This is a summary of by Jack Crooks excerpted from his daily comment on Friday May 28 this year.
It discusses Jacks opinion of a masterpiece of Economic thought that argues, in my opinion very convincingly, that John Maynard Keynes and the whole Keynsian economic philosophy that Western governments have based their economic policies on is the cause of our present economic woes.
This is the book:
The Failure of the “New Economics,” written by Henry Hazlitt, published in 1959.
The entire book deconstructs John Maynard Keynes masterpiece —The General Theory of Employment Interest and Money, published in 1936.
Henry Hazlitt did the seemingly impossible, something that was and is a magnificent service to all people everywhere. He wrote a line-by-line commentary and refutation of one of the most destructive, fallacious, and convoluted books of the century. The target here is John Maynard Keynes's General Theory, the book that appeared in 1936 and swept all before it.
In economic science, Keynes changed everything. He supposedly demonstrated that prices don't work, that private investment is unstable, that sound money is intolerable, and that government was needed to shore up the system and save it. It was simply astonishing how economists the world over put up with this, but it happened. He converted a whole generation in the late period of the Great Depression. By the 1950s, almost everyone was Keynesian.
But Hazlitt, the nation's economics teacher, would have none of it. And he did the hard work of actually going through the book to evaluate its logic according to Austrian-style logical reasoning. The result: a 500-page masterpiece of exposition.
This book is available on Amazon.com
You economist wonks should devour it. The rest of us should heed the lessons of this man and Milton Friedman.
Friday, June 25, 2010
This economic stuff really isn’t hard.
This economic stuff really isn’t hard.
“Taxing moves money and spending moves resources.”
In other words, why on God’s green earth would anyone with a pulse believe taking money (taxes) from the most productive side of the economy (private sector), which uses resources efficiently thanks to the invisible hand of the market, and give it to the most unproductive side of the economy (government) who continually wastes finite resources (spending), thanks to the visible boot of the market?
Three answers:
1) Brainwashed by the Temples of Keynesian Hell, often referred to as Ivy League economics departments
2) Hubris, and a deep-seated belief in one’s ability to structure the lives of others
3) Pay off political cronies and “interest” groups
I had the privilege of listening to the Nobel Prize winning economist Milton Friedman in a lecture series during my MBA Economics classes say much the same thing.
This opinion is courtesy of Jack Crooks at Black Swan Capital and the link to the full discussion is above. An interesting argument.. read it, it dosnt take long.
“Taxing moves money and spending moves resources.”
In other words, why on God’s green earth would anyone with a pulse believe taking money (taxes) from the most productive side of the economy (private sector), which uses resources efficiently thanks to the invisible hand of the market, and give it to the most unproductive side of the economy (government) who continually wastes finite resources (spending), thanks to the visible boot of the market?
Three answers:
1) Brainwashed by the Temples of Keynesian Hell, often referred to as Ivy League economics departments
2) Hubris, and a deep-seated belief in one’s ability to structure the lives of others
3) Pay off political cronies and “interest” groups
I had the privilege of listening to the Nobel Prize winning economist Milton Friedman in a lecture series during my MBA Economics classes say much the same thing.
This opinion is courtesy of Jack Crooks at Black Swan Capital and the link to the full discussion is above. An interesting argument.. read it, it dosnt take long.
Thursday, June 24, 2010
Technically speaking, the market looks bad
Courtesy of Steve Reitmeister, Executive VP, Zacks Investment Research quoted from Zacks.com Profit from the Pros - 6/24/10
Technically speaking, the market looks bad given a 2nd straight close under the 200 day moving averages. Fundamentally speaking, I did not care for the change in the Fed's language today. They are no longer saying that the economy is "strengthening". Rather they said that the economic rebound is "proceeding". This may sound like semantics, but the Fed is VERY particular about their choice of words and this marks a clear change in their sentiment. To make matters worse they stated; "financial conditions have become less supportive of economic growth ... largely reflecting developments abroad (read: Europe)." The smart money took this as a signal to move more cash to safety as can be seen by the further drop of the yield on 10 year treasuries to the lowest level since May 2009 (when it looked like the world was going to fall off a cliff). And perhaps many investors feel that is going to happen again. So I am taking this as a sign to lighten up my long positions. I even added a hefty ETF short position into the mix. I believe it will be hard for the market to press higher until we get forward looking guidance from Corporate America that makes us feel better about the economy. That won't happen for another few weeks. That says to me that the market is more likely to head lower over the next few weeks.
Technically speaking, the market looks bad given a 2nd straight close under the 200 day moving averages. Fundamentally speaking, I did not care for the change in the Fed's language today. They are no longer saying that the economy is "strengthening". Rather they said that the economic rebound is "proceeding". This may sound like semantics, but the Fed is VERY particular about their choice of words and this marks a clear change in their sentiment. To make matters worse they stated; "financial conditions have become less supportive of economic growth ... largely reflecting developments abroad (read: Europe)." The smart money took this as a signal to move more cash to safety as can be seen by the further drop of the yield on 10 year treasuries to the lowest level since May 2009 (when it looked like the world was going to fall off a cliff). And perhaps many investors feel that is going to happen again. So I am taking this as a sign to lighten up my long positions. I even added a hefty ETF short position into the mix. I believe it will be hard for the market to press higher until we get forward looking guidance from Corporate America that makes us feel better about the economy. That won't happen for another few weeks. That says to me that the market is more likely to head lower over the next few weeks.
US home forfeitures
This page is about distressed sales of homes. Its a little dry but is vital reading for all.
The main questions are whether the backlog is being cleared and whether distressed sales are affecting prices.
