Morning Report

Vital Statistics:

Last Change Percent
S&P Futures 1403.7 9.6 0.69%
Eurostoxx Index 2537.3 11.9 0.47%
Oil (WTI) 107.2 0.3 0.31%
LIBOR 0.4727 -0.001 -0.11%
US Dollar Index (DXY) 79.272 -0.073 -0.09%
10 Year Govt Bond Yield 2.27% 0.04%
RPX Composite 169.79 0.1
Markets are generally higher this morning on no real news. Bonds and MBS are weaker as risk aversion continues to wane. Commodities are slightly higher.
The Chicago Fed National Activity Index came in  at -.09 in Feb, down from +.33 in Jan and below expectations. Essentially the index tells you whether the economy is growing above trend (positive number) or below trend (negative number).  It takes into account 85 different economic indicators. The biggest positive contributor was employment, while consumption and housing were the biggest negatives.
Meanwhile, Ben Bernake is saying the job market remains weak and the recent drops in unemployment are unlikely to continue.
Speaking of housing, KB Homes released numbers on Friday and the stock was pummeled, as the street was spooked by the lower new orders numbers. KB was blaming the number on their preferred lender (Met Life) exiting the market. Overall, the tone of the conference call was constructive, with the company noting several signs that the housing market is steadily improving.

“…we would be wise to look upon arguments from fairness with a jaundiced eye.”

From The Economist –

The politics of fairness

Fairly confusing

Feb 2nd 2012, 14:31 by W.W. | IOWA CITY

FAIRNESS played a central role in Barack Obama’s state-of-the-union address, and I suspect it will play a central role in the president’s re-election campaign. But what does Mr Obama have in mind when he deploys the f-word? It may not be the case that fairness is, as Scott Adams, the creator of Dilbert, puts it, “a concept invented so dumb people could participate in arguments”. But it cannot be denied that fairness is an idea both mutable and contested. Indeed, last week’s state-of-the-union address seems to contain several distinct conceptions of fairness worth drawing out and reflecting upon.

Toward the beginning of his speech, as Mr Obama was trying to draw a parallel between post-second world war America and today’s post-Iraq war America, he offered this rather stark choice:

We can either settle for a country where a shrinking number of people do really well while a growing number of Americans barely get by, or we can restore an economy where everyone gets a fair shot, and everyone does their fair share, and everyone plays by the same set of rules.

Here we have three distinct conceptions of fairness in a single sentence.

To get a “fair shot” is to be offered the opportunity to participate fully and succeed within the country’s institutions. This is, I think, the least controversial conception of fairness in America’s political discourse. Conservatives who strenuously object to the idea that the American system should aim at “equality of outcomes” will sometimes affirm “equality of opportunity” as an alternative. But this is a mistake. To really equalise opportunity requires precisely the sort of intolerably constant, comprehensive, invasive redistribution conservatives rightly believe to be required for the equalisation of outcomes. If one is prepared to accept substantial inequalities in outcome, it follows that one is also prepared to accept substantial inequalities in opportunity.

Getting a fair shot doesn’t require equalising opportunity so much as ensuring that everyone has a good enough chance in life. The content of “good enough” is of course open to debate, but most Americans seem to agree that access to a good education is the greater part of a “good enough” and thus fair shot. Naturally, there is strong partisan disagreement over the kinds of education reform that will do right by young Americans. And there is also disagreement over elements of a “fair shot” beyond education. For example, many liberals believe workers don’t have a fair shot at achieving a decent level of economic security without robust collective-bargaining rights. And many conservatives believe that an overly-strong labour movement invites outsourcing by raising domestic costs, and thereby deprives American workers of a fair shot at employment. There may be some fact of the matter about which policies are most likely to benefit students or workers. But if one is more fair then the other, how would we know?

What is it to do one’s “fair share”? In small groups, it’s clear enough. If my friend and I are shoveling the front walk, my fair share of shoveling, and his, is about half. Often we adjust for differences in ability. If I am big and strong and my friend is small and frail, his fair share may be as much as he can manage. That won’t mean that the whole remainder is my fair share, though. If we’re going to get the walk shoveled, I may have to do a bit more than my fair share. These things get complicated quickly. That’s why the question of what it means for an American do his or her fair share, qua citizen, is completely baffling.

Suppose I’m a surgeon pulling down six figures. Perhaps doing my fair share is to pay 33% of my income in taxes. But, hey, wait! My sister, who could have been a surgeon, chose instead to make pottery in a little hippie arts colony. She makes only as much as she needs to get by, works relatively short hours, smokes a lot of weed with her artist friends, and pays no federal income tax at all! If paying 33% of the money I make saving lives is doing my fair share, then it’s hard to see how my sister—who could have been a surgeon, or some kind of job- and/or welfare-creating entrepreneur—is doing hers. But if she is doing hers, just playing with clay out there in the woods, benefiting next to no one, paying no taxes, then clearly I’m doing way more than my fair share. Which seems, you know, unfair.

