Morning Report 8/8/12

Posted on August 8, 2012 by Brent Nyitray

Vital Statistics:

  Last Change Percent
S&P Futures  1391.7 -5.3 -0.38%
Eurostoxx Index 2418.3 -21.9 -0.90%
Oil (WTI) 93.16 -0.5 -0.54%
LIBOR 0.437 -0.001 -0.25%
US Dollar Index (DXY) 82.46 0.247 0.30%
10 Year Govt Bond Yield 1.62% -0.01%  
RPX Composite Real Estate Index 188.8 0.3  

Markets are weaker this morning on disappointing economic data out of Europe and earnings misses from Disney, McDonalds, and Priceline. Euro sovereign yields are generally lower and the yield on the German two-year remained negative for the 24th consecutive day. US bond yields are slightly lower, and MBS are up a few ticks.

We have had dueling Fedspeak recently, with the head of FRB Boston advocating further QE yesterday and Dallas Fed Head Fisher claiming the Fed has done its job and no more needs to be done. IMO, the Sep and October meetings will be too close to the election to expect much, if anything in the way of policy changes. The Fed is very sensitive to appearing to act politically and usually sits on its hands in the last few months before an election (2008 notwithstanding). 

In economic data, mortgage applications dropped 1.8% last week.  Productivity was a little better than expected, and unit labor costs increased markedly, with a big upward revision in Q1.  Declining profitability and increasing unit labor costs are not a recipe for increased hiring in the near term.

Is the ECB’s version of QE actually increasing the risk of a crisis in Spain and Italy? It may in fact be doing so. By announcing a plan to buy short-term debt from Spain and Italy, it is encouraging these countries to issue more short term paper, which increases their roll-over risk. (Roll-over risk is what happens when you aren’t able to refinance maturing short-term debt).

Corelogic reported a 2.5% annual increase in home prices during the month of June.  Ex-distressed sales, prices increased 3.2%. They are calling the bottom:  “At the halfway point, 2012 is increasingly looking like the year that the residential housing market may have turned the corner. While first-half gains have given way to second-half declines in the past three years, we see encouraging signs that modest price gains are supportable across the country in the second half of 2012.” It is true that some of the recent home appreciation has been due to seasonal factors. but there seem to be other factors at work too – most notably a red-hot rental market. FWIW, Radar Logic (which manages the RPX index) thinks it is all a head fake.

Yet another positive data point for housing – North American rail carloads of lumber increased 10% this year as housing construction rebounds. Housing starts are still way below historical averages and have been there since the end of 2006, so a rebound in starts is nothing to get too excited about. But every little bit helps.

Texas Instruments just issued 7 year paper at 1.65%. After tax, that cost is 1.24%. TXN’s dividend yield is 2.33%.  Is there an arbitrage here?  Is that what is getting the stock market excited?  Food for thought…

Filed under: Morning Report | 107 Comments »

Morning Report 8/7/12

Posted on August 7, 2012 by Brent Nyitray

Vital Statistics:

 

  Last Change Percent
S&P Futures  1397.0 7.1 0.51%
Eurostoxx Index 2428.6 29.3 1.22%
Oil (WTI) 92.67 0.5 0.51%
LIBOR 0.438 -0.001 -0.23%
US Dollar Index (DXY) 82.06 -0.203 -0.25%
10 Year Govt Bond Yield 1.61% 0.04%  
RPX Composite Real Estate Index 188.6 0.5  

Stocks are higher this morning on hopes for further stimulus measures out of the ECB after a disappointing factory orders report in Germany. Spanish bond yields continue their descent from their late July highs. The 10-year is down a point and MBS are down about 1/4 of a point. 

FHFA Acting Chairman Ed DeMarco has responded to Congress regarding principal reductions on Fannie and Freddie loans. His reasons for resisting principal reductions are largely due to strategic defaults. In other words, he is afraid that people who are current on their mortgage and can afford the payment will stop paying in order to get a principal reduction.  According to the FHFA study under the most favorable model-based assumptions, it would take anywhere from 3,000 to 19,000 strategic defaults to turn the program into a net loss for taxpayers. Will this satisfy DeMarco’s #1 critic? Alas, probably not.

