Morning Report 11/20/12

Posted on November 20, 2012 by Brent Nyitray

Vital Statistics:

 
  Last Change Percent
S&P Futures  1381.7 -0.8 -0.06%
Eurostoxx Index 2487.6 -7.6 -0.30%
Oil (WTI) 88.79 -0.5 -0.55%
LIBOR 0.311 -0.001 -0.32%
US Dollar Index (DXY) 80.92 0.050 0.06%
10 Year Govt Bond Yield 1.62% 0.01%  
RPX Composite Real Estate Index 191.4 0.0  
Futures are lower this morning after Hewlett Packard announced accounting problems at its Autonomy unit. The company has taken an $8.8 billion charge on the Autonomy unit, which is shocking when you consider it only paid $7 billion for the company in the first place. Best Buy also missed. Bonds are down slightly, while MBS are flat.
 
Housing starts rose to an annualized pace of 894k, well ahead of the 840k estimate.  Sep through July numbers were revised downward. While the rest of the economy seems to be turning down, housing is turning into a bright spot. That said, 894k is still far away from “normalcy,” which is 1.5 million units per year. Yesterday’s builder confidence index from the NAHB posted another gain, although it is still reflects “unfavorable” conditions, but just barely.
 
Chart:  Housing Starts
 

 

Chart:  NAHB Sentiment Index:

 

 

 
 
The Bernank is speaking at the Economic Club of NY this afternoon. The market will be looking for clues regarding life after Operation Twist.  Expect Bernake to warn Washington that it won’t be able to offset the damage to the economy if we go over the fiscal cliff. 
 
Hostess and the Baker’s union have been asked to enter mediation.  This is a last-ditch attempt to see if the company can continue as a going concern.  One of the biggest issues is the defined benefit pension plan.  In an environment of zero percent interest rates, most, if not all, pension plans will be insolvent as there is no way to earn enough on the assets of the plan to cover healthcare inflation costs. Of course many companies choose to assume unrealistic rates of return on plan assets or unrealistic cost inflation assumptions to make the plans solvent.  By the way, this phenomenon affects insurance companies as well.  One of the (many) unintended consequences of ZIRP.
 
The recent downturn in the markets has brought out the perma-bears.  Marc Faber and Nouriel Roubini are warning about a tough 2013. Morgan Stanley is also warning of a recession in 2013 if we go over the fiscal cliff.  Even if we don’t they are forecasting flat GDP growth next year. That said, after this sell-off, I would be aware of the potential for a face-melting rally if we get a deal on the fiscal cliff. For those who focus on technicals, the S&P 500 is right at the 200 day moving average.
 
One possible piece of a deal would be a cap on deductions – one current number being bandied about is $35,000.  Needless to say, this will have a negative effect on the high end of the housing market, especially in high cost areas like Coastal California and the NYC area. Moody’s estimates that this could cut national home price growth from 4% to 3.5% from 2015 to 2019.  

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21 Responses

  1. Michigoose's avatar
    Michigoose, on November 20, 2012 at 9:42 am said:

    Brent:

    ZIRP = zero interest rate p____?

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  2. Brent Nyitray's avatar
    Brent Nyitray, on November 20, 2012 at 10:35 am said:

    Policy

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  3. Michigoose's avatar
    Michigoose, on November 20, 2012 at 10:43 am said:

    Ahhhh

    Thanks! Glad to know I got the first three right, too! I may be learning this finance stuff yet. . .

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  4. novahockey's avatar
    novahockey, on November 20, 2012 at 11:52 am said:

    “face-melting rally”

    like that dude at the end of Raiders of the Lost Ark?

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  5. jnc4p's avatar
    jnc4p, on November 20, 2012 at 4:23 pm said:

    For you YJ:

    “The best tax deduction to chop
    By Charles Lane, Published: November 19

    What’s the least defensible special break in the U.S. tax code? With so many distortions to choose from, it’s hard to name just one. If forced to pick, I might say the deduction for state and local taxes, which cost $67 billion in fiscal 2011, according to the congressional Joint Committee on Taxation.”

    http://www.washingtonpost.com/opinions/charles-lane-the-best-deduction-to-chop/2012/11/19/38e28dc2-326a-11e2-bb9b-288a310849ee_story.html

    Assuming we are keeping the same basic progressive income tax with the myriad deductions, I’d actually recommend adopting Scott’s approach of reversing this and making Federal taxes deductible from state and local, rather than the current way.

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  6. jnc4p's avatar
    jnc4p, on November 20, 2012 at 4:52 pm said:

    While debating on PL, I found this and I think it’s worth noting in light of the calls for post election bi-partisanship and observations about a mandate for President Obama. I suspect Romney would be rather vilified had he done the same thing.

    “Kerry Urges Democrats To Fight Values ‘Assault’
    E-Mail to Supporters Renews Battle Against Bush

    By Dan Balz
    Washington Post Staff Writer
    Saturday, November 20, 2004; Page A02

    Sen. John F. Kerry (D-Mass.) signaled a return to partisan warfare with President Bush yesterday in an e-mail to supporters in which he accused the administration of preparing a “right-wing assault on values and ideals” and called on Democrats to fight back against what he labeled Bush’s extreme agenda.

    Two weeks after delivering a generous concession speech that called for a lessening of the bitter partisanship that had marked the contest with Bush, Kerry picked up where the campaign left off and demonstrated his determination to be the leader of the opposition, in spite of his defeat.