Thank you Clear on Money.
http://www.clearonmoney.com/dw/doku.php?id=public:us_home_forfeitures
Summary
23 Jun 2010.
The underlying trend in US distressed home sales has been upward for about a year. Despite some ambiguity and incompleteness in the seven available data series, it is clear that the upward trend remains intact.
House prices are inversely related to the fraction of all sales that is distressed, where bank sales and short sales constitute the distressed category. The rate of change in house prices is inversely related to the inventory of existing homes, measured in months of supply. Both of these measures now suggest falling prices.
The main questions are whether the backlog is being cleared and whether distressed sales are affecting prices.
Thank you Clear on Money.
http://www.clearonmoney.com/dw/doku.php?id=public:us_home_forfeitures
Summary
23 Jun 2010.
The underlying trend in US distressed home sales has been upward for about a year. Despite some ambiguity and incompleteness in the seven available data series, it is clear that the upward trend remains intact.
House prices are inversely related to the fraction of all sales that is distressed, where bank sales and short sales constitute the distressed category. The rate of change in house prices is inversely related to the inventory of existing homes, measured in months of supply. Both of these measures now suggest falling prices.
Investor demand climbs for Fannie, Freddie, Ginnie debt
Investors continue to look for safe investments,
pushing up prices of mortgage securities issued by Fannie Mae, Freddie Mac and Ginnie Mae. The agency
bonds are trading at more than their face value, yielding about 1.5% more than comparable Treasurys. Foreign
investors are attracted to the bonds because they are guaranteed by the government. The Wall Street Journal
pushing up prices of mortgage securities issued by Fannie Mae, Freddie Mac and Ginnie Mae. The agency
bonds are trading at more than their face value, yielding about 1.5% more than comparable Treasurys. Foreign
investors are attracted to the bonds because they are guaranteed by the government. The Wall Street Journal
Fannie Mae plans to crack down on "strategic defaulters"
Fannie Mae plans to get tough on borrowers who
can afford to make their mortgage payments but walk away because the loan balance is bigger the the
property's value. People who engage in a "strategic default" would be banned from Fannie loans for seven
years. In some cases, the U.S. government-controlled company would tell loan servicers to go to court to get
back money owed to Fannie. Los Angeles Times
can afford to make their mortgage payments but walk away because the loan balance is bigger the the
property's value. People who engage in a "strategic default" would be banned from Fannie loans for seven
years. In some cases, the U.S. government-controlled company would tell loan servicers to go to court to get
back money owed to Fannie. Los Angeles Times
Analysis: U.S. home sales crash after tax credit ends
Sales of homes in the U.S., along with their prices,
soared after Congress gave first-time buyers an $8,000 tax credit. When the subsidy expired, so did the boost,
with only 28,000 home sold in May, the lowest number recorded for that month. The tax credit did nothing
about high inventory, unemployment close to 10% and millions of underwater homeowners, according to The
Economist. "And Americans are now left wondering when housing's second dip will find its bottom and real
recovery begin," The Economist notes. The Economist
soared after Congress gave first-time buyers an $8,000 tax credit. When the subsidy expired, so did the boost,
with only 28,000 home sold in May, the lowest number recorded for that month. The tax credit did nothing
about high inventory, unemployment close to 10% and millions of underwater homeowners, according to The
Economist. "And Americans are now left wondering when housing's second dip will find its bottom and real
recovery begin," The Economist notes. The Economist
Wednesday, June 23, 2010
Mortgage Workout 4: The real urgency
Its no longer inauguration day. There is no more hope in the air. Change....it has not come. HAMP and HARP are failed solutions to the wrong problem. They simply dont work.Forcing a refinancing on a homeowner that consumes 60% or more of disposable income is not a sustainable solution. It is a depressing process without a hopeful ending.
Where is the incentive for that homeowner, often innocent of any wrongdoing and merely a victim of relentlessly reducing home values,to stay in an unaffordable home?
The sensible thing to do is to hand back the keys to the house to whomever can prove they own the note on it and move on to find housing for the family that IS affordable.
It is time for politicians to be patriotic and not parochial.
Everyone must acknowledge that the problem is NOT how to rejigger the current mortgage to somehow cajole the homeowner to pay up. The current mortgage modification practises are structured to encourage the exact opposite result...because that is where the money lies for the banks and mortgage servicers. These guys get fees every step of the way.
Servicers get to charge fees to try and modify a mortgage; they get subsidies from the government to give it a try. The big five banks get to charge interest and just have no incentive to kill the cash cow that borrowing from the Government at effectively zero cost and lending the money right back at a 2+% profit with no risk, has become.
Why should anyone lend to some risky person offering collateral that is declining in value when they can lend the free money right back at a risk free profit?
Government MUST rescue the homeowners of this great nation or the American Dream of home ownership will be lost forever.
Government cannot abandon its citizens!
This is a moment in history that a simple, transparent process of mortgage normalization could turn into a triumph of affordable prosperity for this great nation and for the world!The United States MUST lead!
They must do this for the benefit of the country. To do anything other than a clean fix aimed laserlike at the problem of home valuation is to charge the country headlong out of the current recession into a second Great Depression of unimagined magnitude and consequence.
Here is an example of how this would work, without using additional bailout money, without cramping the style of politicians who want to free up money for stimulating economic activity and would restore the great hope of prosperity for this great nation and the world:
EXAMPLE:
John Smith Family owns a house with a current mortgage of $700,000. It is their primary residence (they live in it).
Smith household income reported on 2009 Federal tax return was $125,000 gross before any deductions ( NOT their taxable income, their take home pay with tax added back).
Current US 30 year Treasury Bonds have an interest rate of 4.059%.
