Kicking the can down the road

Posted on June 17, 2012 by ScottC

It looks like the pro-bailout party is going to win in Greece, which means Greece will continue with mandated austerity and Europe will continue to bail out Greece. At least for a time.

Markets in Japan haven’t opened yet, but stocks should rally and bonds will sell off, at least temporarily.

Filed under: EU, Greece | 11 Comments »

Morning Report

Posted on February 21, 2012 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1363.6 3.9 0.29%
Eurostoxx Index 2532.8 -17.4 -0.68%
Oil (WTI) 105.04 1.8 1.74%
LIBOR 0.4926 -0.001 -0.10%
US Dollar Index (DXY) 79.145 0.005 0.01%
10 Year Govt Bond Yield 2.03% 0.03%

We have a deal in Greece. Bondholders had to take a slightly bigger haircut – 53% vs 50% already agreed to. The $170 billion will be more than enough for Greece to meet its payment at the end of March. The Eurostoxx index is down slightly on the news – another case of “buy the rumor, sell the fact.”

Are we out of the woods with Greece?  No. Greece intends to hold elections in the next few months, and there is nothing preventing a new government from undoing all of the austerity measures imposed for this deal.

The Chicago Fed released its National Activity Index this morning. It came in at .22, which indicates the economy is growing faster than its historical trend.  An index value of zero means the economy is growing at its historical trend.  Employment and Production were large positive components, while Consumption and Housing were negative components. December was revised higher as well.

The Home Despot reported better than expected earnings this morning, which should be another positive indicator for housing and the economy. Macy’s also reported a strong holiday selling season.

Economic data on tap this week:  Existing Home Sales on Wed, Initial Jobless Claims on Thurs, New Home Sales on Fri.

Filed under: Earnings Announcements, Economic data, Greece | 12 Comments »

Morning Report

Posted on February 16, 2012 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1341.4 -0.8 -0.06%
Eurostoxx Index 2471.7 -22.2 -0.89%
Oil (WTI) 101.61 -0.2 -0.19%
LIBOR 0.4931 -0.002 -0.40%
US Dollar Index (DXY) 79.952 0.225 0.28%
10 Year Govt Bond Yield 1.96% 0.03%

Global equity markets are weaker this morning as European leaders delay a vote on the Greek bailout until 2/20.  The finance leaders were able to squeeze some more concessions from political leaders, but there are still differences over surveillance and control. Separately, Moody’s threatened a downgrade of the global banking sector. Bonds and mortgage backed securities are slightly lower as well.

GM posted a record profit! I am sure tomorrow’s editorial pages will be filled with columns praising the auto bailout and using this earnings announcement as justification. Well, if you repudiate your debt and get rid of all that pesky interest, you had better post record earnings.  GM’s numbers were still below estimates and the stock is down a couple of percent pre-open. As an aside, Chrysler has to issue senior secured debt at 8%.  That is a usurious rate for senior secured debt. See, that is what happens when you re-order the priority of creditors. Investors remember.

Economic data this morning:  Producer Price Index more or less in line with expectations, running at 4.1% annually.  Initial Jobless Claims continue to fall, coming in at 348k vs 365k expected. We are more or less back in the historical “normal” range. Housing starts came in at 699k, above expectations, but still very low. In prior recessions, housing starts bottomed at 750k – 850k.  The last time we were above 1 million units was June of 2008.  1.5 million is normal. The lack of residential construction has been the achilles heel of the recovery so far.

Chart:  Housing Starts:

The minutes of the FOMC meeting were released yesterday. They really don’t add anything to what was said in the press conference after the rate decision.  The minutes don’t really address the question most had regarding the recent good economic data. “Many participants noted some indicators bearing on the economy’s recent performance had shown greater-than-expected improvement, but a number noted less favorable data…” The tone of the minutes was that the economy was improving, albeit slowly, and there is no reason to take our foot off the gas for the moment.  Maybe the Fed believes the Greek negotiations are simply a big kabuki dance and that a default is unavoidable.

RealtyTrac has released its U.S. Foreclosure Market Report for January 2012. Key Quote: “Although overall foreclosure activity was down from a year ago for the 16th straight month in January, we continue to see signs on a local and regional level that the frozen-up foreclosure process is beginning to thaw.” They predict increasing foreclosures in the coming months especially given the settlements in early Feb between the nation’s largest lenders and 49 state attorney generals. Clearing out the shadow inventory of foreclosed homes is a necessary but not sufficient condition for a recovery in house prices.

Filed under: Economic data, Federal Reserve, Foreclosure, Greece | 24 Comments »

Morning Report

Posted on October 27, 2011 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1266 28.6 2.31%
Eurostoxx Index 2464.6 129.540 5.55%
Oil (WTI) 92.98 2.780 3.08%
US Dollar Index (DXY) 75.502 -0.715 -0.94%
10 Year Govt Bond Yield 2.28% 0.08%

Stock markets are rallying on news that the Europeans have come to an agreement to deal with Greece, with bondholders taking a 50% haircut and boosting the rescue fund to 1 trillion euros. Is this the silver bullet that will solve this problem once and for all? The initial take seems to be no. The bigger question will be whether this quarantines the Greece problem or does the contagion spread to the rest of the PIIGS. For the moment, the markets are breathing a big sigh of relief.

