Morning Report

Posted on January 26, 2012 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1326.3 6.1 0.46%
Eurostoxx Index 2455.9 34.730 1.43%
Oil (WTI) 100.68 1.280 1.29%
LIBOR 0.5531 -0.004 -0.63%
US Dollar Index (DXY) 79.148 -0.328 -0.41%
10 Year Govt Bond Yield 1.96% -0.03%

Futures are higher this morning on strength in Europe and the Fed’s comments.  To be honest, I found yesterday’s language in the FOMC statement to be equity-bearish. They committed to lower interest rates until late 2014, took down GDP estimates, and made scant mention of the recent signs of an accelerating economy.  The Fed looks at economic indicators that are not made public, so we can’t know exactly what they are seeing.  Perhaps their models are telling them that these recent strong data points have been spurious.

I like to listen to conference calls from companies reporting earnings.  And while it is tough to quantify and model body language, it does give a view of the economy going forward.  Apple’s report certainly speaks of a stronger consumer.  The homebuilders have been increasing backlog and activity. United Rentals reported last night a 27% increase in revenues in Q4 and a utilization rate of 69% for FY11, a company record.  While you can object that URI’s numbers are coming from a weak base, you can’t dispute the direction.

One thing is for sure, the Fed wants you out of Treasuries.  They are giving you a good bid to exit the long end of the curve.  They are telling you (through an explicit inflation target) that they intend for you to make a 0% real rate of return on the 10 year bond.  They are paying you nothing to sit in short term paper.  The Fed wants you buying real estate.  They want you buying stocks.  There is an old saw in the market – “don’t fight the fed.” And that may explain yesterday’s equity rally as much as anything.  Heard on the Street this morning this morning interpreted the statement as “We won’t raise rates until the economy is really going.”  And supposedly that gave equity investors a little comfort to put more money to work.

I guess it is time to figure out where the next bubble is going to be.  6 years of rock-bottom interest rates should be a good base for one.  Farmland. Commodities.  You could make the argument that long term govvies are in bubble territory already.  If we start seeing levered Treasury strategy ETFs and structured notes, you’ll know we have crossed the rubicon.

In economic data this morning, durable goods orders were higher than expected at 3%.  Initial Jobless Claims came in at 377k.  EURIBOR / OIS continues to tighten, down to 78.5 basis points.  20 basis points could be considered “normalcy” in the European banking sector.  Still, it has come in over 21 basis points in 6 weeks.

Filed under: Earnings Announcements, Economic data, Economy, Federal Reserve | 130 Comments »

FOMC Minutes

Posted on January 25, 2012 by Brent Nyitray

Statement

Economic Projections

Longer Run Policy Considerations

Big Picture:  The Fed is on hold until late 2014. Previously they anticipated low interest rates through mid-2013.   Inflation target is 2%.  The Fed will continue to re-roll its investments into mortgage backed debt.  Operation Twist will continue.

In this new age of transparency, the Fed is giving investors more of a look at their thinking.

More granular stuff:  The Fed has taken down its forecast for GDP growth in 2012 and 2013.  In November, they projected 2.5% – 2.9% GDP growth for 2012 and 3.0% to 3.5% for 2013.  They now expect 2.2% to 2.7% growth for 2012 and 2.8% to 3.2% for 2013.  So, while the general tenor of most observers seems to be more optimistic, the Fed is going in the opposite direction.

However, they took down their unemployment estimates from November, so that is a positive.  What is interesting is that they stated the “normal rate of unemployment” range was 5.2% to 6.0%.  Which means that once unemployment gets in the mid 5-s, the Fed will start tightening. At least that is how I interpret it.  Don’t expect to see long-term unemployment rates similar to the ones Clinton (5.19%) and Bush (5.27%) enjoyed.  6 is the new 5. The Fed is at least paying lip service to the idea of preventing future bubbles.

The Fed introduced an inflation target of 2%.  Note the 10 year is yielding 2%.  Get the message?  Nope, the 10 year rallied hard on the announcement.  Stocks also rallied.

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Morning Report

Posted on January 25, 2012 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1307.6 -3.8 -0.29%
Eurostoxx Index 2412.5 -19.590 -0.81%
Oil (WTI) 98.35 -0.600 -0.61%
LIBOR 0.5566 -0.003 -0.45%
US Dollar Index (DXY) 80.226 0.428 0.54%
10 Year Govt Bond Yield 2.05% -0.01%

Markets are mixed this morning, with the broader indices lower following Europe, and the Nasdaq up on Apple’s earnings.  AAPL is up about 8% pre-market.  Conoco Philips also reported good earnings this morning.   United Rentals reports after the close, which should provide another data point as to the state of the construction industry.  Construction /  Housing has been the achilles heel of this recovery, and if that sector is turning around, the economy could finally be on its way.