Principle no 1: 30% of $125,000 means Smith can afford to pay no more than $37,500 per year or $3,125 per month for Principal & Interest on the mortgage.
Smith gets a new mortgage under this program with a 30 year term at 4.55% (4.059+0.5 servicing fee) for a nominal value of approx $600,000.(arrived at through Discounted Cash Flow analysis based on what Smith can afford to pay). The Government gets the right to 80% of the difference between $600,000 and the original mortgage amount of $700,000 when the house is sold.
Ten years from now Smith sells the house for $700,000
He has paid about $2,900/month in interest for 10 yrs or $348,000 that has gone back into the US treasury.
He has paid about $27,000 in principal. He owes $573,000 on the new government mortgage, and $100,000 difference between his old and new mortgage originally financed by the US govt.
His gross profit on the sale of his house is $127,000. He owes 80% of this or $101,600, under his mortgage contract so that the Government gets the $573,000 and its $100,000 back and $1,600 more.
Smith has had his property written down to a reasonable value and his mortgage therefore becomes valuable in a resale. The Federal Reserve can resell it if they wish. Smith has lived with a new lower payment and still got the tax deduction for interest. He has made a profit on the sale of the home!
Most importantly, Smith is not tempted to hand the keys of the house to the bank because he is upside down in the mortgage. The Bankruptcy/foreclosure process is completely avoided.
There is a very real potential for gain by the Government( thats us - the taxpayer). Interest and principal payments on mortgages comes into the Fed Reserve balance sheet. Potential for profit exists on sale of properties. No new government agencies need to be established. The Fed will hire the necessary personnel to administer the program.
The banking system is unclogged and consumer confidence is restored.
Just imagine the rush of consumer confidence unleashed! Homeowners with new purchasing power!
Banks with capital to lend to credit worthy businesses who can hire new employees who now have an income! Hundreds of thousands of people seperating from the Government Welfare rolls!
This can happen, now. It must happen... anything that has been tried up to now has failed and will lead this nation and the world over the cliff to oblivion.
Change course now!
Where is the incentive for that homeowner, often innocent of any wrongdoing and merely a victim of relentlessly reducing home values,to stay in an unaffordable home?
The sensible thing to do is to hand back the keys to the house to whomever can prove they own the note on it and move on to find housing for the family that IS affordable.
It is time for politicians to be patriotic and not parochial.
Everyone must acknowledge that the problem is NOT how to rejigger the current mortgage to somehow cajole the homeowner to pay up. The current mortgage modification practises are structured to encourage the exact opposite result...because that is where the money lies for the banks and mortgage servicers. These guys get fees every step of the way.
Servicers get to charge fees to try and modify a mortgage; they get subsidies from the government to give it a try. The big five banks get to charge interest and just have no incentive to kill the cash cow that borrowing from the Government at effectively zero cost and lending the money right back at a 2+% profit with no risk, has become.
Why should anyone lend to some risky person offering collateral that is declining in value when they can lend the free money right back at a risk free profit?
Government MUST rescue the homeowners of this great nation or the American Dream of home ownership will be lost forever.
Government cannot abandon its citizens!
This is a moment in history that a simple, transparent process of mortgage normalization could turn into a triumph of affordable prosperity for this great nation and for the world!The United States MUST lead!
They must do this for the benefit of the country. To do anything other than a clean fix aimed laserlike at the problem of home valuation is to charge the country headlong out of the current recession into a second Great Depression of unimagined magnitude and consequence.
Here is an example of how this would work, without using additional bailout money, without cramping the style of politicians who want to free up money for stimulating economic activity and would restore the great hope of prosperity for this great nation and the world:
EXAMPLE:
John Smith Family owns a house with a current mortgage of $700,000. It is their primary residence (they live in it).
Smith household income reported on 2009 Federal tax return was $125,000 gross before any deductions ( NOT their taxable income, their take home pay with tax added back).
Current US 30 year Treasury Bonds have an interest rate of 4.059%.
Principle no 1: 30% of $125,000 means Smith can afford to pay no more than $37,500 per year or $3,125 per month for Principal & Interest on the mortgage.
Smith gets a new mortgage under this program with a 30 year term at 4.55% (4.059+0.5 servicing fee) for a nominal value of approx $600,000.(arrived at through Discounted Cash Flow analysis based on what Smith can afford to pay). The Government gets the right to 80% of the difference between $600,000 and the original mortgage amount of $700,000 when the house is sold.
Ten years from now Smith sells the house for $700,000
He has paid about $2,900/month in interest for 10 yrs or $348,000 that has gone back into the US treasury.
He has paid about $27,000 in principal. He owes $573,000 on the new government mortgage, and $100,000 difference between his old and new mortgage originally financed by the US govt.
His gross profit on the sale of his house is $127,000. He owes 80% of this or $101,600, under his mortgage contract so that the Government gets the $573,000 and its $100,000 back and $1,600 more.
Smith has had his property written down to a reasonable value and his mortgage therefore becomes valuable in a resale. The Federal Reserve can resell it if they wish. Smith has lived with a new lower payment and still got the tax deduction for interest. He has made a profit on the sale of the home!
Most importantly, Smith is not tempted to hand the keys of the house to the bank because he is upside down in the mortgage. The Bankruptcy/foreclosure process is completely avoided.
There is a very real potential for gain by the Government( thats us - the taxpayer). Interest and principal payments on mortgages comes into the Fed Reserve balance sheet. Potential for profit exists on sale of properties. No new government agencies need to be established. The Fed will hire the necessary personnel to administer the program.
The banking system is unclogged and consumer confidence is restored.
Just imagine the rush of consumer confidence unleashed! Homeowners with new purchasing power!
