Need a little help?

For those who want someone else’s insight into the NCAA men’s hoops tournament, there are oodles of prognosticators out there.

I offer these examples without comment.

Bleacher Report

March Madness Mix

Graham Watson: Cinderella teams worth considering

SB Nation

In the end, it’s hard to accurately pick the upsets.  Some bracketology pundit will inevitably be right.  You yourself just may be that pundit.

Have fun!

Can’t Pass up a Ghostbuster Joke

New from Despair Inc.

Available here.

Morning Report

Vital Statistics:

Last Change Percent
S&P Futures 1366.0 -0.8 -0.06%
Eurostoxx Index 2507.1 -8.9 -0.35%
Oil (WTI) 106.09 -1.3 -1.22%
LIBOR 0.4736 0.000 0.00%
US Dollar Index (DXY) 79.976 -0.065 -0.08%
10 Year Govt Bond Yield 2.00% -0.03%

Markets are weaker this morning on the back of a disappointing report on Chinese exports and lower commodity prices. Oil is down a buck and a half, while bonds and mortgage backed securities are a touch higher.

Euro credit default swaps are higher this morning after ISDA declared the Greek exchange offer a “credit event.” The next event in Greece will be the auction on Mar 19, which will set the payout price for the bonds. Since most holders tendered their bonds, it will be a low volume event which opens the door for manipulation.

With the Greece resolution in place, market participants will begin to focus on the next problem child, widely believed to be Portugal. Portuguese yields are 13.7%. That said, EURIBOR / OIS (a measure of stress in the banking system) has been tightening steadily since the beginning of the year, and is trading at 54 basis points after peaking at 100 basis points in Dec.

Pacific Capital Bancorp is being bought by Mitsubishi UFJ Financial, which is the first bank deal in what seems like forever.

The king of data miners, Thomas (Flathead) Friedman has a column discussing the negative relationship between test scores and the percentage of GDP a country earns from natural resource extraction. In other words, if you don’t have a lot of natural resources (Taiwan, Japan), your students tend to do well, as opposed to, say, Saudi Arabia or Kuwait.  Columns like this always remind me of those “Vegas killer” betting systems you see advertised in fantasy football magazines in the late summer (always take the dog on Monday night, when the game is on artificial turf, and the NFC team won the Sunday night game…).  Correlation does not imply causation. Will our test scores go up if we stopped oil production in the US?  Of course not.

Sunday Morning Open Thread

Did you turn your clock forward?

Before conference tournament play began these were your top 12:

1 Kentucky (31) 30-1 775
2 Syracuse 30-1 744
3 Kansas 26-5 703
4 North Carolina 27-4 690
5 Missouri 27-4 620
6 Duke 26-5 604
7 Ohio State 25-6 568
8 Michigan State 24-7 540
9 Marquette 25-6 537
10 Murray State 30-1 526
11 Baylor 25-6 422
12 Wisconsin 23-8 417

So far, KY, agreed to be the best team in the nation, barely squeaked out a win in the SEC semifinal, Syracuse, Kansas, Duke and Marquette did not make it to their conference finals, and MO and Baylor exceeded expectations.  The remaining teams have performed as expected – the Big 10 final result will not be an upset; however, if UNC loses in the ACC final, or if KY loses in the SEC final, that will be a surprise.  There is no qualitative difference worth mentioning between being a one seed or a two seed in the NCAA Tournament – if form follows, you get easy sledding for the first two games.  Everybody then is on even ground in the Sweet 16, because we have just seen that top 16 teams can all beat each other on a given night.

Match-ups matter.  Baylor is big and fast, but has defensive lapses that a team consistent in spreading the court with good three point shooters and good passing to take advantage of spacing will exploit.  Baylor cannot beat a Missouri or a Duke.  Syracuse can beat anyone if they are shooting well.  But they have the most trouble with a Missouri or a Duke, too, because they play zone.  KY, UNC, and Kansas all play like NBA teams, although not quite as talented.  Ohio St. is almost in that crowd with KY, UNC, and Kansas.  Michigan State is a testament to the best coach in America, Izzo, who has good but not great talent and makes them tournament tough by the end of the year.

