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 | 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.
Filed under: Uncategorized |
All Things in Moderation 
I was hoping for a little more hope Brent. That deleveraging chart is just depressing when you look at how far we still need to go just to get back to 2000, and forget about the 80's.
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LMS – we can improve the deleveraging by boosting GDP too. That steep drop during stagnant economic growth is a good sign.
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Think some of the rise in indebtedness is real-estate driven. The parabolic rise from the year 2000 on mirrors the Case-Schiller real estate index…
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S&P up 2% today, the Optimist Train is leaving the station. No security checkpoints necessary. Ok here's why if we finish up between 1-2% today, it's much better than if we fniish up 3-4%. With the violent start to this morning's rally, if there had been a lot of shorts in the market we would have blown much higher on the short covering. The fact that the shorts (including me for now) are gone is based on two things, the year end obviously, and increased optimism. To the extent that we can manage a slow steady improving market, it will prevent serious short activity from returning and reduce the violent market swings of 2011. That's "the wealth effect" baby! LOL
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The XLF is up over 3% today.Two words: January Effect.
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brent:Please allow me to refer you to the song "No Rain", by Blind Melon
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Matthew Yglesias is on the Optimist Train. I'd be interested in your take on his reasoning:"My guru in this prediction is Karl Smith, an economist at the University of North Carolina, one of the authors of the Modeled Behavior blog, and one of the few sources who saw through the cloak of pessimism this past summer and accurately called for a strong close to the year. But in a deeper sense, I’m following the long-dead Swedish economist Knut Wicksell, whose work is so fundamental that people sometimes forget to return to it.Wicksell argued that there is a “natural rate of interest,” at which desired savings is balanced by desired investment and the economy suffers from neither inflation nor massive excess capacity. A recession occurs when the natural rate of interest falls below the actual interest rate. Instead of savings being channeled into investment and driving the economy forward, firms and households start merely hoarding and the economy stalls, leaving workers and equipment idle."Happy Days Are Here Again!Don’t believe the naysayers: An economic recovery is right around the corner.Good piece on the Obama administration policies as a continuation of the second George W. Bush term.George W. Bush, Voldemort Of American Politics, Rules From The Shadows
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jnc:Regarding Yglesias reasoning, sorry, I only reply to pieces from people who know much less about the economy than I do on that other message board. LOL
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jnc:You may have seen my piece this weekend, that one very, very, very, overlooked problem with this recovery has been the winding down of the wars.
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About the Bush piece, interesting concepts. I think we can blame the media to some extent that there is a clear (though non-existent) break every 4 years.It's the age old need to sell newspapers by changing the story.
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Mitt Romney, heartless bas*ard that he is, was carved up in an NYT editorial about a month ago concerning his views on housing:“Since the housing bubble began to burst six years ago, prices nationwide have fallen by a third. Nearly $7 trillion of home equity has been wiped out. Currently, some 14.7 million homeowners owe $700 billion more on their mortgages than their homes are worth. Going forward, prices are likely to fall further as banks put a backlog of foreclosed properties on the market. As home prices fall and more homeowners sink underwater, there will be more foreclosures and more price declines. So what is Mitt Romney’s response? Bring it on. In interviews and in the Republican presidential debates, Mr. Romney has said that the cure for foreclosures is for the government to get out of the way and let the process run its course. Once prices hit bottom, investors and want-to-be homeowners would presumably swoop in and prices would stabilize.”But suppose just this once, he might be right: “Her conclusion, and the one I’ve been promoting for over a year now, is that the only way to re-balance supply and demand is to get investors into the market in force to buy up these properties and meet the huge rental the demand that will continue for several years. As we reported last week, hedge funds are busy working on deals, but government needs to help. Fannie Mae and Freddie Mac are currently sitting on a huge supply of foreclosed properties and facing even more down the pike. The Federal Housing Finance Agency (Fannie and Freddie’s conservator), along with the U.S. Treasury Department, need to get moving on their so-far inchoate plan to sell these REOs in bulk to investors, and in doing so, make sure said investors are provided with financial incentives to make it worth their while. As Goodman notes, these investors will be buying single family homes, not multi-family apartment buildings (which have identical units), so they need to build out property management organizations to handle repairs, manage tenants and keep the properties rented. “I fully expect that they will end up implementing something at some point this year,” adds Goodman, “because there is simply no choice.”http://www.cnbc.com/id/45858675The vast majority of the nation’s underwater housing stock is in 5-6 states. In those areas, no one is going to do any remodeling, or buy anything but the bare necessities at Home Depot or Lowes for houses where they owe much more than they’re worth. No one is going to be willing to move to get a job, if they hold out hope somehow a miracle will occur and their 25% depreciation will reverse itself. Sometimes, just sometimes, cutting off a limb or performing major surgery doesn’t mean you’re a bad surgeon.
