydenrygel@payden-rygel.com. To unsubscribe from this email, please email us at unsubscribe@payden-rygel.com.
Have a great weekend!
All rights reserved. Legal terms. Payden & Rygel respects your privacy. Privacy policy.
The investment strategy and investment management information presented on this email and related Web site, payden.com, should not be construed to be formal financial planning advice or the formation of a financial manager/client relationship. Payden.com is an informative Web site designed to provide information to the general public based on our recommendations of investment management and investment strategies and is not designed to be representative of your own financial needs. Nor does the information contained herein constitute financial management advice. The firm makes no warranty or representation regarding the accuracy or legality of any information contained in this Web site, and assumes no liability for the use of said information. Be advised that as Internet communications are not always confidential, you provide our Web site your personal information at your own risk. Please do not make any decisions about any investment management or investment strategy matter without consulting with a qualified professional.
Friday, May 1, 2009
The cost of the Bailout to you
The International Monetary Fund has just estimated the American taxpayer’s tab for all of Washington’s bailouts, guarantees, backstops and other support of the financial system.
It’s $1.9 trillion over the next five years. $6,200 for every American man, woman and child.
In a sure sign the torch of world leadership is passing from American hands, Washington protested the estimate as way too high, faulting the IMF’s methodology. The IMF assumed 10% losses for the assets the Fed has taken onto its books. It also assumed the FDIC will have to get additional funding from Congress to rescue depositors at insolvent banks.
We, on the other hand, won’t be surprised if the IMF’s methodology turns out to be conservative.
It’s $1.9 trillion over the next five years. $6,200 for every American man, woman and child.
In a sure sign the torch of world leadership is passing from American hands, Washington protested the estimate as way too high, faulting the IMF’s methodology. The IMF assumed 10% losses for the assets the Fed has taken onto its books. It also assumed the FDIC will have to get additional funding from Congress to rescue depositors at insolvent banks.
We, on the other hand, won’t be surprised if the IMF’s methodology turns out to be conservative.
Market Reflections 4/30/2009
The $8 billion bail-out/bankruptcy of Chrysler failed to give stocks a lasting push with the S&P 500 slipping 0.1 percent. Even with the survival of Chrysler, auto shutdowns pose a major risk to the manufacturing sector this summer. In economic data, Chicago purchasers reported solid improvement in orders but here again, future improvement will not include the auto sector. Personal income and spending data were disappointing and included another very strong savings rate, at 4.2 percent and another reflection of flight-to-safety, this time at the consumer level.
Other markets were also little changed including the dollar which held to a tight range to end at $1.3250 against the euro. Oil and gold held in tight ranges, ending at $50.99 and $888. Hog prices continue to plunge, down more than 3 percent on the day and otherwise are the only area being hurt by swine flu.
Other markets were also little changed including the dollar which held to a tight range to end at $1.3250 against the euro. Oil and gold held in tight ranges, ending at $50.99 and $888. Hog prices continue to plunge, down more than 3 percent on the day and otherwise are the only area being hurt by swine flu.
Thursday, April 30, 2009
Greenback May Lose 14% Against Loonie: Technical Analysis
By Chris Fournier
April 29 (Bloomberg) -- The U.S. dollar may depreciate as much as 14 percent against the Canadian currency by November if it breaks through a key technical level amid “steady selling pressure,” according to TD Securities Inc.
Canada’s currency, known as the loonie, is headed for its fifth weekly gain against the greenback, the longest winning streak since November 2007. Speculation that the worst of the global economic crisis may be over is prompting investors to venture out of safe havens and into higher-yielding assets, such as stocks and commodity-linked currencies.
If the U.S. dollar breaks below C$1.1764, “the downside opens up hugely over the next few months” to the upper C$1.04 area, Shaun Osborne, chief currency strategist in Toronto at TD, wrote in a note to clients today. That would be a drop of about 14 percent from yesterday’s close. He recommends selling the U.S. dollar on rallies.
The loonie strengthened 1.5 percent to C$1.2019 against the U.S. dollar at 1:58 p.m. in Toronto, from C$1.2196 yesterday. One Canadian dollar buys 83.20 U.S. cents.
The drop to the upper C$1.04 area is the “maximum technical implication of a break under C$1.1764” rather than a formal forecast and could occur in the next six to nine months, Osborne wrote in a separate e-mail.
Gains in the U.S. dollar have been met with “significant selling pressure” in four of the past five weeks, giving the market a “top-heavy look,” and patterns in the monthly chart indicate the greenback may be ready to reverse its upward trend against the Canadian dollar, Osborne wrote.