On another note, about human capital:  http://www.nytimes.com/2012/03/11/opinion/sunday/friedman-pass-the-books-hold-the-oil.html?src=me&ref=general

My sis was graduated from Mich. St., PhD from UNC.  Good luck to UNC and Mich. St. today!

Addendum: KY and UNC lost their conference finals.  UNC benched one of its stars as a health precaution.  Both teams are probably still “ones”.  The Big Ten gives us its two premiere teams in the conference final, next.

NCAA Men’s Hoops update

I may not have access to the internet on Sunday so I’m posting this now.

Here are the logistics for the ATiM group pool.  It’s out on Yahoo!  Just follow this link to the Tourney Pick’em portal.  Click on “Join a Group”.  Our group particulars are:

  • Group number: 18465
  • Group password: moderation
  • Group name: ATiM Rocks

Once in, you’ll be able to create up to five brackets under a single email address.  Your family members are free to use their own email addresses to log in and create their brackets, but this makes it easier for those lacking email, such as DogJS, to participate.

The pool is technically open only to ATiM’ers and their families.  If someone else reeeeeally wants to join s/he won’t be stopped, but seeing as no money’s involved and the prize is a nifty ATiM plaque or tchotchke I doubt too many will be that inclined.

You only need concern yourself with ‘the final 64’.  The four play-in games prior to March 15 aren’t included.

The scoring system is intentionally skewed to reward risk.  And you’re picking outright winners without regard to the point spread.  There are two components to scoring.

The first component is the points awarded for making the correct picks.  The number of points awarded doubles each round.

  • 1st round: 1 point per correct pick
  • 2nd round: 2 points per correct pick
  • Regional semis: 4 points
  • Regional finals: 8 points
  • National semis: 16 points
  • National finals: 32 points

The second component is the seed differential bonus.  It comes into play only if you correctly pick an upset, meaning the winner’s seed has a greater numerical value than the loser’s.  The formula for the seed differential bonus is:

(winner’s seed – loser’s seed) x multiplier

The multiplier for each round has been set at three (3).  So if you correctly pick a #10 seed to beat a #7 seed, your seed differential bonus is (10 – 7) x 3 = 9 points.

If you have questions, you may post a message, either on the group message board or here at ATiM.

Have fun!

Saturday Morning Open Thread

Not much going on today other than basketball (sorry ’bout your ‘Horns, Mark!), gardening for some of us in warmer climes–although it hit 52 here yesterday afternoon, the overnight low was still 28–and weekend chores.

In addition to UT’s loss in the Big 12 conference championship last night, the Utes lost their final home gymnastics meet to Nebraska 197.6 – 197.45; Nebraska put on a hell of a show, because they only had seven active gymnasts for the meet and five of their athletes went all around.  Now those are some tough chicks!

Last, I thought  this was actually pretty good:

 

 

What do you guys have going on this weekend?

NOTE: And why, oh why, did I schedule a hair appointment for 12:15 on a day when MSU is going to start playing at 11:40 local????

SAVE CATO

A few of you are strong economic libertarians.  A few of you are strong social libertarians.  I maintain many libertarian positions as do most of the rest of us here, and I have always found Cato’s web page worth the read.  I think all of us should read this:

http://www.cato.org/SaveCato/

and this:

http://volokh.com/2012/03/09/koch-v-cato-skip-olivas-observations/

Some of us will also find this worthy as background material, because it centers on the kind of important philosophical matters Cato raises that could indeed be silenced:

http://baselinescenario.com/2012/03/08/the-koch-brothers-the-cato-institute-and-why-nations-fail/#more-9955

Partisan Democrats may think Cato is already a tool of Republicans, so I would not bother to recommend these articles at PL.   I think that any of you here from “left” to “right” who have ever gone to Volokh or to Libertarianism 101 recognize the difference.  When we argue policy, we may line up with the “platform” of one party far more than another, but political parties live first for self perpetuation by getting elected, which means raising money and votes, not to have true discussions of why policies make sense from a philosophical perspective.  We have some well established strains of political philosophy.  Libertarianism is one of them.  I want Cato to survive.