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What is rock bottom for the housing market? People have to live some place. A lot of areas have foreclosures and short sales selling for less than the construction cost of new housing. That has to be a drag on the market.
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"Once prices hit bottom, investors and want-to-be homeowners would presumably swoop in and prices would stabilize"John — what do you think? I'm inclined to agree and I'm predisposed to letting things run their course.
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I have long maintained that in those 5-6 states, prices are still too high to generate any economic activity. In a small way, it's analagous to price controls. Whenever a government imposes them, product is immediately taken off the market and economic activity plummets. In this case we are reluctant to establish any real market for housing by preventing the foreclosures that are needed.
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Unfortunately the foreclosure process was subverted by fraud and robo-signing which has slowed the process down. Government is in the way in that several States Attorneys General are not yet willing to just let these guys get away with it. It's sort of a Catch 22 isn't it?
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The settlement is a big problem. I thought it would have been done by now.
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can you remind me on what 5-6 states are having the biggest problem?
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"The Federal Housing Finance Agency (Fannie and Freddie’s conservator), along with the U.S. Treasury Department, need to get moving on their so-far inchoate plan to sell these REOs in bulk to investors, and in doing so, make sure said investors are provided with financial incentives to make it worth their while."Financial incentives to hedge funds to make it worth their while, but still no bankruptcy cramdown.
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So how "major" is "major"?"Fed to regularly forecast interest-rate changesBy MARTIN CRUTSINGERWASHINGTONIn a major shift, the Federal Reserve will start updating the public four times a year on how long it plans to keep short-term interest rates at record lows, according to minutes from its December policy meeting.The first forecast will be included in the central bank's economic projections after its Jan. 24-25 meeting, the minutes said.The change is the Fed's latest move to make its communication more open and explicit. It could help assure investors, companies and consumers that rates won't rise before a specific time. This might help lower long-term yields further — in effect providing a kind of stimulus.The Fed has left its key short-term rate near zero for the past three years. In August, it that it plans to leave it there until at least mid-2013, unless the economy improves."Fed to regularly forecast interest-rate changes
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jnc:Replied to you elsewhere. I agree that favoring any particular segment of investors would be a mistake.
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As for interest rates, i think this is more of a media thing than an investor one. I think the Fed had developed a fairly transparent way of letting their intentions be forecast, but only to the industry itself.