The National Association of Home Builders has released their improving market index, which showed 80 MSAs were characterized as improving (about 25%).  “With nearly one quarter of all U.S. metros currently designated as improving housing markets, there is growing recognition among consumers that now is an opportune time to consider a home purchase”  Of course they are talking their own book, but still it is another positive data point. They do note that the tight lending environment is acting as a drag on activity.

I generally don’t get too political, but the weakest Romney attack award goes to …. Bloomberg with this lame story about the Seat Pagine LBO. For starters, tax evasion is a national sport in the Mediterranean countries, and to think the Italians would be miffed that Bain used an Luxembourg-based entity to minimize taxes is ridiculous.  Second, the consortium was correct to recognize that the internet was about to destroy the value of the yellow pages and a sale, especially when media valuations were sky-high in the late 90s was the right thing to do.  The fact that (a) the Italian government sold before the bubble was inflated and (b) Telecom Italia was in empire-building mode in the dying days of the internet bubble is neither Bain nor Romney’s fault. My favorite line was “Bain got wind of the public action through the Italian unit of Bain & Co…”  How sinister sounding – like Romney got a clandestine call saying “Blue Horseshoe loves Annacott Steel.” It was a public auction, part of a long-term announced plan by the Italian government to sell state assets in order to get their debt levels down for EU integration. I guess I “got wind” of tomorrow’s 10-year Treasury note auction from today’s Journal too. 

Filed under: Morning Report | 108 Comments »

Morning report 8/6/12

Posted on August 6, 2012 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1391.8 2.8 0.20%
Eurostoxx Index 2387.0 14.5 0.61%
Oil (WTI) 91.27 -0.1 -0.14%
LIBOR 0.439 -0.001 -0.11%
US Dollar Index (DXY) 82.35 -0.024 -0.03%
10 Year Govt Bond Yield 1.55% -0.02%
RPX Composite Real Estate Index 188.1 0.7

Markets are slightly higher this morning on a deal to rescue Knight Capital. There are very few economic releases this week, and Europe should be quiet as we get into August. Bonds are up half a point, while MBS are up a few ticks.

As some lenders exit the correspondent business, others enter. While Bank of America and GMAC are leaving or scaling back, Redwood Trust is applying for Fan and Fred approval in order to increase their focus from just jumbo loans. Redwood Trust is the main issuer of MBS without a government guarantee.

Knight Capital received a $400MM rescue from Getco LLC. Interestingly, the rescue was put together by Knight’s customers who fear too much concentration in market makers. While the trading error that caused it will undoubtedly draw regulatory scrutiny to high-frequency trading. Maxine Waters is already looking to hold hearings on it. Wonder if they will look to the unintended consequences of Reg NMS, which basically destroyed the business model of traditional market-making. HFT is what is left. If investors don’t want to pay commissions or bid / ask spreads, they will probably have to accept the volatility that goes along with computerized trading.

Filed under: Morning Report | 95 Comments »

Sunday Open Thread

Posted on August 5, 2012 by markinaustin

76,000 qualified nursing school applicants were turned away in the last 12 months.

http://www.npr.org/blogs/health/2012/08/03/156213925/nursing-schools-brace-for-faculty-shortage

My advice: don’t bother with the Danish raunch comedy movie, Klown.

Seven minutes of terror:

http://www.economist.com/blogs/babbage/2012/08/landing-mars-science-laboratory

Despite speculation, the Castro twins are the future of the D Party in TX, if it has a future.  I will go further: they represent the future of the entire D Party, if it has a future.

http://www.texastribune.org/texas-politics/julian-castro/despite-speculation-castro-not-eyeing-new-role/

Just why would Iranians have a “pilgrimage” to Damascus?

http://www.washingtonpost.com/world/middle_east/syrian-rebels-say-captured-iranians-are-members-of-pro-government-militias-not-pilgrims/2012/08/05/b93a8730-df14-11e1-a19c-fcfa365396c8_story.html?hpid=z1

British jocks are performing so well in front of the home crowd.  Congrats to all the Brit medal winners.  Murray beat Federer.