Morning Report

Vital Statistics

Last Change Percent
S&P Futures 1363.5 2.9 0.21%
Eurostoxx Index 2518.8 4.6 0.18%
Oil (WTI) 106.65 0.1 0.07%
LIBOR 0.4736 0.000 0.00%
US Dollar Index (DXY) 79.665 0.526 0.66%
10 Year Govt Bond Yield 2.04% 0.03%

Markets are rising this morning after Greece successfully completed its sovereign debt restructuring and the BLS released its jobs report. Over 95% of bondholders tendered after Greece said it would trigger a collective action clause compelling participation. This should pave the way for another 130 billion in aid. While the market clearly does not consider the crisis solved – the new bonds are trading at a 22% yield in the when-issued market – this should at least put Greece on the back burner for a while. The 10-year is down 6 ticks, while mortgages are flat.

The BLS released its February Employment Situation report at 8:30 this morning. Feb payrolls came in a bit higher than expected – 227k vs 210k expected. The unemployment rate was flat at 8.3% and in line with expectations. The labor force participation rate edged up slightly from its Jan lows. Earnings and hours were up a hair. Professional and Business services added the most jobs, along with health care. Government and construction were flat.

CoreLogic released its monthly Market Pulse yesterday (you need to register to get it, but it is free). They note the building economic strength and signs of improvement in the real estate market. They note that the recovery was initially driven by productivity-increasing capital investment, which allows companies to increase output without increasing hiring. Productivity growth is tapering off, which suggests that business has pretty much extracted all it can from existing employees and will need to start hiring to increase output.

The report notes that 25% of MSAs are now experiencing price increases. The ones that are lagging the most are the ones with clogged foreclosure pipelines – for the most part judicial foreclosure areas. Just more proof that politicians who want to slow foreclosures in the hopes that keeping supply off the market will stabilize prices are shooting themselves in the foot. Of course some politicians are incorrigible. To be fair, most of these measures are small-ball things that won’t change the dynamics of the housing market, but will allow the administration to say they are “doing something” about the housing crisis. For some reason, letting the market clear does not constitute “doing something.”

Do you look at Zillow to get an idea of what your house is worth? The Washington Post dissects the Z-estimate and its accuracy. Punch line: Neighborhoods with high turnover tend to have Z-estimates closer to actual sales prices than neighborhoods with lower turnover. While it can be a useful (and fun) number, take it with a grain of salt.

Syria – from Stratfor

 

Syria: What Prevents U.S. Military Involvement

March 7, 2012

 

 

Summary

 

The United States is not eager to launch an air campaign against the Syrian regime that would be similar to the NATO campaign in Libya even though numerous U.S. lawmakers have called for such a campaign. Not only did Libya not have the formidable air defense systems that Russia has provided to Syria, but Syria’s rebels have not been able to control large areas of territory. These factors would complicate any air campaign against the al Assad regime, but Washington’s reluctance to get involved militarily is based on the fear that it could slip into a much messier conflict than it did in Libya.

 

Analysis

 

Amid increasing calls from some U.S. lawmakers for an air campaign against the Syrian regime, the U.S. administration appears to be making a concerted effort to explain to the public why this is not a preferred course of action. Beyond the significant regional implications of such an action, Washington does not want to get involved in a conflict with Syria that likely would pose credible threats to U.S. air forces and risk involving ground forces as well.

 

The Rationale in Washington

 

When U.S. Central Command chief Gen. James Mattis briefed the U.S. Senate Armed Services Committee on Syria on March 6, his overarching message was that any military action in the country would not be easy. Mattis noted that the lack of any safe zones in Syria would mean deploying a significant number of ground troops to create such zones and warned that the United States believes the Syrian government possesses chemical and biological weapons. When asked about the possibility of imposing a no-fly zone in Syria, as NATO forces did in Libya, Mattis warned of the potential dangers posed by the advanced air defense systems Syria has received from Russia.

