Brent Nyitray
Fairlington Blade
Let the mutherfuker burn!
jnc4p
Kevin S. Willis
Michigoose
lmsinca
markinaustin
Arcanaut
novahockey
quarterback
ScottC
yellojktVital Statistics:
| Last | Change | Percent | |
| S&P Futures | 1243 | -15.8 | -1.26% |
| Eurostoxx Index | 2288.7 | -53.850 | -2.30% |
| Oil (WTI) | 98.14 | -1.270 | -1.28% |
| US Dollar Index (DXY) | 79.277 | 0.645 | 0.82% |
| 10 Year Govt Bond Yield | 2.01% | -0.05% |
European stocks are weaker this morning as Moody’s announced it will review ratings for all Euro sovereigns in the first quarter of next year. Italian sovereign yields are 34 basis points higher and Spanish sovereign yields are 23 basis points higher. US futures are weaker on Europe and a profits warning from Intel.
The WSJ has an article this morning discussing the strength of consumer spending. We have been noting nascent strength in consumer spending / sentiment over the past few months, and there appears to be follow-through. The article goes on to caution that spending has increased without an increase in incomes, which is unsustainable. That is true, but is also typical of how recessions end. Demand increases => spending increases => unemployment decreases. I also want to throw out a few charts that illustrate what is going on with the consumer.
The first chart is US Household debt as a percent of GDP. Household debt as a percent of GDP has been rising steadily since WWII, and a lot of that has been driven by the widening acceptance of credit cards. That said, the consumer has delevered in a remarkable way since the recession began – Debt to GDP has dropped to 87% from 98% in late 08. But, if you look at the chart, you would say that household debt would have to drop to 70% of so to get back to “healthy” levels.
Chart: US Household Debt as a Percent of GDP:
That ratio looks at consumer debt versus the economy as a whole, but it doesn’t tell the whole story – what matters to the consumer is their debt versus their incomes, and spending is a function of disposable income. Disposable income is also a function of interest rates – as rates fall, debt service falls. The chart below looks at the ratio of debt service payments to disposable income. Debt service payments have dropped more dramatically than debt because interest rates have fallen and a large chunk of those debt service payments are fixed rate mortgages which aren’t going up, even when rates start to increase in a few years.
Chart: Ratio of Debt Service Payments to disposable income:
If you look at debt service to income ratios, not only has debt service dropped to “healthy” levels, it has dropped to very depressed levels – levels which preceded large increases in consumer spending. If incomes rise even slightly, it will have an outsized effect on the ratio. Just another indication of pent-up demand and the path out of the malaise.
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All Things in Moderation 
Dollar denominated commodities are getting killed today.
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Brent, I always forget to say that you do good work in your pieces.
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"Brent, I always forget to say that you do good work in your pieces."Ditto. As an aside, this platform provides a much better tool for these sorts of discussions than back and forth in the PL comments section.Also, here's the transcript of President Obama's 60 minutes interview from last night for those who didn't see it:President Obama: The economy, the Congress, the future
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Thanks, John.
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Don't know if you guys saw this piece yesterday or not. MF Global was really out on a limb with Corzine.He pushed through a $6.3 billion bet on European debt — a wager big enough to wipe out the firm five times over if it went bad — despite concerns from other executives and board members. And it is now clear that he personally lobbied regulators and auditors about the strategy.His obsession with trading was apparent to MF Global insiders over his 19-month tenure. Mr. Corzine compulsively traded for the firm on his BlackBerry during meetings, sometimes dashing out to check on the markets. And unusually for a chief executive, he became a core member of the group that traded using the firm’s money. His profits and losses appeared on a separate line in documents with his initials: JSC.Yet few appeared willing to check Mr. Corzine’s trading ambitions.The review of his tenure also sheds new light on the lack of controls at the firm and the failure of its watchdogs to curb outsize risk-taking. The board, according to former employees, signed off on the European bet multiple times. And for the first time it is now clear that ratings agencies knew the risks for months but, as they did with subprime mortgages, looked the other way until it was too late, underscoring how three years after the financial crisis, little has changed on Wall Street.MF Global filed for bankruptcy on Oct. 31. As the firm spun out of control, it improperly transferred some customer money on Oct. 21 — days sooner than previously thought, said people briefed on the matter. And investigators are now examining whether MF Global was getting away with such illicit transfers as early as August, one person said, a revelation that would point to wrongdoing even before the firm was struggling to survive.