Are you doing your fair share? How would one know? Actually, I just made myself feel slightly guilty for not going to med school and joining Médecins Sans Frontières. But unless government can come up with a way of taxing the leisure of people who aren’t doing as much as they might for kith and country, I reckon I’ll just stick to part-time pro blogging and let all you 9-to-5 suckers finance the necessary road-building and foreigner-bombing.

Playing by the same set of rules—the president’s third notion fairness in the passage above—is at least as important to fairness as the sufficiency of a “fair shot” and the proportionality of a “fair share”. A political economy with rules as convoluted as ours is sure to fail by the “same rules” criterion. Why should people who prefer leisure to income face lower tax rates? Why should parents and homeowners get tax breaks single renters don’t get? Why should young black men get longer sentences than young white women who commit the same crimes? Why should some industries get subsidies unavailable to others? In every case, they shouldn’t. It’s unfair. But it is this sense of fairness I think Mr Obama cares least about.

At one point in his address, Mr Obama says “[i]t’s not fair when foreign manufacturers have a leg up on ours only because they’re heavily subsidized.” I agree. It’s not. But just a few paragraphs earlier, Mr Obama had said:

[N]o American company should be able to avoid paying its fair share of taxes by moving jobs and profits overseas. From now on, every multinational company should have to pay a basic minimum tax. And every penny should go towards lowering taxes for companies that choose to stay here and hire here in America.

… [I]f you’re an American manufacturer, you should get a bigger tax cut. If you’re a high-tech manufacturer, we should double the tax deduction you get for making your products here. And if you want to relocate in a community that was hit hard when a factory left town, you should get help financing a new plant, equipment, or training for new workers.

So my message is simple. It is time to stop rewarding businesses that ship jobs overseas, and start rewarding companies that create jobs right here in America.

On the one hand, Mr Obama argues it’s unfair when foreign government subsidise their manufacturers. On the other hand, he seems to think subsidising American manufacturing is not only not unfair in the same way, but is somehow required by fairness.

It’s this sort of confusion that tempts me to agree with Mr Adams when he argues that fairness is “purely subjective”. But I’ll resist the temptation. I don’t think judgments of fairness are entirely whimsical. It really is unfair to eat more than your share of the cake, or to do less than your share of the shoveling, or to get ahead by flouting reasonable rules to which others faithfully adhere. And it really is unfair that America wields so much geopolitical power; our government really does behave unfairly when it condemns other countries for doing what it does on the world stage. Of course, we didn’t hear the president complaining about this.

I would conclude not that judgments of fairness are purely subjective, but that the rhetoric of fairness is used so opportunistically that we would be wise to look upon arguments from fairness with a jaundiced eye.

Smoking Gun on Corzine and MF?

Apparently the government thinks so…

Wow, Jon.  You had it all, money and power. And threw it away.

Madame Commissioner’s Sunday morning update

One Big Ten (but not really) team has managed to muscle its way into the Final Four.  Ohio State beat the Melo-deprived Syracuse Orange, 77 -70.

DogJS, Moderately Yello, okieboycat, and Mark in Austin correctly selected OSU as the East region winner.  Congrats to you all!

This morning’s standings are as follows (favored teams in today’s action in parentheses):

  • DogJS: 172 (Kentucky, Kansas)
  • Moderately Yello: 143 (Kansas)
  • USF Baby: 141 (Kentucky, UNC)
  • MIA#2 and #4: 136 (both UNC)
  • ashot:111 (Kentucky, UNC)
  • Michigoose#2: 100 (Kansas)
  • Okieboycat: 94 (UNC)
  • Blade Warriors: 93 (none)

Enjoy your Sunday!

Madame Commish’s Saturday morning update

With no upsets on Friday night, the Saturday morning ATiM Rocks leaderboard reflects how many of last night’s winners (Kentucky, Baylor, UNC, Kansas) were still present in a particular bracket.   The leaderboard now looks like this:

  1. DogJS (153 pts., 4 winners last night, 6 teams still standing)
  2. USF Baby (141 pts., 2 winners last night, 3 teams still standing)
  3. Moderately Yello (132 pts., 3 winners, 4 teams)
  4. MIA#4 (128 pts, 3 winners, 4 teams)
  5. MIA#2 (125 pts., 4 winners, 5 teams)
  6. ashot (111 pts., 4 winners, 5 teams)
  7. Michigoose#2 (100 pts., 3 winners, 3 teams)
  8. Blade Warriors (93 pts., 1 winner, 3 teams)
  9. okiegirl (88 pts., 2 winners, 3 teams)

A key factor going forward is whether a leading bracket’s eventual champion is still in the hunt.  The answer is Yes for ashot (Kentucky), MIA#2 and USF Baby (UNC), MIA#4 (L’ville), and DogJS (Kansas).

