All Things in Moderation

Vital Statistics:

Markets are down slightly on a couple of lukewarm bond auctions in France and Hungary. This also begins pre-announcement season, where companies who are going to miss their quarterly numbers fess up. Today’s names: Tesoro, J.C. Penney, and Eli Lilly.

Initial Jobless Claims continued their 375k a week pace, lower than the 400k pace we had been accustomed to. The ADP number was way better than expected, forecasting 325k jobs being created in December, vs expectations of 178k.

The Fed released a white paper yesterday discussing the US housing market and possible policy responses to it. I have not read it yet, and I will give you my take when I have finished it. They do suggest that the GSEs relax refinancing guidelines, and that the government find a way to encourage foreclosures to be turned into rental properties. Anecdotally, here in the Northeast, I do find that banks are very reluctant to move off of their offering prices in short sale situations, which signals they know something is in the works.

Today is the first Thursday of the month, which means retailers are giving their comp sales numbers. The winners: Macy’s, The Limited, Zumiez. Losers: J.C. Penney, Target, Kohl’s, The Gap, and American Eagle. Margin pressure continues to signal that the consumer is very value conscious and that promotional activity drove sales.

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In light of Iowa, and the general tenor and direction of the GOP race for the nomination, and
for that matter the general tenor and direction of the party as a whole, the Tea Party deserves kindness and understanding and a dismissive and cruel sneer.

The Tea Party should be forgiven. Our endeavors often come to nothing
and it becomes apparent that our our efforts were ludicrous from the start. Life is like that. For that reason, the Tea Party deserves kindness and understanding. As do we all.

And after all the bluster, all the talk, after all the risible history lessons (that is to say after all the strange, crackpot accounts of historical events), after all the comical claims to have, God knows how, privileged access to the consciousnesses of “the founders” and to know all their wishes for us, their progeny, after all the nonsense about “socialism”, after all the excuses
for, confusingly, not manning the barricades when a Republican president was spending, after prattling on and on about smaller government while guarding medicare like a rabid, starving, snarling cur protecting a bone with a scrap of meat clinging to it, after all
that, the Tea Party deserves cruel smirks, mockery, and open scorn.

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We need more people to post here. I got writer’s block or something. 😉

The perfect epitaph. — KW

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Vital Statistics:

Markets are giving back some of yesterday’s gains on a slow news day.

The Fed announced yesterday that they will be more transparent in forecasting interest rates in the future. The ironic thing is that when I studied money and banking way back in the day, the view was that if the market perfectly anticipated Fed policy, it would be ineffective. The Fed had to surprise the market for policy to have its full effect. I believe this will probably be temporary – the Fed knows it has to extricate itself from the financial system and that rates eventually have to go up. The Fed is going to ensure that increases are well-telegraphed and that people have ample time to adjust.

Not a lot of economic data this morning. We will have jobless claims tomorrow and payrolls / unemployment on Friday.

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TED Talk: How Healthy Living Nearly Killed Me.

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Vital Statistics:

Markets are rallying on thin volume as market participants focus on a lack of bad news out of Europe. Sovereign yields are slightly higher across the board. Investors may also be taking a view that the ISM report (due at 10:00 am) will be better than expected.

On the “glass half-empty” side of the ledger, the WSJ has an article on Bridgewater’s view on the economy – and it doesn’t bode well. Money quote:

“What you have is a picture of broken economic systems that are operating on life support,” Mr. Prince says. “We’re in a secular deleveraging that will probably take 15 to 20 years to work through and we’re just four years in.”

In Europe, “the debt crisis is [a] long ways from over,” he says. The economic and financial morass will mean interest rates in the U.S. and Europe will essentially be locked at zero for years.

Dalio is long gold, Asian emerging market currencies, and high quality government bonds. The article goes on to say that they believe there is money to be made in US Treasuries. That is a defensive portfolio.

The NYT has an article discussing the dismal state of the US consumer. The article echoes the Bridgewater piece that debt remains a headwind for the US economy. This analysis isn’t new – economists have been talking about it since the crisis began. But how much progress has been made in consumer deleveraging? A couple charts suggest that things are not as bad as it seems.

Chart: Consumer Debt as a percent of GDP:

The above chart shows the progress being made in deleveraging, but it ignores one huge issue – what determines spending – the amount you owe or the amount you pay? Lower interest rates have allowed homeowners with equity to refinance at much lower rates. If you look at debt service – the amount people actually pay – it is down quite a bit.

Chart: Ratio of Debt Service Payments to Disposable Income:

While the dour mood of the job market will undoubtedly influence consumer spending, low interest rates have at least increased borrowing capacity, which may come into play when the consumer’s mood shifts.

********EDIT:

ISM is in, better than expected (53.9 vs 53.5 expected). Good manufacturing report. Best news: bit jump in employment, rebounding back to Spring levels. Construction Spending was also up 1.2%, better than the .5% estimate.

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Medical technology innovations to look forward to in 2012 and beyond.

That’s it for today! — KW

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From Ace of Spades (yes, McWing, again), talking about the GOP and the upcoming election: If This is the Best We Can Do, We Deserve To Lose.

Our choice is coming down to whether we want to run the car over the cliff at 120MPH with Obama or whether we want to clip along at a leisurely 60MPH with the eventual GOP nominee in the driver’s seat for that final launch over the edge.

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It’s December 31, and 2011 is almost history. Let’s take a look back, JibJab style.

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