Morning Report – S&P swings back 02/12/13

Posted on February 12, 2013 by Brent Nyitray

Vital Statistics:

  Last Change Percent
S&P Futures  1513.0 -0.1 -0.01%
Eurostoxx Index 2631.2 8.6 0.33%
Oil (WTI) 97.59 0.6 0.58%
LIBOR 0.292 -0.001 -0.34%
US Dollar Index (DXY) 80.28 -0.031 -0.04%
10 Year Govt Bond Yield 1.97% 0.00%  
RPX Composite Real Estate Index 193.2 -0.1  

Markets are flattish as the G-7 countries promise not to target currency rates with economic policies. Barclay’s is cutting 3,700 jobs. The President gives his state of the union address tonight, and it will focus on the economy and job creation.  Bonds and MBS are flat.

The National Association of Realtors reported that the median price of an existing home rose 10% in Q411 to 178,900 from 162,600 in Q411. That puts the median house price to median income ratio roughly at 3.53x, which is towards the top of its historic 3.15 – 3.55x range. This begs the question:  Is housing overvalued?  Perhaps, but wages have gone nowhere for 6 years.  Perhaps this time, wages catch up.

Chart:  Median House Price to Median Income Ratio:

 

The National Federation of Independent Businesses released its Small Business Optimism survey, and while it increased, it was still a dismal reading. On the plus side, more small business owners are hiring than firing. Capital Expenditures are increasing, although they are still in maintenance mode. Overall, the report suggests that sentiment is improving, albeit from very low levels.

McGraw Hill (owner of Standard and Poors) comes out swinging against the DOJ in their latest earnings release. They point out that the US cherry-picked a few emails, and that alone is only evidence of an atmosphere of “vigorous debate” but not wrongdoing.  They note that they were downgrading CDOs with 2006 vintage RMBS a year and a half before Lehman failed (which actually co-incides with the beginning of the financial crisis, IMO).  I remember the credit markets beginning to freeze in the summer of 2007, which was being called a “buyers strike.”  Finally, they note that virtually everyone missed the housing bubble, and the fact that their actions proved to be insufficient in hindsight does not prove intentional misconduct at S&P.

The state of Nevada is taking steps to reduce shadow inventory by buying distressed pools of mortgages and working them out to reduce principal.  They will purchase homes at 70% of appraised value and re-work the loan or foreclose and re-sell the property.  It will be administered by a non-profit entity. It will be funded with receipts from the National Mortgage Settlement. Once the loan has been seasoned as a re-performer, it will be sold back into the market and the money recycled. 

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25 Responses

  1. markinaustin's avatar
    markinaustin, on February 12, 2013 at 9:31 am said:

    Amazing that it took NV so long. During the S&L crisis, localities in TX did this and I think localities backed by states did it elsewhere in the SW.
    ***

    http://www.washingtonpost.com/world/national-security/us-said-to-be-target-of-massive-cyber-espionage-campaign/2013/02/10/7b4687d8-6fc1-11e2-aa58-243de81040ba_story.html

    This was also the heart of an NPR story this morning where it was explained that there is a bidding war for back door vulnerabilities.

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  2. Michigoose's avatar
    Michigoose, on February 12, 2013 at 9:46 am said:

    OT to NoVA:

    Season finale of Downton Abbey is Sunday. On Monday you and I need to sit down over a nice pot of tea and have a long visit. I’m teaching Daisy how to pour out.

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  3. Michigoose's avatar
    Michigoose, on February 12, 2013 at 10:35 am said:

    Looks like it, NoVA–during the “next time on Downton Abbey” they were showing Mary pregnant and I would have sworn that they said “season finale”. It will be episode 7 for this season.

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  4. jnc4p's avatar
    jnc4p, on February 12, 2013 at 10:39 am said:

    Should President Obama’s State of the Union call for more deficit spending to boost the economy, perhaps Nancy Pelosi can offer the rebuttal:

    “We have a deficit problem that we have to address. Right now, we have low interest on the national debt and it’s a good time for us to act to lower the deficit.

    We think the deficit and the national debt are at immoral levels. We think they must be reduced. We’re sick and tired of paying interest on the national debt. And that 15 percent, that’s a large percentage of the budget, the interest on the national debt. It’s lower now because of the lower interest rates.”

    http://www.foxnews.com/on-air/fox-news-sunday-chris-wallace/2013/02/10/rep-nancy-pelosi-sen-john-mccain-avoiding-automatic-spending-cuts#p//v/2155575704001

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  5. jnc4p's avatar
    jnc4p, on February 12, 2013 at 10:40 am said:

    Latest from Krugman arguing against made up numbers.

    “February 12, 2013, 8:29 am
    Where Do “Facts” Come From?”

    http://krugman.blogs.nytimes.com/2013/02/12/where-do-facts-come-from/

    The obvious retort is that perhaps it was potential spending to go along with his potential GDP analysis.

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  6. novahockey's avatar
    novahockey, on February 12, 2013 at 10:53 am said:

    let me know what happens, i’ll be able to tell you if it is/isn’t the christmas special. which is 90 mins long.

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  8. Michigoose's avatar
    Michigoose, on February 12, 2013 at 11:50 am said:

    Interesting story (I thought) on cnbc’s web site: Central Banks Gone Wild: What Can Investors Do?

