Bits & Pieces (Tuesday Night Open Mic)

Posted on January 3, 2012 by Kevin S. Willis

TED Talk: How Healthy Living Nearly Killed Me.

That’s it for tonight! I ain’t got much, sorry to say. — KW

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Everyone should enjoy this…for one reason or another.

Posted on January 3, 2012 by ScottC

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Morning Report

Posted on January 3, 2012 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1272.5 19.9 1.59%
Eurostoxx Index 2362.18 -8.020 -0.34%
Oil (WTI) 101.13 2.300 2.33%
LIBOR 0.5825 0.002 0.26%
US Dollar Index (DXY) 79.786 -0.494 -0.62%
10 Year Govt Bond Yield 1.95% 0.07%

Markets are rallying on thin volume as market participants focus on a lack of bad news out of Europe. Sovereign yields are slightly higher across the board. Investors may also be taking a view that the ISM report (due at 10:00 am) will be better than expected.

On the “glass half-empty” side of the ledger, the WSJ has an article on Bridgewater’s view on the economy – and it doesn’t bode well. Money quote:

“What you have is a picture of broken economic systems that are operating on life support,” Mr. Prince says. “We’re in a secular deleveraging that will probably take 15 to 20 years to work through and we’re just four years in.”

In Europe, “the debt crisis is [a] long ways from over,” he says. The economic and financial morass will mean interest rates in the U.S. and Europe will essentially be locked at zero for years.

Dalio is long gold, Asian emerging market currencies, and high quality government bonds. The article goes on to say that they believe there is money to be made in US Treasuries. That is a defensive portfolio.

The NYT has an article discussing the dismal state of the US consumer. The article echoes the Bridgewater piece that debt remains a headwind for the US economy. This analysis isn’t new – economists have been talking about it since the crisis began. But how much progress has been made in consumer deleveraging? A couple charts suggest that things are not as bad as it seems.

Chart: Consumer Debt as a percent of GDP:

The above chart shows the progress being made in deleveraging, but it ignores one huge issue – what determines spending – the amount you owe or the amount you pay? Lower interest rates have allowed homeowners with equity to refinance at much lower rates. If you look at debt service – the amount people actually pay – it is down quite a bit.

Chart: Ratio of Debt Service Payments to Disposable Income:

While the dour mood of the job market will undoubtedly influence consumer spending, low interest rates have at least increased borrowing capacity, which may come into play when the consumer’s mood shifts.

********EDIT:

ISM is in, better than expected (53.9 vs 53.5 expected). Good manufacturing report. Best news: bit jump in employment, rebounding back to Spring levels. Construction Spending was also up 1.2%, better than the .5% estimate.

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