Loonie’s Parity
Canada’s dollar reached parity with its U.S. counterpart for the first time in three decades in September 2007 following a 60 percent climb in the preceding five years on the back of rising commodity prices. The loonie lost a record 18 percent last year as demand for raw materials, the source of more than half of the nation’s export revenue, evaporated.
In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index. TD Securities is a unit of Canada’s second-largest bank.
To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net
April 29 (Bloomberg) -- The U.S. dollar may depreciate as much as 14 percent against the Canadian currency by November if it breaks through a key technical level amid “steady selling pressure,” according to TD Securities Inc.
Canada’s currency, known as the loonie, is headed for its fifth weekly gain against the greenback, the longest winning streak since November 2007. Speculation that the worst of the global economic crisis may be over is prompting investors to venture out of safe havens and into higher-yielding assets, such as stocks and commodity-linked currencies.
If the U.S. dollar breaks below C$1.1764, “the downside opens up hugely over the next few months” to the upper C$1.04 area, Shaun Osborne, chief currency strategist in Toronto at TD, wrote in a note to clients today. That would be a drop of about 14 percent from yesterday’s close. He recommends selling the U.S. dollar on rallies.
The loonie strengthened 1.5 percent to C$1.2019 against the U.S. dollar at 1:58 p.m. in Toronto, from C$1.2196 yesterday. One Canadian dollar buys 83.20 U.S. cents.
The drop to the upper C$1.04 area is the “maximum technical implication of a break under C$1.1764” rather than a formal forecast and could occur in the next six to nine months, Osborne wrote in a separate e-mail.
Gains in the U.S. dollar have been met with “significant selling pressure” in four of the past five weeks, giving the market a “top-heavy look,” and patterns in the monthly chart indicate the greenback may be ready to reverse its upward trend against the Canadian dollar, Osborne wrote.
Loonie’s Parity
Canada’s dollar reached parity with its U.S. counterpart for the first time in three decades in September 2007 following a 60 percent climb in the preceding five years on the back of rising commodity prices. The loonie lost a record 18 percent last year as demand for raw materials, the source of more than half of the nation’s export revenue, evaporated.
In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index. TD Securities is a unit of Canada’s second-largest bank.
To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net
Currencies and Economic News
In the currency market, the dollar continued to fall against the euro. Late Wednesday, the euro was trading at $1.3264 vs. $1.3141 on Tuesday.
The two big events of the day were release of GDP figures and the FOMC meeting. The former was wretched, to say the least. The Commerce Department said inflation-adjusted, seasonally-adjusted GDP fell at a 6.1% annualized rate in the first quarter, following a 6.3% decline in 4Q08.
Taken together, that represented the worst showing in six decades. Since 1947, the economy had never contracted by more than 5% for two consecutive quarters.
However, as Marketwatch reported, “Buried in details of the U.S. GDP report, a [2.2%] rebound in consumer spending and a drop in inventories bolstered optimism that the U.S. economy was on the track to recovery after a brutal first quarter. Those bright spots, combined with surprise rise in eurozone sentiment, pushed the euro higher against the dollar.”
Meanwhile, the Fed kept its target interest rate unchanged at an ultra-low 0%-to-0.25% range, and said the U.S. economic outlook has "improved modestly.” There were no changes to plans to buy Treasurys and other securities to support the flow of credit to the economy. Thus “some of the fear of additional quantitative easing anytime soon quickly abated,” said Dan Cook of IG Markets in Chicago.
“The only major difference between [yesterday’s] statement and the previous one on March 18 is that [yesterday’s] cited the fact that most evidence points to a slowing rate of economic decline. Anyone with two eyes and a brain knows this to be the case,” wrote Josh Shapiro, of MFR, Inc.
The Blue Chip survey of economists forecasts a 2% annual pace of decline in growth in the current quarter, a small positive growth rate in the third quarter, and a stronger economy by the end of the year.
The two big events of the day were release of GDP figures and the FOMC meeting. The former was wretched, to say the least. The Commerce Department said inflation-adjusted, seasonally-adjusted GDP fell at a 6.1% annualized rate in the first quarter, following a 6.3% decline in 4Q08.
Taken together, that represented the worst showing in six decades. Since 1947, the economy had never contracted by more than 5% for two consecutive quarters.
However, as Marketwatch reported, “Buried in details of the U.S. GDP report, a [2.2%] rebound in consumer spending and a drop in inventories bolstered optimism that the U.S. economy was on the track to recovery after a brutal first quarter. Those bright spots, combined with surprise rise in eurozone sentiment, pushed the euro higher against the dollar.”