I didn’t watch the SOTU last night (I always just read speeches), but it doesn’t sound like there was anything market-moving in it.  Natural Gas is up a little, presumably on the lack of a production target.  The US dollar is stronger this morning and bonds are up 1/3 of a point, presumably on Europe, not necessarily the SOTU.

Perhaps the timing of the robo-signing settlement was not a co-incidence. In the speech last night, Obama laid out a plan for refinancing underwater mortgages.  The fine print will not be available for some time, and it will require Congressional approval.  I have noted in the past that you have to get the originators on board with this plan, and put-back risk is the big hurdle.  Put back risk means the government can decide after the fact that a mortgage violated underwriting standards and can force the originator to buy it back.  Re-financing underwater homes will by definition violate underwriting standards.  The government can tell originators that it will allow underwriting violations for this program, but there is nothing preventing a future administration from changing the rules.  An originator makes exactly the same profit on a 80% LTV loan as they do on a 120% LTV loan.  So why would originators take the additional political risk when the returns are exactly the same?   They won’t.

The FOMC rate decision will be released this afternoon.  I don’t think anyone expects a change in policy, but people will be interested in seeing if the the Fed takes note of the early signs of a turnaround.

Filed under: Earnings Announcements, Economic data, Economy, housing, Morning Report, stock market | Tagged: | 67 Comments »

Morning Report

Posted on January 24, 2012 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1304.6 -6.5 -0.50%
Eurostoxx Index 2410.3 -31.180 -1.28%
Oil (WTI) 99.26 -0.320 -0.32%
LIBOR 0.5591 -0.001 -0.18%
US Dollar Index (DXY) 79.989 0.191 0.24%
10 Year Govt Bond Yield 2.05% 0.00%

 

Stocks are lower on brinkmanship over the Greek settlement talks.  In spite of Greek worries, EURIBOR / OIS (a measure of stress in the  banking system that is watched closely by professionals) has been in steady decline for a month now.  It is currently 80 basis points lower than its post-crisis peak of 100 basis points in early December.

 

The Washington Post has an article on the potential robo-signing settlement with the large banks.  The size of the settlement is said to be around $25 billion and liberals want it larger.  It will supposedly include additional regulations on loan servicers, which could create loads of unintended consequences.  Mortgage Servicing Rights are already pretty much worthless, and the big banks are exiting the business.  Ocwen is refusing to advance principal and interest payments to bondholders until it recoups its advancements.  The administration could end up shooting itself in the foot if it goes overboard with the servicers.

 

Diamondback is settling with the SEC for $9 million.  Diamondback is a $2.5 billion hedge fund in Stamford CT and is run by ex SAC traders.  It will be interesting to see if the Feds get info that leads back to Stevie Cohen.

 

Japan is running a trade deficit?   Apparently, yes.  Part of it is due to the nuclear disaster and the earthquake, but it is also due to a strong currency and an aging population.  Japanese companies are succumbing to the same globalization forces we are and are moving production overseas.  The yen has been strengthening for 30 years, bottoming out at 277 in 1982.  It is now 77.

 

No major economic news today.  Apple will report after the close.

Filed under: Uncategorized | 149 Comments »

Morning Report

Posted on January 23, 2012 by Brent Nyitray
Vital Statistics:
Last Change Percent
S&P Futures 1311 0.2 0.02%
Eurostoxx Index 2442.2 15.200 0.63%
Oil (WTI) 98.97 0.640 0.65%
LIBOR 0.5601 -0.001 -0.18%
US Dollar Index (DXY) 79.746 -0.410 -0.51%
10 Year Govt Bond Yield 2.06% 0.04%
Congrats to the Pats and G-Men.
Markets are slightly higher this morning as Greek bondholders have made their best and final offer to the EU and IMF. Much of Asia was closed overnight in observance of the Lunar New Year.
Even Krugman is figuring out the economy is improving. He notes that housing has been a drag on the economy, but six years into the bust, it is becoming less and less of a drag as the excesses have been largely worked off. If housing becomes a positive, it could finally set the stage for the virtuous economic cycle we have been waiting for.
Of course Krugman takes shots at Obama for “giving into Republican demands that he slash spending” and at Bernake for giving in to Republican demands that it tighten money, positing that we wouldn’t be on the slow road to recovery if we had simply listened to him. He also goes on to slay the Bush dragon and the ECB dragon as well. The Fed tightened? Obama slashed spending? Whatever, Paul. I used to like Krugman when he was just an economist, now he is more of left wing Larry Kudlow.
Earnings Season continues this week with a ton of reports. The biggest names will be Apple, Boeing, and McDonalds, but there are a lot of industrials and energy names reporting as well. In economic data, we have the FOMC decision this week (will be interesting to see if the recent economic strength is noted in the statement). Durable Goods and Leading Economic indicators will be good data points this week.