    “The single most important thing for everybody in this room and everybody in the investment climate boils down to one simple issue: When does zero interest go away, by how much, and what are the early warning signs,” Kotok said at the Inside ETFs conference presented by Index Universe.

    Advisors will need to discern “the market’s forecast of the then-impact of the then-policy announcement, which will finally show up in a change in interest rates for the central banks. Not one of us in this room has that answer,” he said.

    The goal, he said half-facetiously, is “to stay invested broadly in the market” and then be sure “to exit the day before the interest rate change.”

    Glad to know that even the smart guys aren’t really sure what to expect–makes me feel a little less naïve.

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  10. jnc4p's avatar
    jnc4p, on February 12, 2013 at 12:39 pm said:

    “Glad to know that even the smart guys aren’t really sure what to expect–makes me feel a little less naïve.”

    They know that whatever it is, it will be bad.

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  11. Michigoose's avatar
    Michigoose, on February 12, 2013 at 1:12 pm said:

    That was the impression I got, jnc. As you and Don Juan have said several times, we’ve never tried this before.

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  12. Let the mutherfuker burn!'s avatar
    Troll McWingnut or George, whichever, on February 12, 2013 at 2:03 pm said:

    I wonder if the “Some say” crowd will “Let [Obama] be clear” tonight? The families of potentially slaughtered strawmen await, nervously.

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  13. jnc4p's avatar
    jnc4p, on February 12, 2013 at 2:18 pm said:

    This is interesting:

    “Mr. Lew, The Washington Post reported that your predecessor was engaged in the following exchange with Christina Romer.

    Once, as [then chairwoman of the Council of Economic Advisers Christina] Romer pressed for more stimulus spending, Geithner snapped. Stimulus, he told Romer, was “sugar,” and its effect was fleeting. The administration, he urged, needed to focus on long-term economic growth, and the first step was reining in the debt.

    Wrong, Romer snapped back. Stimulus is an “antibiotic” for a sick economy, she told Geithner. “It’s not giving a child a lollipop.”

    In the end, Obama signed into law only a relatively modest $13 billion jobs program, much less than what was favored by Romer and many other economists in the administration.”

    http://www.nytimes.com/roomfordebate/2013/02/11/questions-for-jack-lews-confirmation-hearings/whats-the-best-way-to-stimulate-the-economy

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  14. Brent Nyitray's avatar
    Brent Nyitray, on February 12, 2013 at 2:45 pm said:

    Do a shot if obama says “common sense solution” to a problem. 2 shots if it either (a) not a solution, or (b) not common sense.

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    • ScottC's avatar
      ScottC, on February 12, 2013 at 5:27 pm said:

      Brent:

      Do a shot if obama says “common sense solution” to a problem. 2 shots if it either (a) not a solution, or (b) not common sense.

      I’d suggest you drink each time he refers to himself in some way, but you probably want to be able to go to work tomorrow. I’ll probably be watching something marginally more informative like Toddler’s in Tiaras or Dance Moms.

      In all seriousness, these SOTU addresses have become little more than tedious political rallies that have little to do with the actual state of the union. At least when Bush was giving them there was dramatic tension surrounding whether or not he might make up a new word or mangle an old one. I guess getting more and more drunk with each lie Obama utters is one way to spice them up nowadays.

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  15. Brent Nyitray's avatar
    Brent Nyitray, on February 12, 2013 at 2:48 pm said:

    BTW, buy the market. Bespoke investment crunched the numbers and found that when an American model is on the cover of the SI Swimsuit Issue, the S&P has been up 88% of the time and provided an average 14% total return.

    Unfortunately, the Ravens won the superbowl, so we have conflicting data.

    For the tiebreaker: Are hemlines rising or falling?

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  16. jnc4p's avatar
    jnc4p, on February 12, 2013 at 2:56 pm said:

    Ezra is really falling short here:

    “3. He kinda, sorta met his 2009 deficit goal. Here was Obama in his 2009 address: “I held a fiscal summit where I pledged to cut the deficit in half by the end of my first term in office.”

    He basically ended up delivering, though it took a year longer than expected. The budget deficit in fiscal 2009, during which Obama took office, was 10.1 percent of GDP. In 2013, the CBO estimates it will be $5.5 percent of GDP — a 45 percent decline.”

    http://www.washingtonpost.com/blogs/wonkblog/wp/2013/02/12/five-state-of-the-union-promises-obama-kept-and-five-hes-broken/?hpid=z2

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  17. Michigoose's avatar
    Michigoose, on February 12, 2013 at 3:27 pm said:

    BTW, NoVA: what does one have to do to join your League of Evil?

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  18. Michigoose's avatar
    Michigoose, on February 12, 2013 at 3:31 pm said:

    Brent: outside of boots I’m definitely no fashion maven, but I just flipped through cnbc’s fashion week slideshow. Looks to me like they’re falling.

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  19. Brent Nyitray's avatar
    Brent Nyitray, on February 12, 2013 at 5:10 pm said:

    Looks to me like they’re falling.

    Sell. http://en.wikipedia.org/wiki/Hemline_index

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  21. Michigoose's avatar
    Michigoose, on February 12, 2013 at 10:18 pm said:

    Scott:

    Bush was giving them there was dramatic tension surrounding whether or not he might make up a new word or mangle an old one.

    Well, if that’s the bar. . .

    /snark

    Peace be unto you. . .

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