Banks with capital to lend to credit worthy businesses who can hire new employees who now have an income! Hundreds of thousands of people seperating from the Government Welfare rolls!
This can happen, now. It must happen... anything that has been tried up to now has failed and will lead this nation and the world over the cliff to oblivion.
Change course now!
Mortgage Workout 3: Benefits to Mortgage Holders and Homeowners under water on the Mortgage
a. Current law-abiding households who are are seeing negative real value of their primary residence will be able to remain in their homes at affordable cost with a potential for some upside appreciation in the value of their property; and they get to see a participation in the realization of that potential together with Government on sale of their property.
b. Banks and other mortgage owners will have a value, real and ascertainable, assigned to each and every such distressed mortgage. AND they will have, therefore a viable asset to sell to mortgage repackagers on Wall Street; this frees up capital to lend out on new mortgages under more appropriate terms (20% downpayment, 30% max housing cost to household income)
c. Government gets a real, visible path to recovery of money appropriated to this program, with interest.
d. Government will be helping citizens who most need help and restoring their confidence in The American Dream.
e. Government will restore confidence in the banking system worldwide by establishing a system of mortgage valuation that establishes a valuation methodology that could easily be cloned by private investors and capitalized on by the Financial Services industry worldwide.
f. Bankers and other lenders will now have a method of assessing the value of collateral offered interbank and lending between institutions, currently effectively at a trickle, can be reinvigorated.
g. No new government burocracy needed. FNMA/FHLMC become effective arms of the Federal Reserve who is charged with housing stability as a third mandate.
The result will be a very viable, self-funding solution to the current housing/banking crisis.
Mortgages then become easy to value as the underlying properties have a recognized value. Homeowners have an affordable mortgage payment, freeing up discretionary income for spending on other goods and services.
Most importantly, homeowners will not be tempted to walk away from unaffordable payments, or houses worth less than they owe. Foreclosure or bankruptcy can be avoided completely.
There is a very real potential for gain for the Government. Interest on mortgages comes into the Fed Reserve balance sheet. Potential for profit exists on sale of properties. No new government agencies need to be established.
The banking system is unclogged and consumer confidence is restored. All without requiring additional tax burdens on unborn generations.
b. Banks and other mortgage owners will have a value, real and ascertainable, assigned to each and every such distressed mortgage. AND they will have, therefore a viable asset to sell to mortgage repackagers on Wall Street; this frees up capital to lend out on new mortgages under more appropriate terms (20% downpayment, 30% max housing cost to household income)
c. Government gets a real, visible path to recovery of money appropriated to this program, with interest.
d. Government will be helping citizens who most need help and restoring their confidence in The American Dream.
e. Government will restore confidence in the banking system worldwide by establishing a system of mortgage valuation that establishes a valuation methodology that could easily be cloned by private investors and capitalized on by the Financial Services industry worldwide.
f. Bankers and other lenders will now have a method of assessing the value of collateral offered interbank and lending between institutions, currently effectively at a trickle, can be reinvigorated.
g. No new government burocracy needed. FNMA/FHLMC become effective arms of the Federal Reserve who is charged with housing stability as a third mandate.
The result will be a very viable, self-funding solution to the current housing/banking crisis.
Mortgages then become easy to value as the underlying properties have a recognized value. Homeowners have an affordable mortgage payment, freeing up discretionary income for spending on other goods and services.
Most importantly, homeowners will not be tempted to walk away from unaffordable payments, or houses worth less than they owe. Foreclosure or bankruptcy can be avoided completely.
There is a very real potential for gain for the Government. Interest on mortgages comes into the Fed Reserve balance sheet. Potential for profit exists on sale of properties. No new government agencies need to be established.
The banking system is unclogged and consumer confidence is restored. All without requiring additional tax burdens on unborn generations.
Mortgage Workout 2, Updated: Funding
FUNDING for this Program:
Congress will authorize Treasury to issue up to $700 billion annually in 30 year Treasury bonds, at prevailing rates, to implement this program. ( and use the unspent $300 Billion unused funds already voted in the TARP)
These funds will be placed in a separate segregated Federal Reserve Bank administered fund that cannot be invaded by anyone or used for any other purpose than mortgage refinancing. These funds will be used to purchase mortgages on PRIMARY RESIDENCES from homeowners at the value of the amount of principal outstanding on these mortgages.
Chairman of Fed to be responsible for disbursements and oversight of the program so co-ordination with Monetary policy will be maximized.
Reporting: to Congress on program status twice a year.
Congress will authorize Treasury to issue up to $700 billion annually in 30 year Treasury bonds, at prevailing rates, to implement this program. ( and use the unspent $300 Billion unused funds already voted in the TARP)
These funds will be placed in a separate segregated Federal Reserve Bank administered fund that cannot be invaded by anyone or used for any other purpose than mortgage refinancing. These funds will be used to purchase mortgages on PRIMARY RESIDENCES from homeowners at the value of the amount of principal outstanding on these mortgages.
Chairman of Fed to be responsible for disbursements and oversight of the program so co-ordination with Monetary policy will be maximized.
Reporting: to Congress on program status twice a year.
A Mortgage Workout for the People of the USA 1: The Plan Revised and updated
This is a plan I first suggested two years ago and again on Inauguration day, to help every citizen of the USA whose current mortgage obligation exceeds the value of their primary home.
Principle no 1: No household should pay a housing cost (mortgage payment: principal + Interest only) that exceeds 30% of their gross income( before any deductions) as reported on their latest Federal Tax Return.
Principle no 2: The Federal Government will refinance existing mortgages, through The Federal Reserve Bank; (buy the existing mortgage and reissue a new mortgage to homeowner). This will apply ONLY to homeowners whose mortgage debt on their PRIMARY residence is larger than the current value of their property.