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NoVA – Should you have any interest in dredging through yesterday's Plum Line Happy Hour roundup, you will find your name invoked as the libertarian who works as a lobbyist in one of the (predictably) tedious discussions of Ron Paul, libertarianism, and Civil Rights. I commented on QB/Cyrus's thread at 1/2/2012 6:52 PM EST. Happy Hour RoundupThe cited article that kicked it off was from Jonathan Chait in New York Magazine, and I was forced to take exception.How Ron Paul’s Libertarian Principles Support Racism
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Interesting point:"But Joe LaVorgna at Deutsche Bank told me that the figures on income and employment are likely to be revised upward in short order, as will savings. The next revision for income (going back 5 years) is in July. Employment revisions (also going back 5 years) are in February. Why will income be revised upward? LaVorgna told me that there's a large discrepancy between wage and salary numbers (the biggest piece of personal income) and tax receipts. Growth through November for wages and salaries is 3.4 percent, while withholding receipts have been running around 4.2-4.3 percent. LaVorgna believes wage and salary numbers will be revised upward to get closer in line with withholding receipts. Bottom line, according to LaVorgna: people are spending more because they really do have more income. "http://www.cnbc.com/id/45859613
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States with big foreclosure problems: CA, FL, GA, IL, MI, AZ, TX, NV, OH, CO. Other states that you don't hear about much but have foreclosure issues: WI, IA, five of the six New England states (not VT), western OR and TN.That's a lot of territory.Another factor that will prolong the real estate slide is that foreclosures are taking longer to resolve than before. And that puts downward pressure on local markets.
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MsJS – I disagree about TX. Where are you getting your info?I can supply info that explains why TX does not have a foreclosure problem. It has a lot to do with having learned the lesson of the S&L crisis and having statutory limits on home equity loans that are much tighter than any other state has.CA, FL, Phoenix area, Lost Wages area, and some rust belt cities are where I understand the upside down loans/foreclosures are raining on the parade.
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thanks jnc — i'll take a look. nice to know I must have made an impression.
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JS:I actually said underwater mortgage problems, not foreclosures, which are a mess in every state pending the final settlement
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Mark: In term of relative rates, Texas is not in hot water. However, the sheer volume of the absolute number of foreclosures in that state will in my view, stall a housing rebound in many parts of the state for a long while.
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jnc:I read the thread, but couldn't find the reference to NoVA. What time was the actual comment?I also read the remaining of the Happy Hour thread, particularly regarding Santorum. I haven't listened to the clip yet, though. Do you think he said "black"?
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@John: Top 5 states in terms of submerged mortgages is something like NV, AZ, and FL (probably all above 40%), MI, CA, GA (probably between 30% and 40%). I'm sure there are websites with the data, these are my guesses based on what I read.
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jnc/NoVA….just found it. It was attached to rukidding's post at 6:30.
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msjs:I think you nailed it.
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There are no winners without losers, and the current Fed low interest rate policy is no exception. From the FT: "Funding Gap Doubles for US Corporate Pensions" "The funding gap for US corporate pension plans almost doubled in 2011 as bond yields dropped and stock market performance failed to keep up with rising liabilities, to leave a far greater hole than at the height of the financial crisis." http://www.cnbc.com/id/45859597 Really good read!
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for some reason my job is a defining characteristic. I like my job, but if asked to describe myself, it probably wouldn't crack the top 10 attributes.
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Good finish to the day a perfect 1.55%. No program trading meltup at the end. No big profit taking.
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NoVA:Even if it were a defining characteristic, I don't see the problem those clowns claim to see.It's like expecting the manager of an American league baseball team to makes his pitchers bat because he's expressed opposistion to the DH rule.
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Scott — I recall making an argument akin to that months ago over there. but they're not all that big on the right to petition.
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I just went over and read some of last night's HHR over at PL. The busy holidays prevented me from posting much, but I stopped by PL maybe twice in the last two weeks. Based on what I just read, that may be overdoing it. At least for me.NoVA, I found that when I stopped working, it was harder for people to 'describe' me. I think a lot of us fall into the habit of thinking one's job defines someone more than it may. Given that your profession sounds like a lightning-rod one, it probably holds more for you.
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i think for a lot of people lobbyist = evil, cigar smoking fat cat who pulls the strings. this of course, is crazy. i don't smoke. besides, the point I always try to make is that you can limit my influence (such that it is) in two ways.1) restrict the right to petition to government.2) limit the reach of government so people like me aren't needed. I vote for 2.
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I have been yelling about this for years. The pro-life movement is against birth control itself, not just abortion. http://thinkprogress.org/health/2012/01/03/396516/santorum-states-should-have-the-right-to-outlaw-birth-control/Every time I mentioned that within our own lifetimes (before Griswold v. Connecticut) birth control had been illegal, I got reactions like I was nuts.