Filed under: healthcare, IRAN, latino, movies, SYRIA, TEXAS | Tagged: , | 11 Comments »

Saturday Link Thread

Posted on August 4, 2012 by jnc4p

Economics vs culture as an explanation for rising living standards.

“The Bad History Behind ‘You Didn’t Build That’
By Virginia Postrel 2012-08-02T23:05:48Z”


“Capitalism, not culture, drives economies
By Fareed Zakaria, Published: August 1”

It's interesting that Zakaria considers capitalism to be something separate from Western culture, as opposed to being a part of it.

Also, this is probably how Mitt Romney meant to use the term "Anglo-Saxon" in contrast with continental Europe.

“Freer — and Less Free
By ROGER COHEN
Published: August 2, 2012

PARIS — On freedom and equality, two of three rallying cries of the revolution of 1789, the French and Anglo-Saxon worlds have differed. Each finds both important, at least if equality is defined as equality of opportunity, but disagrees on how they should be balanced.

Liberty unchecked by solidarity does not make a French heart beat faster the way freedom untrammeled lifts the American spirit. Here the state is cherished as protector rather than reviled as predator. It is seen as the balancer of economic opportunity, not the brake on it.

History and geography explain these differences: French borders have not changed much for centuries while an American’s imagination always stands at some new frontier. The Gallic cake, of static size, needs fraternal division while the U.S. cake demands eternal expansion. "

Filed under: Economy | 16 Comments »

CONTINUING MY RANT ABOUT CONGRESS

Posted on August 3, 2012 by markinaustin

A bipartisan group of freeloaders  Senators are going for a whirlwind one week junket to Europe so that they can make better policy when they get home.

http://www.washingtonpost.com/politics/the-most-boring-junket-ever/2012/08/02/gJQAVmapSX_story.html?wpisrc=nl_fedinsider

In more surprisingnews, WaPo reports:

Special interests win in Senate panel’s attempt at tax reform

It was supposed to be a first step toward tax reform. But as lawmakers tackled a list of 75 special-interest tax breaks, the special interests repeatedly won.

An accelerated write-off for owners of NASCAR tracks: That has to stay.

An economic development credit for a StarKist tuna cannery in American Samoa: That stays, too.

A rum-tax rebate for Puerto Rico and the U.S. Virgin Islands worth millions of dollars a year to one of the world’s largest distillers: Check.

A $2,500 credit for electric motorcycles and other low-speed vehicles: That stays. But “in the spirit of tax reform,” its sponsor, Sen. Ron Wyden (D-Ore.), said he agreed that electric golf carts would no longer be eligible.

When the dust settled Thursday, members of the Senate Finance Committee congratulated themselves for agreeing to jettison 20 of the perks, including a $5,000 credit for first-time home buyers in the District and a cash-incentive program for wind-energy projects that has been derided as benefiting foreign companies.

But their failure to weed out dozens more pet provisions clouded prospects for a far-reaching simplification of the nation’s tax laws advocated by President Obama, GOP challenger Mitt Romney and congressional leaders in both parties.

“The opening salvo of tax reform was little more than a whimper,” said Steve Ellis, vice president of the nonprofit watchdog group Taxpayers for Common Sense. “If this is as bold as they’re going to go, it doesn’t bode very well for fundamental reform.”

Rather than criticize themselves for not hacking through the layers of loopholes and tax favors, committee leaders noted that they had, for the first time in memory, refused to automatically renew them all. Thursday’s 19 to 5 vote not only reversed a decades-long trend, they said, it demonstrated a rare ability to work across party lines at a time when a protracted stalemate over taxes and spending threatens to throw the nation back into recession early next year.

“By doing this, we’ve come a long way toward functionality,” said Sen. Orrin G. Hatch (Utah), the panel’s senior Republican. “This is a major achievement. It certainly is not tax reform. But . . . it’s a step in the right direction.”
“I’m proud of what we’ve done as a committee,” added Finance Committee Chairman Max Baucus (D-Mont.). It’s “more than baby steps. This is not the first steps the baby’s taking. We’re walking.”