Principle no 3: New mortgages issued under this program, based on household ability to pay, will contain a provision that allows The Federal Reserve Bank to recover, on sale of secured property, 80% of the difference between the nominal value of the new mortgage issued and the then sale price of the property, until full amount of original refinanced mortgage is recovered. The Federal Reserve Bank will be allowed to charge a 0.5% fee in addition to 30yr Treasury Bond rate to cover cost of implementing the program.
Principle no 4: Federal Reserve Bank will be allowed to continue to repackage these new mortgages in CMO’s etc for resale through traditional resale channels.
Principle no 1: No household should pay a housing cost (mortgage payment: principal + Interest only) that exceeds 30% of their gross income( before any deductions) as reported on their latest Federal Tax Return.
Principle no 2: The Federal Government will refinance existing mortgages, through The Federal Reserve Bank; (buy the existing mortgage and reissue a new mortgage to homeowner). This will apply ONLY to homeowners whose mortgage debt on their PRIMARY residence is larger than the current value of their property.
Principle no 3: New mortgages issued under this program, based on household ability to pay, will contain a provision that allows The Federal Reserve Bank to recover, on sale of secured property, 80% of the difference between the nominal value of the new mortgage issued and the then sale price of the property, until full amount of original refinanced mortgage is recovered. The Federal Reserve Bank will be allowed to charge a 0.5% fee in addition to 30yr Treasury Bond rate to cover cost of implementing the program.
Principle no 4: Federal Reserve Bank will be allowed to continue to repackage these new mortgages in CMO’s etc for resale through traditional resale channels.
Saturday, November 14, 2009
WEEK ENDING 11/13/09
Overview
While the unemployment rate climbed to a 26 year high of 10.2% in October, initial claims for unemployment aid, which are generally considered a gauge of the pace of layoffs, fell last week to a seasonally adjusted 502,000. more...
US MARKETS
Treasury/Economics
Treasury yields oscillated in a very narrow range this week, with relatively low yields and volatility an ideal scenario for the Federal Reserve as it seeks to navigate the economy. more...
Large-Cap Equities
The stock market rallied for the second straight week on continued corporate mergers and acquisitions activity and the G-20 agreeing to maintain their stimulus efforts, supporting prospects of an economic recovery. more...
Corporate Bonds
Investment grade primary activity got off to a running start this week with over twenty issuers coming to the market. more...
Mortgage-Backed Securities
Complacency is a mortgage investor’s best friend. With Treasuries stuck in a range for another week, mortgages outperformed Treasuries as spreads inched closer to their all-time tights. more...
Municipal Bonds
Yields on municipal bonds are lower this week inside of 20 years of maturity, but higher in longer maturities. more...
High-Yield
The high yield market is facing a flood of new deals, with over 15 deals totaling some $6.5 billion set to price this week and early next. more...
INTERNATIONAL MARKETS
Eastern European Equities
The CECE index of equities traded in Central Europe (Czech Republic, Hungary, and Poland) gained +6.7% this week, while the Russian stock index RTS went up +6.1%. more...
Global Bonds and Currencies
Major non-US sovereign bond markets were generally slightly firmer overall in the past week despite a surge in risk appetite which pushed equity prices to their highest levels this year. more...
Emerging-Market Bonds
Emerging market dollar-pay debt spreads were tighter this week. Encouraging economic data kept risk appetite strong as equity markets made new highs for the year and credit spreads tightened. 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.
While the unemployment rate climbed to a 26 year high of 10.2% in October, initial claims for unemployment aid, which are generally considered a gauge of the pace of layoffs, fell last week to a seasonally adjusted 502,000. more...
US MARKETS
Treasury/Economics
Treasury yields oscillated in a very narrow range this week, with relatively low yields and volatility an ideal scenario for the Federal Reserve as it seeks to navigate the economy. more...
Large-Cap Equities
The stock market rallied for the second straight week on continued corporate mergers and acquisitions activity and the G-20 agreeing to maintain their stimulus efforts, supporting prospects of an economic recovery. more...
Corporate Bonds
Investment grade primary activity got off to a running start this week with over twenty issuers coming to the market. more...
Mortgage-Backed Securities
Complacency is a mortgage investor’s best friend. With Treasuries stuck in a range for another week, mortgages outperformed Treasuries as spreads inched closer to their all-time tights. more...
Municipal Bonds
Yields on municipal bonds are lower this week inside of 20 years of maturity, but higher in longer maturities. more...
High-Yield
The high yield market is facing a flood of new deals, with over 15 deals totaling some $6.5 billion set to price this week and early next. more...
INTERNATIONAL MARKETS
Eastern European Equities
The CECE index of equities traded in Central Europe (Czech Republic, Hungary, and Poland) gained +6.7% this week, while the Russian stock index RTS went up +6.1%. more...
Global Bonds and Currencies
Major non-US sovereign bond markets were generally slightly firmer overall in the past week despite a surge in risk appetite which pushed equity prices to their highest levels this year. more...
Emerging-Market Bonds
Emerging market dollar-pay debt spreads were tighter this week. Encouraging economic data kept risk appetite strong as equity markets made new highs for the year and credit spreads tightened. 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!
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Saturday, October 31, 2009
Your Duck is Dead; cost of medical care
A woman brought a very limp duck into a veterinary surgeon.
As she laid her pet on the table, the vet pulled out his stethoscope and listened to the bird’s chest.
After a moment or two, the vet shook his head sadly and said, “I’m sorry, your duck, Cuddles, has passed away.”
The distressed woman wailed, “Are you sure?”