Filed under: Earnings Announcements, Economic data, Uncategorized | Tagged: | 56 Comments »

Morning Report

Posted on January 20, 2012 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1308.1 -2.3 -0.18%
Eurostoxx Index 2427.4 -7.670 -0.31%
Oil (WTI) 99.96 -0.430 -0.43%
LIBOR 0.5611 0.000 -0.02%
US Dollar Index (DXY) 80.3 0.244 0.30%
10 Year Govt Bond Yield 1.99% 0.02%
Futures are down slightly this morning on weakness in Europe and a lackluster earnings report from GE and Google. GE’s Earnings were a penny better (surprise, surprise) but revenues came in light due to weakness in Europe and the finance business. Google stunk up the joint with a miss on the top line and the bottom line. It is down 8% pre-market.
Sorry I wasn’t around yesterday, though I see some people filled in for me.  I was at the CSFB Securitized Products conference yesterday in the city. Congressman David Schweikert (Vice Chairman of te House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises) spoke regarding the regulatory environment. A few takeways from the conference:
1) CSFB expects housing to decline 5%-7% this year and that *should* mark the bottom.
2) The government wants to introduce private capital into the mortgage market, but at the same time is trying to drive it away. The SEC is looking at changing the treatment of mortgage REITs which would drain, not add, private capital.
3) To get Fannie Mae capitalized to a reasonable level that would allow it to re-float would take a quarter of a trillion dollars. Nobody has a clue where that much money can be raised in the private sector. Which means Fannie and Fred will continue to be wards of the state.
4) The government is really interested in REOs to rentals. The problem is scalability.
5) 60% of underwater homeowners are current on their mortgages. Any sort of mass refinancing / mass principal cramdown for delinquent borrowers will also contain a massive moral hazard problem. Also, different treatment – the homeowner with a FHA loan gets relief, while the guy who’s mortgage went the private label route gets nothing.
6) There are a few leaders in Washington who get it, but most don’t. The appetite is still for slowing the foreclosure pipeline (in spite of volumes of evidence that it doesn’t do a thing to slow price depreciation – in fact it makes it worse).
7) Democrats want mass principal cramdowns and refis in spite of the fact that it would be an economic drag. It is simply a 1:1 transfer of wealth from investors to borrowers, so there is no multiplier effect, and the additional regulatory risk would drive mortgage rates higher. CSFB has conducted studies showing it is the affordability of the mortgage payment that matters, not the borrower’s equity position.
8) Question of the day: “Congressman, has anyone in Washington thought about just letting the markets clear?”  (The only thing that brought out laughter from the audience all day)
One observation I would make is that we want first time homebuyers, not necessarily hedge funds, to be buying up the excess supply. Yet closing times and down payment requirements for short sales drive many first time homebuyers away. I don’t know if it is because of regulatory reasons. If it is, Washington and the states should figure out a way to streamline the process.
In economic data, existing home sales comes out at 10:00.

Filed under: Earnings Announcements, Economic data, Economy, free markets, housing, politics | 35 Comments »

Morning Report

Posted on January 18, 2012 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1292.7 3.4 0.26%
Eurostoxx Index 2397.8 1.190 0.05%
Oil (WTI) 101.93 1.220 1.21%
LIBOR 0.5612 -0.001 -0.20%
US Dollar Index (DXY) 80.634 -0.480 -0.59%
10 Year Govt Bond Yield 1.85% 0.00%
Futures are up slightly on earnings and a lack of market-moving news out of Europe. Bond geeks will note that EURIBOR / OIS (a measure of stress in the banking system) has been moving lower since the year began. It is at 84 basis points, having dropped from 101 basis points six weeks ago. ECB funding probably explains some of it, but it is a welcome sign and helps explain the more sanguine mood of Mr. Market recently.
Goldman reported better than expected results this morning based on cost cuts. Compensation fell 21% and staff decreased 7%. On cue, William Cohan was on Bloomberg TV this morning complaining that Wall Street comp is still 50% too high. US Bancorp also reported better than expected earnings.
The Producer Price Index came in a little hot, but still subdued. PPI ex food and energy was up .3% MOM and 3.0% YOY. Inflation is still a non-issue as far as the Fed is concerned. Tomorrow will be a big economic day with CPI, Housing Starts and Initial Jobless Claims. No report tomorrow as I will be in the city all day.
EDIT:  More bullish economic data:  Capacity Utilization increased again to 78.1% and the NAHB Homebuilder sentiment index increased to 25, confirming what the homebuilders have been saying on their conference calls.