With Congress headed home for an August recess, the full Senate cannot vote on the measure until at least September. If approved, it would face an uncertain fate in the House, where the Ways and Means Committee is also reviewing the temporary tax breaks collectively known as “tax extenders” because Congress has not made them permanent.

The provisions are instead regularly renewed for a year or two “in the dark of night,” as Hatch put it, often as an amendment to must-pass bills. In 2008, for example, the Senate tacked them onto the Troubled Assets Relief Program bank-bailout legislation.

The extenders include many popular provisions, such as a credit for domestic research and development and a deduction for college tuition. The package approved Thursday also would protect millions of middle-class families from the alternative minimum tax through 2013, by far the most costly provision.
All told, the measure would add $143 billion to next year’s budget deficit, according to of­ficial estimates, with about $40 billion going to the special-interest breaks. Over 10 years, the cost would swell to $205 billion.

In a tentative deal reached late Tuesday, Baucus and Hatch agreed to wipe out more of the loopholes. But lawmakers in both parties appealed, and Baucus presented a rewrite Thursday morning that brought several back to life.

Lawmakers were by turns defiant and sheepish in defending favored provisions. The breaks, they said, are critical to home-state employers facing a tough economy. It would be easier to wipe them out, they said, as part of full-scale reform, when Congress can offer lower tax rates as a consolation prize.

“Big tax reform is where we need to look at all this stuff,” said Sen. Debbie Stabenow (D-Mich.), who joined Sen. Jon Kyl (R-Ariz.) in petitioning Baucus to preserve the break for NASCAR tracks.

For now, Stabenow said, the write-off for improving the tracks is “an economic development issue for Michigan,” where owners of the Michigan International Speedway west of Ann Arbor recently added 20 deluxe track-side camping spaces.
Sen. John Thune (R-S.D.) defended an array of energy incentives, including a wind-energy tax credit that Romney has targeted for elimination.

“The bigger game is going to be tax reform. This is just kind of the opening act,” he said. “I’ve made that pretty clear to folks in the industry” that when tax reform gets underway, “we’ll need to look at what we can do to start phasing these things out.”
Sen. Jeff Bingaman (D-N.M.), who has jurisdiction over U.S. territories as chairman of the Committee on Energy and Natural Resources, said he asked Baucus to save the credit for American Samoa, which has, in the past, subsidized a StarKist tuna cannery that employs more than half the island’s population.

“Samoans are U.S. citizens. This is U.S. territory,” Bingaman said. “We should not in a casual way take action that would dramatically and adversely affect their economy. If the next Congress thinks there are good and sufficient reasons for doing that, then that’s their business.”

Asked why the Samoan credit was preserved, Baucus said simply: “Jobs.”

Still, the scramble to preserve narrowly targeted perks left some steaming.

“Nobody wants to make the hard choices around here,” said Sen. Tom Coburn (Okla.), one of five Republicans who voted against the measure. Getting rid of 20 tax breaks is “better than nothing. But it ain’t anywhere close to where we need to be if we’re going to fix this country.”

“They’re good people,” he said of his Senate colleagues, “but I don’t get it.”

*****

IMHO, Coburn gets it, committee does not.

Filed under: Congress, taxes | 42 Comments »

Top 10 Worst Olympic Moments (so far)…

Posted on August 3, 2012 by Dave!

So yesterday I posted that I am “growing to detest” the Olympics.  That is somewhat of a mis-statement.  I love the idea of them.  I love the competition and I am a sap for the stories that we hear about the atheletes.  I am amazed at some of the things I see them do.  I guess I am growing increasingly tired of the IOC and the way they are run. And the judging.  So, the list of things that I already love about these Olympics is long and probably boring…from Gabby to Phelps and beyond.  Truth be told, after the IOC rejected any acknowledgement of the 40th anniversary of the Munich game terrorism, I was ready to boycott them altogether.  But that was kind of like holding the atheletes responsible for the sins of the organizers.  So I have been watching.  All that said, they still piss me off for a number of reasons.  And here is my top ten list in no particular order:

1)  PC run amok – Banning the Greek triple jumper Voula Papachristou for a “racist” tweet (With so many Africans in Greece … at least the West Nile mosquitos will eat homemade food!!!) and Swiss soccer player Michel Morganella (I want to beat up all South Koreans! Bunch of mentally handicapped retards!).  Let me see if I have this correct.  The Olympics can be held in Nazi Germany but somehow these tweets merit removing people from the Olympics?  I’m glad no other atheletes harbor any prejudical thoughts.