Meanwhile, the Fed kept its target interest rate unchanged at an ultra-low 0%-to-0.25% range, and said the U.S. economic outlook has "improved modestly.” There were no changes to plans to buy Treasurys and other securities to support the flow of credit to the economy. Thus “some of the fear of additional quantitative easing anytime soon quickly abated,” said Dan Cook of IG Markets in Chicago.
“The only major difference between [yesterday’s] statement and the previous one on March 18 is that [yesterday’s] cited the fact that most evidence points to a slowing rate of economic decline. Anyone with two eyes and a brain knows this to be the case,” wrote Josh Shapiro, of MFR, Inc.
The Blue Chip survey of economists forecasts a 2% annual pace of decline in growth in the current quarter, a small positive growth rate in the third quarter, and a stronger economy by the end of the year.
Market Reflections 4/29/2009
Policy makers at the FOMC are definitely less downbeat, saying contraction is easing and that steps already taken will lead to a gradual return to growth. Stocks rallied with the S&P 500 ending near its highs, up 2.2 percent at just under 875. Having little effect were late reports that Chrysler, as part of an alliance with Fiat, will file for bankruptcy tomorrow.
The dollar firmed 1/2 cent in immediate reaction to the FOMC statement, ending at $1.3250 to the euro. With conditions stable, the FOMC did not announce any new outright purchases, a factor that hurt Treasuries where the 10-year yield rose 9 basis points to end at 3.09 percent. Gains in the dollar held down many commodities including gold, ending at $900, and oil, ending under $51. Hog prices, down about 1.5 percent, fell for a third day in reaction to the swine flu crisis.
The dollar firmed 1/2 cent in immediate reaction to the FOMC statement, ending at $1.3250 to the euro. With conditions stable, the FOMC did not announce any new outright purchases, a factor that hurt Treasuries where the 10-year yield rose 9 basis points to end at 3.09 percent. Gains in the dollar held down many commodities including gold, ending at $900, and oil, ending under $51. Hog prices, down about 1.5 percent, fell for a third day in reaction to the swine flu crisis.
Wednesday, April 29, 2009
Market Reflections 4/28/2009
Reports that Citigroup and Bank of America have failed the government's stress tests offset a surprisingly strong consumer confidence report that suggests better times are ahead even if current job losses remain severe. The S&P 500 ended down 0.3 percent at 855.16. The dollar softened 1 cent to $1.3154 against the euro.
The confidence report weakened demand for Treasuries where yields were up 8 basis points for the 5-year note which ended at 1.93 percent. The Treasury auctioned $35 billion of new 5-year notes in the session, part of its herculean effort to fund government spending. The quarterly refunding announcement is tomorrow at 9:00 a.m. ET.
Commodities were little changed though hog prices continued to slide on swine flu concern. Soybeans, which had been one of the biggest gainers in April, fell back on rumors that Chinese importers are cancelling orders.
The confidence report weakened demand for Treasuries where yields were up 8 basis points for the 5-year note which ended at 1.93 percent. The Treasury auctioned $35 billion of new 5-year notes in the session, part of its herculean effort to fund government spending. The quarterly refunding announcement is tomorrow at 9:00 a.m. ET.
Commodities were little changed though hog prices continued to slide on swine flu concern. Soybeans, which had been one of the biggest gainers in April, fell back on rumors that Chinese importers are cancelling orders.
Tuesday, April 28, 2009
Market Reflections 4/27/2009
Rising swine flu cases and uncertainty over the size of the problem pushed stocks and many commodity prices lower. But Monday also saw new hope for General Motors. A massive downsizing and a stock-for-debt swap sent GM shares 20 percent higher and made for a brief but wide mid-morning rally. There wasn't any calendar data in the session but Boeing's CEO offered a new description for the downturn, calling it a "once in a lifetime" event.
The S&P 500 fell 1 percent to 857.51. The dollar was up, ending at $1.3050 against the euro while the Mexican pesos tumbled 4.1 percent to 13.9060 vs. the dollar. There was little movement in the Treasury market.
Hog prices fell steeply, down 4.2 percent on the June contract. Prices of grains and industrial metals posted less severe declines. Oil seesawed with the stock market before ending just above its central line at $50. Gold held firm at $905.
The S&P 500 fell 1 percent to 857.51. The dollar was up, ending at $1.3050 against the euro while the Mexican pesos tumbled 4.1 percent to 13.9060 vs. the dollar. There was little movement in the Treasury market.
Hog prices fell steeply, down 4.2 percent on the June contract. Prices of grains and industrial metals posted less severe declines. Oil seesawed with the stock market before ending just above its central line at $50. Gold held firm at $905.
Subscribe to:
Posts (Atom)