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"Don't know if you guys saw this piece yesterday or not. MF Global was really out on a limb with Corzine."Yes, taking a company that started in 1783 and survived the 2008 financial crisis into bankruptcy in less than two years takes effort. You can't just do it by accident.
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"If you look at debt service to income ratios, not only has debt service dropped to "healthy" levels, it has dropped to very depressed levels – levels which preceded large increases in consumer spending. If incomes rise even slightly, it will have an outsized effect on the ratio. Just another indication of pent-up demand and the path out of the malaise. "Yes, but these interest rates are being artificially suppressed by the Federal Reserve, correct? What does this look like if the prime rate goes to say 5%?
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@jnc,revolving debt payments would increase with interest rates, fixed rate mortgage payments would not.
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Predator drone used in arrest of US citizen – in the US. http://minnesota.publicradio.org/collections/special/columns/news_cut/archive/2011/12/drone_leads_to_arrest_of_us_ci.shtmlthe border patrol helped local law enforcement in the arrest.
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From the NYT piece:"Before Congress on Thursday, Mr. Corzine continued to emphasize how well his trades held up. “As of today, none of the foreign debt securities that MF Global used,” he said, “has defaulted or been restructured.”“There actually were no losses.”"I'm sure Corzine had contacts in the European governments and central banks who all told him that there would be no defaults. If anyone would have inside info, it would be him.That said, how he could ignore mark-to-market risk is beyond me.
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If there is true pent-up demand when it is expressed it will not have the same relative effect it had in 1946, when it absorbed 10M+ veterans, because then we were the only credible producer of consumer goods left standing in the world. Notwithstanding, it will fuel a faster uptick, and your credit analysis is very helpful.
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bsimon — I saw that covered elsewhere. What struck me the whole thing started on a misdemeanor charge re: the cattle.
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Ditto. As an aside, this platform provides a much better tool for these sorts of discussions than back and forth in the PL comments section.If your feeling nostalgic, let me just say that none of that matters because Obamacrats are all Socialists and conservatives hate America and are evil and should all be shot. End of discussion! Predator drone used in arrest of US citizen – in the US.This is going to be common in the not-so-distant future. The only way to avoid it would be to legally limit it, and that's not the direction our country is headed. Soon Predators will be used routinely for drug interdiction (domestically)–and for cracking down on pot farms or meth houses domestically.
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"and for cracking down on pot farms or meth houses domestically."That's how these things start. but if you have a tool, whatever it is, you start itching to use it. If nothing else to justify a budget. Fairfax County uses SWAT team members for something like 90% of the warrants served. Why? Well, I can't recall the last time the SWAT team was needed for its intended purpose.
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"Predator drone used in arrest of US citizen – in the US.This is going to be common in the not-so-distant future. The only way to avoid it would be to legally limit it, and that's not the direction our country is headed. Soon Predators will be used routinely for drug interdiction (domestically)–and for cracking down on pot farms or meth houses domestically. "The next step will be to use a drone to deal with a "high risk situation" where there would be a high likely hood of death or injury if a police officer were to actually attempt to apprehend a known dangerous and armed suspect or there is a time constraint. Something like the original VA Tech shooter. "We have the target, can we take the shot?"
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What's the word on the EU, did they fix it (again)?
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David Cameron argues that he's not a fool who wants to go back to the time when the monarch of Great Britain was not an octogenarian woman who loves funny hats and race horses.'The Right Answer Was No Treaty:' David Cameron"http://www.cnbc.com/id/45639088
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Hey now, there's nothin' wrong with being an Obamacrat socialist! As for conservatives that hate America, got any ammunition? Uh…can I have the gun, too? Is it a semi auto? I can't use it if it is. Can't pull back the chamber. (or whatever the terminology is).:)
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Taroya:As for conservatives that hate America, got any ammunition? Uh…can I have the gun, too? Is it a semi auto? I can't use it if it is. Can't pull back the chamber. (or whatever the terminology is). 🙂 Wht does this mean?
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Thanks for the information. What's most interesting to me is the household debt as a function of GDP. It was relatively stable from 1964 (when I was born) to 1985 (about the time I got my first student loan). There was a brief spike then a gradual rise from 1990 to 2000, followed by a steep rise until the Great Recession. We really did put the last expansion on the national credit card(s).BB
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