2)  Head in Sand – The decision to not have an official moment of rememberance for the Israeli atheletes killed 40 years ago.

3)  Gymnatics I – The Tiebreaker. Women compete on each of the 4 apparatus for the all-around best gymnast.  They are judged to the thousandth of a point.  After the 4 events, two woman are tied, down to the thousandth, for the third best score.  Only one gets a bronze medal.  Why?  The tiebreaker procedure which drops the score of the worst event and then looks at the scores of the remaining 3.  Idiotic at best.   How is it that an ‘all-around’ competition when the result comes down to only 3 of the 4 apparatus?  I think it should be labeled not all-around but “three quarters-around”.  But the rules dramatically change year after year so next time,I am sure  they will have fixed this issue.

4)  Gymnastics II – A limit of 2 per country on the number of gymnasts that can compete in the all-around.  So if your country has the 3 best gymnasts in the world, one of you is out of luck.  If you are not going to let the best compete, how can the eventual winner be declared the best?

5)  Olympic Events I – Team Handball, Synchronized swimming, trampolin and no softball or baseball.  Really?  Just as an aside, the trampolin was won by a Chinese guy named Dong Dong…oh the places I could go with that name.

6) Olympic Events II – Synchronized swimming.  I understand that while the hammer throw is a classic, no kid says I want to grow up to be a hammer thrower.  But Synchronized swimming?

7)  Fairness (or lack thereof).  With time running out in one of the two semifinal matches for the women’s individual epee competition, South Korea’s Shin A Lam led Germany’s Britta Heidermann by a single point. Officially, Heidermann had just one second to launch an attack and score a touch, which would advance her on to the gold medal match to face the Ukraine’s Yana Shemyakina, a lack of time which all but ensured that Shin would advance.  Instead, the timing mechanism on the piste became stuck, giving Heidermann extra time to complete her attack and win the bout, which earned her the spot in the gold medal bout. Officials, unsure what to do without a true, official protocol to follow, eventually decided to award the victory to Heidermann. That decision alone is remarkably bad.  Ah…but it gets worse.  As one might expect, Shin and her coaches were enraged with the decision, and launched an immediate appeal. Yet the appeal itself proved to be incredibly lengthy and also contained a unique bylaw that required Shin to remain on the piste throughout its duration. Unable to leave the playing surface, Shin bawled uncontrollably for the first 10-15 minutes, often shading her head in a towel while occasionally looking out to the crowd before rubbing her eyes again.  At long last, after more than 30 minutes of a delay that included the Korean federation having to expedite a payment for the use in the official appeal, Shin’s attempt to overturn the result failed.  Naturally.  And  as a final insult, in order to make themselves feel better, they offered her a “competitor” medal, which she rightly rejected.  I don’t speak Korean but it looked like she said you can take that medal and shove it up your something or other.

8)  Oscar Pistorius – this will easily be my most controversial one.  Pistorius is a South African runner with 2 prosthetic legs that has been allowed to compete in the Olympics.  Now as someone who has a brother with muscular dystrophy who we have taken everywhere and helped him do most everything we do, I have to say the decision to allow Pistorius to compete with prosthetic legs is wrong.  He comes across like a great and inspirational guy and in many ways I will be pulling for him.  But he has artificial feet.  Whether they make him faster or not, he is not running on the same playing field as everyone else.  He should not be competing on the same one as everybody else either.