3Q GDP came in with an annualized increase of 2.5%, more or less in line with the economists survey. Consumption came in higher than expected (2.4% vs 1.9% expected), which tells us there is a growing discrepancy between what consumers feel (as shown in the consumer confidence numbers) and what they actually do (as evidenced by spending numbers). As I have discussed before, this is how recessions end – consumers don’t start spending because they want to, they do it because they have to. Eventually the 10 year old car becomes too expensive to fix, Dad’s 5 year old dress shirts become ratty, and need to be replaced. The other headwinds in the economy will undoubtedly overpower any consumer strength for the moment, but those headwinds are becoming milder as time goes on. I am not buying the double-dip recession thesis. Just not buying it.

In other data, the labor market is still stuck, with initial jobless claims above 400k again and continuing claims at 3.65 million. The labor market is always the last to improve.

Chart: Initial Jobless Claims:

Filed under: Europe, Greece, Initial Jobless Claims | Tagged: | 14 Comments »

Thursday Morning Opening Thread

Posted on September 22, 2011 by Michigoose
The Tea Party Strikes Again?
Hold onto your hats, it’s about to get bumpy out there again:
The U.S. House, in a surprise setback to Republican leaders, defeated a spending bill providing $3.65 billion in aid to victims of recent natural disasters and needed to prevent a government shutdown.

Republicans unhappy with the measure’s overall cost joined Democrats opposed to a proposed cut in an auto industry-loan program to derail the measure yesterday, 230-195. Opposing the legislation were 48 Republicans and 182 Democrats; backing it were 189 Republicans and six Democrats.

The defeat raises the prospect of a government shutdown because the bill would fund the government until Nov. 18. The current fiscal year ends Sept. 30, and Congress is in recess next week.
Roll call is here.
”Utah’s Sarah Palin”
I had not heard of this woman, and I have to say that I don’t think she’s got a snowball’s chance as the congressional district is configured right now, but she is mounting a run against my Blue Dog. Jim Matheson is really going to be in trouble if the redistricting commission goes with the “doughnut hole” approach (one CD centered on Salt Lake City on the Wasatch front and the other three dividing up the rest of the state). He isn’t liberal enough to carry the new urban district—the big reason why his re-election was so close last time was because liberals like me voted for a third party candidate rather than him—and Tea Party sentiment is running high in Utah and a candidate like Ms Eagar could carry the rural part of his existing district. Will she have the ‘Cuda’s ability to fire up the masses?
Greek Salad
From the BBC, Reuters, and Food TV. Although I, personally, would leave the green peppers out of the last one.
Who’s got a good joke to start the day?
Submitted for your consideration by Michigoose

Filed under: budget, government shutdown, Greece, recipes, redistricting, Tea Party | Tagged: | 29 Comments »

Don’t Forget Greece

Posted on September 20, 2011 by lmsinca

Everyone is anxiously waiting to see the results of Greece defaulting on its debt and how it will affect the rest of us. Are they really going to default? It appears there’s not much left to try even though the confidence boosters keep trying to delay the inevitable and give us happy talk while we wait.

I’m not much of an economist and so I thought this piece in the NY Times was a good read about where things stand and where they’re headed, especially for those of us who are interested in the story but can’t quite wrap our minds around the global market and what a Greek default might mean for us.

We could call it “Greek Default for Dummies” (like me). Hopefully some of you reading this will have more to say. There was a piece in the Financial Times I couldn’t get to because of a pay wall. Maybe someone here could give us the hightlights?

Greece Nears the Precipice

A few highlights from the piece:

A default would relieve Greece of paying off a mountain of debt that it cannot afford, no matter how much it continues to cut government spending, which already has caused its economy to shrink.

At the same time, however, there is a fear of the unknown beyond Greece’s borders. Merrill Lynch estimates that the shock to growth in Europe, while not as severe as in the aftermath of the financial crisis of 2008, would be troubling, with overall output contracting by 1.3 percent in 2012.

While other countries have defaulted on their sovereign debt in recent times without causing systemic contagion, analysts weighing the numbers on Greece note that its debt is far higher, so the ripple effects could be more serious.

Total Greek public debt is about 370 billion euros, or $500 billion. By comparison, Argentina’s debt was $82 billion when it defaulted in 2001; when Russia defaulted, in 1998, its debt was $79 billion.

Willem Buiter, the chief economist at Citigroup, presents two possible default outcomes. In the first, Greece forces private sector creditors to take a loss on their bonds of 60 to 80 percent but manages to stay inside the euro zone by keeping current on the smaller amount that it owes its official lenders, like the European Union and the I.M.F.

While technically a default, the loss would not be an outright repudiation of Greece’s debt and the contagion could, in theory, be contained.

One big unknown revolves around the fact that, unlike other countries that have defaulted on their debts in the past, Greece does not have its own currency.

The potentially more dangerous default outcome is if Greece decides to leave or is forced to leave the euro, according to Mr. Buiter. Then, Mr. Buiter believes, the debt write-off would approach 100 percent and the effects on international markets could be much more serious.

Filed under: default, EU, Greece | Tagged: | 7 Comments »