Oh, and can someone provide a link to a photo of our logo at the top of the page?  Madame Commissioner needs it to finish part of the grand prize.  Thank you.

Have a great weekend, everyone!

Friday morning ATiM Rocks update

Thursday evening’s games were not kind to Madame Commissioner’s extended humanoid family.  Niece2JS is a recent Badger grad and Niece3JS attends Marquette.  DogJS, however, is quite the happy puppy, as he now sits atop the ATiM Rocks leaderboard.  Madame Commish neglected to realize yesterday he had picked Louisville over Michigan State, and that was enough for him to take a slim lead.

The standings are now:

  1. DogJS: 137
  2. USF Baby: 133
  3. Moderately Yello: 120
  4. MIA#4: 116
  5. MIA#2: 109
  6. ashot: 95
  7. Blade Warriors: 89
  8. Michigoose#2: 88
  9. okiegirl: 80

As for today’s games, all of the ATiM Rocks leaders favor some combination of Kentucky, Baylor, North Carolina and Kansas as the winners.  If anyone else has a bracket with Indiana, Xavier, Ohio and/or NC State winning, upsets are a must for you to move up.  On paper only Indiana appears to have a realistic chance, but Cinderella mojo is a curious thing.

Morning Report

Vital Statistics:

Last Change Percent
S&P Futures 1387.6 -1.3 -0.09%
Eurostoxx Index 2510.8 -19.5 -0.77%
Oil (WTI) 105.76 0.4 0.39%
LIBOR 0.4732 -0.001 -0.11%
US Dollar Index (DXY) 79.483 -0.253 -0.32%
10 Year Govt Bond Yield 2.25% -0.03%
RPX Composite Real Estate Index 169.74 0.0

Markets are flat this morning on a lack of news. Bonds and MBS continue to retrace their large move downward after the FOMC statement. New Home Sales are due at 10:00 am.

Radar Logic released their Monthly Housing Report yesterday, noting that price declines are slowing, but we are not at a bottom. Distressed sales declined 21.8%, although the settlement between the State AGs and the 5 big banks means that foreclosures are going to pick up again. Interestingly, while Radar Logic has the opinion that housing has yet to bottom, the Radar Logic futures indicate that real estate will stay flat in 2012 and 2013 and then start increasing. The RPX futures are very illiquid, so take what they say with a grain of salt, but still…

Bank of America is launching a pilot program for distressed homeowners, where they follow a Deed In Lieu process to turn over the title to the bank and then rent at sub-market rates for up to 3 years. Bank of America would then sell the properties to outside investors. Speaking of which, we should be hearing the results of the FHFA’s REO-to-Rental program soon. In my opinion, the government made it very difficult for investors to take a look, (you have to pay $250,000 just to find out basic information) which I found surprising.

In the “because I said so” category, Ben Bernake said the Fed’s easy monetary policy after the stock market bubble burst wasn’t responsible for the housing bubble.

As I noted yesterday, the homebuilders have quietly put in a huge rally since last fall. (Note to the business press:  there are more stocks in the US than Apple) Is the move over?  Perhaps.  KB Homes reported disappointing Q1 earnings and the stock is down 14% pre-open.

Etch-a-Sketch-gate was actually market-moving, believe it or not. Yesterday, shares of little Ohio Art (NASDAQ – OART) more than doubled on the prospect that Democrats will be buying Etch-a-Sketches en masse as props for upcoming election. The stock trades by appointment and has a miniscule market cap ($8.6 million), but there you go.

An ACA Reform in the Details

If we look at the cost of medical care (rather than the cost of insurance, which affects about 1/7 of the bill the patient pays) we can identify several huge problems, and we have done so here many times.

To recap: we have identified non-exigent care for the poor in ERs, fee-for-service rather than for results, end-of-life care, nursing home care, shortage of providers, malpractice (both the huge cost of bad medicine and the lesser but real cost of defensive medicine), the monopoly pricing of “new” pharmaceuticals in the USA and the closing of foreign markets to us,  and the failure to integrate and computerize record keeping, thus requiring the patient to reinvent her history from time-to-time with every provider.  Forgive me if I left out a biggie.

While ACA is primarily an insurance “reform”, it contained some provisions that were pilots aimed at some of these fundamental medical costs.  Here is a report on one aimed at moving to fee-for-results, and also reducing actual malpractices, and what it looks like.  It is a hopeful report.