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NoVA:they're not all that big on the right to petition.They're not all that big on logic, either.
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"ScottC said… jnc: I read the thread, but couldn't find the reference to NoVA. What time was the actual comment? I also read the remaining of the Happy Hour thread, particularly regarding Santorum. I haven't listened to the clip yet, though. Do you think he said "black"?"Yes. I watched the clip and that is what I heard.
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scott:My comment from this morning:You have to admit that the idea that a white conservative GOP politician talking to an older, exclusively white Iowa audience for political gain would say "black people" in connection with Medicaid and the welfare office is simply crazy!
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john:I have been yelling about this for years. The pro-life movement is against birth control itself, not just abortion. There is a difference between thinking something is constitutional and wanting it to happen. I don't know what Santorum wants, but I know plenty of people who are pro-life who would be outraged at the thought of making birth control illegal.Every time I mentioned that within our own lifetimes (before Griswold v. Connecticut) birth control had been illegal, I got reactions like I was nuts.Perhaps that's because although the law was on the books, it was pretty much never enforced. Besides which, the law challenged in Griswold had been passed in 1879. The notion that in 2012 the people of Connecticut (or, frankly, pretty much any state) are 1 Supreme Court decision away from not having any birth control available is absurd.
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john:You have to admit that the idea that a white conservative GOP politician talking to an older, exclusively white Iowa audience for political gain would say "black people" in connection with Medicaid and the welfare office is simply crazy! Yes, I think it is pretty crazy. Who in the world thinks that doing such a thing would result in political gain in the current political age/atmosphere?
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john…BTW, new post up just for you.
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Griswold v. Connecticut was the camel nose that meant women no longer had to be barefoot and pregnant in the kitchen. Fundamentalists have been railing against it forever. Without it Roe v. Wade becomes just a footnote.
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scott:Yours is indeed the consensus opinion. For them however this is the long war. Nobody in Russia knew who Lenin was, or where the communists were taking them either.Summer of 2000 who would have predicted that we would invade Iraq and Afghanistan simultaneously, run the debt to GDP ratio up to 100%, create a prison on an island beyond the reach of habeas corpus, throw many of our constituional rights away in the Patriot Act and now the NDAA, etc?
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scott:People, some of whom may have only seen black people on tv, before Herman Cain appeared in their midsts!
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but I know plenty of people who are pro-life who would be outraged at the thought of making birth control illegalEvery pro-life person I know (myself included) would be appalled by the idea of making birth control illegal. I realize there are some folks who would, for various reason, like to outlaw birth control. There are also folks who seriously want to outlaw the internal combustion engine. Neither seems particularly likely at this point in time.Who in the world thinks that doing such a thing would result in political gain in the current political age/atmosphere?I must concur. It would take a true dunderhead to think such a comment would be politically smart in 2012–anywhere, at all, to any group, given the proliferation of camera phones and hidden cameras and whatnot.
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kevin:You may inded feel that way. The leaders of the movement, particularly the Catholic Church, and Operation Rescue, have much more expansive ideas.
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kevin:And yet, he said it. Because it will not play in the general election has nothing to do with Santorum's need to merely survive, to make it out of Iowa.
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"kevin:You may inded feel that way. The leaders of the movement, particularly the Catholic Church, and Operation Rescue, have much more expansive ideas."At most they may get one or two states to pass some more restrictions on over the counter birth control (ala President Obama's decision on the Plan B pill), but the whole liberal meme that we are one step away from The Handmaiden's Tale is tiresome hysteria.
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jnc:Fair enough! If you read my above post at 3:01 and disagree, that's ok.
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"I commented on QB/Cyrus's thread at 1/2/2012 6:52 PM EST."John, if that's the Santorum argument, I've never been more outraged and livid at the liberal contingent. It's so dishonest and scurrilous that it defies words I can think of. I didn't think people could sink lower, but people did. And CBS is beneath contempt.
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