9)  Bad Bad badminton – Pairs from China, Indonesia and South Korea deliberately tried to lose to secure an easier draw in the subsequent knockout rounds.  The embarrassing scenes quickly attracted the attention of officials and media, and led to the expulsion of the eight players involved.  One of them, Yu Yang of China, pointed out to the sport’s administrators that she was playing within the rules and said she would quit the sport.  I am not sure exactly how I feel about this.  Am I more annoyed that teams were trying to lose or that players get kicked out for following the rules?  Maybe we should leave the sport to our backyards and not have it in the Olympics…

10)  Boxing – It amazes me that Olympics after Olympics, we continue to have what one could legitimately call rigged matches.  This time, AIBA, the governing body of amateur boxing, dismissed referee Ishanguly Meretnyyazov of Turkmenistan on Thursday after a bout on Wednesday between Satoshi Shimizu of Japan and Magomed Abdulhamidov of Azerbaijan. Shimizu knocked Abdulhamidov down six times in the third round, but Meretnyyazov didn’t rule any of them a knockdown. Meretnyyazov kept ordering Abdulhamidov to get up, as if Abdulhamidov was going down of his own volition. He was hurt by punches thrown by his opponent, who should have won by stoppage in the third round. But when Meretnyyazov didn’t called them knockdowns, the bout went to the scorecards, where the byzantine computerized scoring system that was put into place to prevent just such atrocities committed yet another one. Abdulhamidov entered the decisive third round with a 10-7 edge. The third round was scored 10-10, so Abdulhamidov won a 20-17 decision he clearly didn’t deserve.  The Japanese immediately protested and AIBA overturned the outcome.  However, one could have foreseen this because there was a BBC report from September that alleged Azerbaijan was promised two boxing gold medals in exchange for a $10 million loan to the AIBA.  AIBA investigated itself instead of having an outside body look into the allegations. Not surprisingly, it found the report was “groundless and unsupported by any credible evidence.” So it’s just coincidence that nine months after it dismissed that report as groundless, an Azerbaijani fighter was on the receiving end of an Olympic referee’s incomprehensible decision.  In the Olympic history of boxing, this might not make the top five list of worst offenders

Filed under: 2012 | Tagged: , | 28 Comments »

CONGRESS IS BROKEN verse 1, repeated

Posted on August 2, 2012 by markinaustin

Federal bench continues with huge vacancies and case backlogs.  Austin’s two federal judges have the first and second largest dockets in America and Congress has promised relief for eight years.  Congress is not worth its 9%-13% approval rating.

http://www.washingtonpost.com/politics/obamas-judicial-logjam/2012/08/01/gJQAMJFEQX_story.html?wpisrc=nl_fedinsider

Filed under: 2012, Congress | 88 Comments »

MORNING FILLER 8/1/12

Posted on August 1, 2012 by markinaustin

DeMarco flatly rejects Geithner’s offer of (TARP) funding:

Today, I provided a response to numerous congressional inquiries as to whether the Federal Housing Finance Agency (FHFA) would direct Fannie Mae and Freddie Mac to implement the Home Affordable Modification Program Principal Reduction Alternative (HAMP PRA). After extensive analysis of the revised HAMP PRA, including the determination by the Treasury Department to begin using Troubled Asset Relief Program (TARP) monies to make incentive payments to Fannie Mae and Freddie Mac, FHFA has concluded that the anticipated benefits do not outweigh the costs and risks. Given our multiple responsibilities to conserve the assets of Fannie Mae and Freddie Mac, maximize assistance to homeowners to avoid foreclosures, and minimize the expense of such assistance to taxpayers, FHFA concluded that HAMP PRA did not clearly improve foreclosure avoidance while reducing costs to taxpayers relative to the approaches in place today. 

I have also previewed for Congress several housing-related initiatives to strengthen the loss mitigation and borrower assistance efforts of Fannie Mae and Freddie Mac as well as improve the operation of the housing finance market. These initiatives include new and consistent policies for lender representations and warranties, alignment and simplification of the Enterprise short sales programs, and further enhancements for borrowers looking to refinance their mortgages.

DeMarco acts like a man doing the job he was hired to do, while both Congress and POTUS now think there is another job to be done.  I admire DeMarco for this, although I do not fault the political branches for wanting to do something else.

 

Filed under: Economy | 77 Comments »

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