 Why Health Care Will Not be the Same

A word from Madame Commissioner

The NCAA men’s hoops tourney resumes again tonight, with the East and West regional semi-final matches.

Wisconsin-Syracuse:  The Fab Melo-less Orange meet their biggest challenge to date in the tourney.  Both teams have quality defenses.  If Wisconsin is to beat Syracuse, it probably needs accurate three-point shots combined with a balanced inside-outside attack to keep Syracuse’s defense guessing.  If Syracuse is to beat Wisconsin, it might want to force turnovers and be prepared to leverage its bench quickly.

Cincinnati-Ohio St.: Cincy has a guard-heavy lineup and won late-season/conference tournament games against four better seeded Big East rivals.  They’re quick, too.  Whether that’ll be enough to compensate for OSU’s superior size and rebounding ability will likely be a key factor.

Florida-Marquette: Florida is a hot-cold team.  Marquette likes to create opportunities, especially turnovers.  If Florida can hit its threes and limit its turnovers, it could be the Gators will pick the Golden Eagle carcasses clean.  The Marquette defense, if it can hold Florida to about 35% from the floor in the first half, likely paves the way to a berth in the Elite Eight.

Louisville-Michigan St.: In my view, this is the first matchup between two teams that could go all the way.  Two of the toughest coaches in the game today, Rick Patino of L’ville and Tom Izzo of MSU, have at it and the sidelines could be just as entertaining as the court play.  Patino is frenetic, push-the-envelope and Izzo is adaptable, tough-it-out.  If you’re going to watch only one game this evening, this would be my recommendation.

UPDATE:

Leading ATiM Rocks brackets benefiting from a win (by team):

  • Wisconsin: USF Baby, Moderately Yello, Michi#2
  • Syracuse: ashot, Blade Warriors
  • Cincinnati:
  • OSU: USF Baby, DogJS, Moderately Yello, MIA#2, Blade Warriors
  • Florida:
  • Marquette:
  • L’ville : MIA#4
  • MSU: USF Baby, DogJS, Moderately Yello, MIA#2, ashot, Michi#2, Blade Warriors

So if any other bracket favors the likes of Florida or Cincy, or even L’ville, it can make up some serious ground with a win.

Morning Report

Vital Statistics:

Last Change Percent
S&P Futures 1389.6 -7.9 -0.57%
Eurostoxx Index 2531.7 -35.9 -1.40%
Oil (WTI) 104.88 -2.4 -2.23%
LIBOR 0.4737 -0.001 -0.11%
US Dollar Index (DXY) 79.851 0.194 0.24%
10 Year Govt Bond Yield 2.26% -0.03%

World equity markets are weaker after disappointing economic data from China and Europe. Initial Jobless Claims came in at 348k, more or less in line with expectations. The FHFA House Price Index and Leading Indicators come out at 10:00.  The FHFA is a narrower index than Case-Schiller or RPX in that they only focus on conforming mortgages.

How is the deleveraging of the consumer going?  Actually pretty well, according to one measure. Moody’s notes that the delinquency rate on credit cards reached 4.02% in Feb, the lowest rate since August of 2007. That number is even more impressive when you consider the seasonal factors – Feb is usually a bad month for credit card delinquencies.

One thing the consumer does not need is higher gasoline prices. While oil prices have continued to rally, crack spreads are pushing 10 year highs. Crack Spreads are the price differential between crude oil and the refined product. WTI 321 Crack Spreads are at $32 a barrel, pretty much erasing the decline from last year. Apparently a large chunk of US east coast refining capacity is going to be taken off line this summer, causing a shortage of gasoline on the East Coast.  For further details and analysis, click here. While people bemoan the lack of refining capacity, people forget that refining is in general a lousy business. Sunoco is looking to sell its Philadelphia refinery and will close it if they can’t find a buyer.  Sunoco got only $400 million for the sale of its Toledo OH refinery last year. So look for higher gas prices for the summer driving season.

For those keeping score at home, the XHB (Homebuilder ETF) has been on a tear since early October, gaining 77%.  Is the stock market signalling something the economic indicators have yet to reflect? For the record, I noted the the change in tone on KB Homes 3Q conference call which seemed to predict that life for the homebuilders was improving.  Also, someone made a punchy bet last Oct that paid off well.

Is an arcane rule change from the Fed influencing mortgage rates?  The Fed has changed the rules for failure to deliver in MBS transactions, adding a charge in addition to the interest a seller must pay on a fail. With interest rates so low, sellers had the incentive to short MBS instead of delivering from inventory. This rule change will force dealers to hold more inventory, which the Fed ultimately hopes will drive up prices.