“Yes, I am sure. Your duck is dead,” replied the vet.
“How can you be so sure?” she protested. “I mean you haven’t done any testing on him or anything. He might just be in a coma or something.”
The vet rolled his eyes, turned around, and left the room.
He returned a few minutes later with a black Labrador Retriever.
As the duck’s owner looked on in amazement, the dog stood on his hind legs, put his front paws on the examination table and sniffed the duck from top to bottom. He then looked up at the vet with sad eyes and shook his head.
The vet patted the dog on the head and took it out of the room.
A few minutes later he returned with a cat. The cat jumped on the table and also delicately sniffed the bird from head to foot. The cat sat back on its haunches, shook its head, meowed softly, and strolled out of the room.
The vet looked at the woman and said, “I’m sorry, but as I said, this is most definitely, 100% certifiably, a dead duck.”
The vet turned to his computer terminal, hit a few keys, and produced a bill, which he handed to the woman.
The duck’s owner, still in shock, took the bill. “$150!” she cried, “$150 just to tell me my duck is dead!”
The vet shrugged, “I’m sorry. If you had just taken my word for it, the bill would have been $20, but with the Lab Report and the Cat Scan, it’s now $150.”
As she laid her pet on the table, the vet pulled out his stethoscope and listened to the bird’s chest.
After a moment or two, the vet shook his head sadly and said, “I’m sorry, your duck, Cuddles, has passed away.”
The distressed woman wailed, “Are you sure?”
“Yes, I am sure. Your duck is dead,” replied the vet.
“How can you be so sure?” she protested. “I mean you haven’t done any testing on him or anything. He might just be in a coma or something.”
The vet rolled his eyes, turned around, and left the room.
He returned a few minutes later with a black Labrador Retriever.
As the duck’s owner looked on in amazement, the dog stood on his hind legs, put his front paws on the examination table and sniffed the duck from top to bottom. He then looked up at the vet with sad eyes and shook his head.
The vet patted the dog on the head and took it out of the room.
A few minutes later he returned with a cat. The cat jumped on the table and also delicately sniffed the bird from head to foot. The cat sat back on its haunches, shook its head, meowed softly, and strolled out of the room.
The vet looked at the woman and said, “I’m sorry, but as I said, this is most definitely, 100% certifiably, a dead duck.”
The vet turned to his computer terminal, hit a few keys, and produced a bill, which he handed to the woman.
The duck’s owner, still in shock, took the bill. “$150!” she cried, “$150 just to tell me my duck is dead!”
The vet shrugged, “I’m sorry. If you had just taken my word for it, the bill would have been $20, but with the Lab Report and the Cat Scan, it’s now $150.”
Weekly Wrap 10/30/09
Last week we discussed the volatility in U.S. equity markets, and that not only continued this week it became more aggressive. But unlike the prior week's modest moves, the major averages closed sharply lower this week as the dollar rebounded against the other major currencies. The S&P 500 lost 4%.
Once again the declines were broad-based as all ten sectors in the index ended lower, led by Materials (-7.1%) and Financials (-6.9%).
The dollar was the biggest, if not the only, catalyst this week. In fact, the charts of the major indices are almost exact inverses of the U.S. Dollar Index (DXY). A weak dollar benefits the economy as it boosts exports, and investors are trading stocks based on the moves in the currency.
For example, equities attempted to rebound at the open Monday, but the attempt stalled and a spike higher in the DXY late that morning led to a spike lower in the major indices.
The volatility really came through in the last three sessions of the week.
A third day of gains in the DXY on Wednesday led to sharp declines in equities.
Then a reversal in the greenback and modestly better-than-expected GDP figure on Thursday helped equities regain the prior day's declines. The Advance reading for third quarter GDP came in at 3.5%, its first gain in four quarters, slightly better than the 3.2% consensus.
But those gains were short-lived as a resumption in the dollar rally on Friday led to the major indices making fresh week lows.
Third quarter earnings season did continue this week, but there were fewer big names so they took a backseat. For the most part companies continued to beat on the bottom lines, but top line figures and guidance were mixed.
Another rounds of longer-term Treasury auctions also took a back seat -- $123 billion in 5-year TIPS and 2-, 5- and 7-year Notes -- as they no longer seem to have as direct an influence on the equity markets.
Looking ahead to next week, third quarter earnings season will wind down with even fewer big names on the calendar. The dollar will most likely remain in focus until the end of the week, when the always highly-anticipated Nonfarm Payrolls figure is released for October.
Index Started Week Ended Week Change % Change YTD %
DJIA 9972.18 9712.73 -259.45 -2.6 10.7
Nasdaq 2154.47 2045.11 -109.36 -5.1 29.7
S&P 500 1079.60 1036.19 -43.41 -4.0 14.7
Russell 2000 600.86 562.77 -38.09 -6.3 12.7
Once again the declines were broad-based as all ten sectors in the index ended lower, led by Materials (-7.1%) and Financials (-6.9%).
The dollar was the biggest, if not the only, catalyst this week. In fact, the charts of the major indices are almost exact inverses of the U.S. Dollar Index (DXY). A weak dollar benefits the economy as it boosts exports, and investors are trading stocks based on the moves in the currency.
For example, equities attempted to rebound at the open Monday, but the attempt stalled and a spike higher in the DXY late that morning led to a spike lower in the major indices.
The volatility really came through in the last three sessions of the week.
A third day of gains in the DXY on Wednesday led to sharp declines in equities.
Then a reversal in the greenback and modestly better-than-expected GDP figure on Thursday helped equities regain the prior day's declines. The Advance reading for third quarter GDP came in at 3.5%, its first gain in four quarters, slightly better than the 3.2% consensus.