Filed under: Earnings Announcements, Economic data, Economy, eurozone, Financial Crisis, Homebuilding, Morning Report, stock market, Wall Street | Tagged: | 49 Comments »

Morning Report

Posted on January 17, 2012 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1300.9 12 0.93%
Eurostoxx Index 2397 35.460 1.50%
Oil (WTI) 100.77 2.070 2.10%
LIBOR 0.5623 -0.003 -0.46%
US Dollar Index (DXY) 80.821 -0.658 -0.81%
10 Year Govt Bond Yield 1.90% 0.04%
S&P futures are up after a 3 day weekend that started with S&P downgrades in Europe. Markets seem to be taking comfort in the Chinese GDP report last night that came in stronger than expected. Meanwhile Greece continues talks with bondholders regarding its upcoming 3/20 interest payment.
Earnings season gets into full swing this week, with Citigroup and Wells Fargo reporting this morning. Citi missed earnings on a drop in trading revenue, while Wells beat on stronger mortgage lending operations. Citi is down about 3 percent pre-open, while Wells is up about a percent.
In economic data, Empire State Manufacturing came in strong at 13.48 vs 11 expected.

Filed under: Morning Report | Tagged: , , | 49 Comments »

Morning Report

Posted on January 13, 2012 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1288.4 -3.3 -0.26%
Eurostoxx Index 2364.3 18.430 0.79%
Oil (WTI) 99.48 0.380 0.38%
LIBOR 0.567 -0.005 -0.79%
US Dollar Index (DXY) 81.026 0.192 0.24%
10 Year Govt Bond Yield 1.90% -0.02%

Happy Friday the 13th.
It is a slow news day ahead of a 3-day weekend. S&P futures are down slighly, while Europe is up slightly. Sovereign yields are lower.
Import prices came in as expected, while the trade deficit increased. J.P. Morgan’s earnings were down 23%, but still in line with expectations. Tier 1 common equity and Tier 1 common ratio are well in excess of Basel III requirements. Jamie Dimon is speaking to the press right now, and is noting that regulatory uncertainty is hurting the mortgage market. He also takes a shot at the Durbin Amendment, calling it a “Gross Miscarriage of Justice.” Don’t put too fine a point on it, Jamie.
Earnings season gets into full swing next week, with most of the financials reporting, along with big names like Ebay, Johnny John, IBM, Intel, Softee, Google, and GE.
Edit: University of Michigan Consumer confidence came in at 74 up 6% MOM and more or less flat YOY.

Filed under: Uncategorized | 20 Comments »

Morning Report

Posted on January 12, 2012 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1294.5 6.3 0.49%
Eurostoxx Index 2371.5 31.960 1.37%
Oil (WTI) 101.97 1.100 1.09%
LIBOR 0.5715 -0.005 -0.87%
US Dollar Index (DXY) 81.118 -0.140 -0.17%
10 Year Govt Bond Yield 1.92% 0.01%

Markets are slightly positive this morning as good news out of Europe is offset by disappointing economic numbers out of the US. Spain and Italy had good debt auctions, which is pulling down sovereign yields across the board. The ECB held rates at 1% and noted “tentative signs of stabilization” in Europe.
Initial Jobless claims for the week ending 1/7 were 399k, versus 375k expected. Continuing claims were higher as well. Retail Sales for December were flat ex autos. November numbers were revised upwards. Given the comp numbers reported last week, I would not be surprised to see upward revisions. It feels like an outlier.
Regarding the jobs numbers, an interesting dynamic will be playing out in the unemployment numbers. Workers who have been unemployed for over 6 months are considered “discouraged workers” and do not count in the unemployment numbers. As the economy improves, those workers will start looking for work again and should be counted as “unemployed” This should add upward pressure to the unemployment numbers. But, with an election coming up, the Labor Department will want to understate this phenomenon as much as possible. So I would take any unemployment numbers with a grain of salt, if you don’t already.
The winter that never was (it is 40 degrees and rainy this morning in the Northeast) is wreaking havoc on natural gas prices. While WTI continues to hang around $100, gas is now down to $2.71. Natural gas bulls are being taken to the woodshed, and is approaching the 2009 lows of $2.51. It will be interesting to see if someone ends up getting carried out on a gas bet.

Filed under: Uncategorized | 7 Comments »

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