    “Despite the words of cooperation and moderate-sounding promises, this administration is planning a right-wing assault on values and ideals we hold most deeply,” Kerry said in the message that was sent to about 3 million supporters who had signed up on the Kerry Web site during the campaign.”
    …

    “The e-mail message represented a call to arms to Democrats. At a time when many Democrats are looking inward to examine the reasons for Bush’s victory and to take stock of what they need to do to make their time in the political wilderness as short as possible, Kerry said Democrats should in no way give Bush a pass at the beginning of his second term. “This is not a time for Democrats to retreat and accommodate extremists on critical principles,” he wrote. “It is a time to stand firm.””

    http://www.washingtonpost.com/wp-dyn/articles/A63697-2004Nov19.html

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  7. bsimon1970's avatar
    bsimon1970, on November 20, 2012 at 6:56 pm said:

    “I suspect Romney would be rather vilified had he done the same thing.”

    Romney already did the same, in a conference call with supporters where he argued that the Obama admin had bought their victory with gifts. Some conservatives quickly criticized Romney for making the claim.

    Newt Gingrich had harsh words Sunday for GOP presidential nominee Mitt Romney’s suggestion that he lost the election because President Barack Obama offered “gifts” to African-Americans, Hispanics, and young voters.

    “I just think it’s nuts,” Gingrich said on ABC. “I mean, first of all, it’s insulting.”

    …

    Revelation of Romney’s comments drew criticism from others within his own party, such as Louisiana Gov. Bobby Jindal – who said a winning strategy does not involve “insulting (voters) and saying their votes were bought” – and Sen. Lindsey Graham of South Carolina, who said, “Rhetoric like this keeps digging a hole for the Republican Party.”

    Gingrich: Romney ‘gifts’ comment ‘nuts’

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  8. Michigoose's avatar
    Michigoose, on November 20, 2012 at 7:30 pm said:

    Among us’ns? I’ve always thought we pretty much had a bipartisan caucus here. Among Congresscritters? I think the right can go hang themselves.

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  9. jnc4p's avatar
    jnc4p, on November 20, 2012 at 7:52 pm said:

    No he didn’t. Post election analysis of why he failed to win in a private conference call isn’t the same thing as the losing Presidential candidate calling for maximum obstruction of the winner of the election two weeks afterwards.

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  10. bsimon1970's avatar
    bsimon1970, on November 20, 2012 at 7:59 pm said:

    “No he didn’t. Post election analysis of why he failed to win in a private conference call isn’t the same thing as the losing Presidential candidate calling for maximum obstruction of the winner of the election two weeks afterwards.”

    It seems the conference call was as ‘private’ as Kerry’s email to supporters. You’re splitting hairs, in my opinion. Why its worth mentioning at all is also unclear to me.

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  11. Michigoose's avatar
    Michigoose, on November 20, 2012 at 8:23 pm said:

    Rhetoric like that *is* digging a hole for the Republican party, jnc.

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  12. novahockey's avatar
    novahockey, on November 21, 2012 at 6:59 am said:

    That didn’t take long. the second they couldn’t bill an office visit, ACOG thinks, “huh, maybe BC should be OTC”

    http://www.acog.org/About_ACOG/News_Room/News_Releases/2012/Ob-Gyns_Want_the_Pill_Available_OTC

    I’m reminded Princess Leia: “The more you tighten your grip, Tarkin, the more star systems will slip through your fingers.” I wonder what kind of health plan the rebel alliance had.

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  13. jnc4p's avatar
    jnc4p, on November 21, 2012 at 7:27 am said:

    It was always about the money. Safety had nothing to do with it. NoVA, where did you see the change in office visit charges written up?

    Presumably once it’s over the counter, it won’t be covered by insurance.

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  14. novahockey's avatar
    novahockey, on November 21, 2012 at 7:35 am said:

    right — insurance coverage is very limited for OTC. and it won’t be tax advantaged b/c of the changes to FSA.

    i think this eventually might be a BTC — behind the counter. b/c of the “won’t somebody think of the children” argument. I’m not sure what that would do to access

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  15. jnc4p's avatar
    jnc4p, on November 21, 2012 at 7:56 am said:

    Where did you see the changes on billing for office visits?

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  16. novahockey's avatar
    novahockey, on November 21, 2012 at 8:05 am said:

    i’ll have to dig up a link — but it’s about how “prevention visits” are coded and paid.

    this isn’t a new issue though. http://www.ama-assn.org/amednews/2008/03/24/bisa0324.htm

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  18. Fairlington Blade's avatar
    Fairlington Blade, on November 21, 2012 at 9:51 am said:

    Nathan Lane had an op-ed about eliminating deductibility of state and local taxes in the Post. It was interesting in that he didn’t bother disguising that it was to stick it to taxpayers who live in blue states.

    Oh, sorry, that was Charles Lane. I figured he was joking anyway.

    BB

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  19. jnc4p's avatar
    jnc4p, on November 21, 2012 at 12:06 pm said:

    He wasn’t joking. All tax deductions are about shifting the cost of government to someone else.

    I thought Scott’s proposal of switching the deduction around so that Federal taxes were deductible from state and local ones made sense.

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  20. jnc4p's avatar
    jnc4p, on November 21, 2012 at 2:57 pm said:

    Thanks Mark. You too.

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