But those gains were short-lived as a resumption in the dollar rally on Friday led to the major indices making fresh week lows.
Third quarter earnings season did continue this week, but there were fewer big names so they took a backseat. For the most part companies continued to beat on the bottom lines, but top line figures and guidance were mixed.
Another rounds of longer-term Treasury auctions also took a back seat -- $123 billion in 5-year TIPS and 2-, 5- and 7-year Notes -- as they no longer seem to have as direct an influence on the equity markets.
Looking ahead to next week, third quarter earnings season will wind down with even fewer big names on the calendar. The dollar will most likely remain in focus until the end of the week, when the always highly-anticipated Nonfarm Payrolls figure is released for October.
Index Started Week Ended Week Change % Change YTD %
DJIA 9972.18 9712.73 -259.45 -2.6 10.7
Nasdaq 2154.47 2045.11 -109.36 -5.1 29.7
S&P 500 1079.60 1036.19 -43.41 -4.0 14.7
Russell 2000 600.86 562.77 -38.09 -6.3 12.7
Friday, October 30, 2009
Quotable
1 WITCH. Thrice the brinded cat hath mew'd.
2 WITCH. Thrice and once, the hedge-pig whin'd.
3 WITCH. Harpier cries:—'tis time! 'tis time!
1 WITCH. Round about the caldron go; In the poison'd entrails throw.— Toad, that under cold stone, Days and nights has thirty-one; Swelter'd venom sleeping got, Boil thou first i' the charmed pot!
ALL. Double, double toil and trouble; Fire burn, and caldron bubble.
2 WITCH. Fillet of a fenny snake, In the caldron boil and bake; Eye of newt, and toe of frog, Wool of bat, and tongue of dog, Adder's fork, and blind-worm's sting, Lizard's leg, and owlet's wing,— For a charm of powerful trouble, Like a hell-broth boil and bubble.
ALL. Double, double toil and trouble; Fire burn, and caldron bubble.
3 WITCH. Scale of dragon; tooth of wolf; Witches' mummy; maw and gulf Of the ravin'd salt-sea shark; Root of hemlock digg'd i the dark; Liver of blaspheming Jew; Gall of goat, and slips of yew Sliver'd in the moon's eclipse; Nose of Turk, and Tartar's lips; Finger of birth-strangled babe Ditch-deliver'd by a drab,— Make the gruel thick and slab: Add thereto a tiger's chaudron, For the ingrediants of our caldron.
ALL. Double, double toil and trouble; Fire burn, and caldron bubble.
2 WITCH. Cool it with a baboon's blood, Then the charm is firm and good.
William Shakespeare
2 WITCH. Thrice and once, the hedge-pig whin'd.
3 WITCH. Harpier cries:—'tis time! 'tis time!
1 WITCH. Round about the caldron go; In the poison'd entrails throw.— Toad, that under cold stone, Days and nights has thirty-one; Swelter'd venom sleeping got, Boil thou first i' the charmed pot!
ALL. Double, double toil and trouble; Fire burn, and caldron bubble.
2 WITCH. Fillet of a fenny snake, In the caldron boil and bake; Eye of newt, and toe of frog, Wool of bat, and tongue of dog, Adder's fork, and blind-worm's sting, Lizard's leg, and owlet's wing,— For a charm of powerful trouble, Like a hell-broth boil and bubble.
ALL. Double, double toil and trouble; Fire burn, and caldron bubble.
3 WITCH. Scale of dragon; tooth of wolf; Witches' mummy; maw and gulf Of the ravin'd salt-sea shark; Root of hemlock digg'd i the dark; Liver of blaspheming Jew; Gall of goat, and slips of yew Sliver'd in the moon's eclipse; Nose of Turk, and Tartar's lips; Finger of birth-strangled babe Ditch-deliver'd by a drab,— Make the gruel thick and slab: Add thereto a tiger's chaudron, For the ingrediants of our caldron.
ALL. Double, double toil and trouble; Fire burn, and caldron bubble.
2 WITCH. Cool it with a baboon's blood, Then the charm is firm and good.
William Shakespeare
Wednesday, October 28, 2009
Quotable: For Missing the Unmissable
Quotable
For Missing the Unmissable
Bernanke, the most passionate cheerleader of Greenspan’s follies, is picked as his replacement, partly, it seems, for his belief that U.S. house prices would never decline and that at their peak in late 2005 they largely just reflected the unusual strength of the U.S. economy. As well as missing on his very own this 3-sigma (100-year) event in housing, he was completely clueless as to the potential disastrous interactions among lower house prices, new opaque financial instruments, heroically increased mortgages, lower lending standards, and internationally networked distribution. For these accumulated benefits to society, he was reappointed! So, yes, after the fashion of his mentor, he was lavish with help as the bubble burst. And how can we so quickly forget the very painful consequences of the previous lavishing after the 2000 bubble? Rewarding Bernanke is like reappointing the Titanic’s captain for facilitating an orderly disembarkation of the sinking ship (let’s pretend that happened) while ignoring the fact that he had charged recklessly through dark and dangerous waters.
The Other Teflon Men
Larry Summers, with a Financial Times bully pulpit, had done little bullying and blown no warning whistles of impending doom back in 2006 and 2007. And, famously, in earlier years as Treasury Secretary he had encouraged (I hope inadvertently) wild and reckless financial behavior by helping to beat back attempts to regulate some of the new and most dangerous instruments. Timothy Geithner, in turn, sat in the very engine room of the USS Disaster and helped steer her onto the rocks. And there are several others (discussed in the 4Q 2008 Letter). You know who you are. All promoted!
Jeremy Grantham
For Missing the Unmissable
Bernanke, the most passionate cheerleader of Greenspan’s follies, is picked as his replacement, partly, it seems, for his belief that U.S. house prices would never decline and that at their peak in late 2005 they largely just reflected the unusual strength of the U.S. economy. As well as missing on his very own this 3-sigma (100-year) event in housing, he was completely clueless as to the potential disastrous interactions among lower house prices, new opaque financial instruments, heroically increased mortgages, lower lending standards, and internationally networked distribution. For these accumulated benefits to society, he was reappointed! So, yes, after the fashion of his mentor, he was lavish with help as the bubble burst. And how can we so quickly forget the very painful consequences of the previous lavishing after the 2000 bubble? Rewarding Bernanke is like reappointing the Titanic’s captain for facilitating an orderly disembarkation of the sinking ship (let’s pretend that happened) while ignoring the fact that he had charged recklessly through dark and dangerous waters.
The Other Teflon Men
Larry Summers, with a Financial Times bully pulpit, had done little bullying and blown no warning whistles of impending doom back in 2006 and 2007. And, famously, in earlier years as Treasury Secretary he had encouraged (I hope inadvertently) wild and reckless financial behavior by helping to beat back attempts to regulate some of the new and most dangerous instruments. Timothy Geithner, in turn, sat in the very engine room of the USS Disaster and helped steer her onto the rocks. And there are several others (discussed in the 4Q 2008 Letter). You know who you are. All promoted!
Jeremy Grantham
Thursday, October 22, 2009
Market Reflections 10/22/2009
Earnings were mostly positive Thursday, led by 3M and McDonald's and including two from the financial sector: PNC and Travelers. After-the-close earnings were especially strong including big surprises from credit-card issuer Capital One and good results from both American Express and Amazon. Economic news was mixed as a gain for the index of leading economic indicators, a gain skewed by its heavy weighting on the yield curve, was offset by a slight rise in initial jobless claims. The dollar gained back some of yesterday's steep loss, up 0.2 percent on the dollar index to 75.14. Commodities were little changed, holding onto yesterday's big rallies in oil and base metals.
Market Reflections 10/21/2009
Deepening weakness in the dollar is heightening talk that policy makers are pursuing a deliberate, thinly masked devaluation policy to raise inflation in a move to monetize the government's debt. This talk has been going on all year in the commodities markets but is now appearing in broader research including today from Morgan Stanley which says there is "the possibility that central banks might want to engineer controlled inflation to reduce the public debt burden." Until an exit strategy is announced, traders are saying that foreign investors will seek to protect themselves with non-dollar assets and that the markets will taunt the Fed by selling dollars and buying commodities.
The dollar index fell a steep 0.7 percent to 74.99 with the dollar testing the key $1.5000 level against the euro, a break of which may, according to traders, trigger intervention from the ECB. Oil hit new 2009 highs, rising $1-1/2 to end at $81 with copper and zinc also hitting 2009 highs. Gold led commodity gains earlier in the month and, pressured by profit-taking, was unable to make much ground, ending only $5 higher at $1,060. Earnings news was mixed, headed by a huge loss at Boeing which continues to suffer from costs associated with prior production delays. Charles Schwab, citing the drag from the dollar, is recommending that U.S. investors seek companies in sectors with broad international exposure including technology, materials, industrials, and energy. The S&P fell 0.9 percent to 1,081.
The dollar index fell a steep 0.7 percent to 74.99 with the dollar testing the key $1.5000 level against the euro, a break of which may, according to traders, trigger intervention from the ECB. Oil hit new 2009 highs, rising $1-1/2 to end at $81 with copper and zinc also hitting 2009 highs. Gold led commodity gains earlier in the month and, pressured by profit-taking, was unable to make much ground, ending only $5 higher at $1,060. Earnings news was mixed, headed by a huge loss at Boeing which continues to suffer from costs associated with prior production delays. Charles Schwab, citing the drag from the dollar, is recommending that U.S. investors seek companies in sectors with broad international exposure including technology, materials, industrials, and energy. The S&P fell 0.9 percent to 1,081.
Wednesday, October 21, 2009
Market Reflections10/20/2009
A soft housing starts report that included a decline in permits sent the S&P down 0.6 percent to 1,091, offsetting a run of strong earnings reports led Tuesday by heavy equipment maker Caterpillar. The dollar index firmed slightly to 75.52. Commodities were little changed with oil ending at $78.50 and gold at $1,056. Money moved into Treasuries where the 10-year yield fell 5 basis points to 3.34 percent
Tuesday, October 20, 2009
Market Reflections 10/19/2009
Stocks continued to rise, making new 2009 highs boosted by Fed Chairman Ben Bernanke who did not offer any timeline for a change to a less stimulative monetary policy. The S&P gained 1 percent to end just short of 1,100 at just under 1,098. Earnings after the close point to big gains tomorrow with both Apple and Texas Instruments easily beating expectations on both earnings and sales.
Low interest rates interest in the U.S. vs. expectations for rising rates in other economies continue to hurt the dollar. The dollar index fell 0.4 percent to 75.34. The decline in the dollar pushed commodities higher especially base metals where copper gained 10 cents to $2.93. Oil, ending at $79.25, continues to firm on what appears to be an approach to $80. Gold ended at just over $1.060.
Low interest rates interest in the U.S. vs. expectations for rising rates in other economies continue to hurt the dollar. The dollar index fell 0.4 percent to 75.34. The decline in the dollar pushed commodities higher especially base metals where copper gained 10 cents to $2.93. Oil, ending at $79.25, continues to firm on what appears to be an approach to $80. Gold ended at just over $1.060.
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