 

Mattis’ remarks were a subtle rebuttal to calls made in recent days by Sen. John McCain, one of the committee leaders, to launch airstrikes in Syria. On the same day as Mattis’ briefing, Foreign Policy published an article citing two anonymous Obama administration officials discussing what the White House is planning for the next phase in the Syrian conflict. One official referred to the same danger posed by Russian-supplied air defense systems, adding that a recent Russian shipment to Syria contained large amounts of advanced anti-aircraft missile systems, presumably intended to defend Syria should the conflict become international.

 

Washington seeks to dampen the expectation that it intends to do in Syria what it did in Libya. An air campaign is not on the horizon, and the United States is also hesitant to publicize any of its attempts to arm the opposition, though remarks from the officials cited by Foreign Policy seem to indicate that Washington is giving other countries (likely Saudi Arabia and Qatar) approval to do so. Public discussions of arming the opposition forces are, however, more for public relations to show that something is being done to assist an opposition under siege. If the United States were actively engaged in such activities, it would manage the operation covertly.

 

Syria’s Defenses Compared To Libya’s

 

The United States has a strategic interest in seeing the fall of the al Assad regime because of the effect it would have on Iran’s influence in the Levant. Aside from levying sanctions and a public acquiescence to other countries sending in weapons, Washington does not appear to be publicly doing much to hasten al Assad’s downfall. The United States is wary of entering the fray due to its fears that it would get dragged into a much messier conflict than those calling for an air campaign are anticipating. Pointing to the potential dangers posed by Syria’s air defense network is one way of discouraging calls for military intervention.

 

This is not to say that the Syrian Air Defense Command (ADC) is not formidable, especially in comparison to what NATO forces went up against in Libya. With an estimated 54,000 personnel, it is twice the size of former Libyan leader Moammar Gadhafi’s air force and air defense command combined at the start of the NATO campaign. Syria’s ADC consists of the 24th and 26th anti-aircraft divisions comprising thousands of anti-aircraft guns and more than 130 surface-to-air missile (SAM) batteries. The bulk of Syria’s ADC SAM weaponry is the SA-2, SA-3, SA-5, SA-6, and SA-8 SAM systems that were also operated by Gadhafi’s forces. However, the Syrians operate these systems in far greater numbers, have devoted significant resources to the maintenance and upgrade of these missile batteries and have also successfully deployed their SAM systems in a dense and overlapping layout that would complicate potential Suppression of Enemy Air Defenses operations.

 

Though also a Russian ally, Gadhafi did not have the more advanced Russian air defense systems that the al Assad regime possesses. For instance, Iran reportedly financed Syria’s acquisition of 50 SA-22 systems first delivered in 2007 — 10 of which allegedly ended up in Iranian hands. The Syrians are also thought to operate several SA-11 systems, which the Libyans did not have. Furthermore, reports emerged in November 2011 that the Russians upgraded numerous Syrian radar sites and transferred a number of advanced S-300 systems to Syria and that a Russian naval mission to Syria that month also served to transport several Russian missile technicians who were to assist the Syrians in operating the S-300s.

 

Syria’s defenses against an air campaign are not restricted to the ground. Its air force can contribute dozens of fighter aircraft and interceptors, the most advanced of which are the MiG-25 and MiG-29. But while the Syrian air force is both quantitatively and qualitatively superior to Gadhafi’s air force, which was just starting to re-equip and modernize itself after years of sanctions, it has neither played a meaningful role in managing the unrest in the country nor would it play a meaningful role in defending the country from an air campaign.

 

Perhaps the biggest difference between Libya and Syria is that the Syrian rebels have not yet been able to hold significant territory. This matters not just for their ability to have safe areas from which to launch attacks, but also for the air defense network’s ability to function properly. Air defense systems typically are designed to provide cover through overlapping areas of coverage. When eastern Libya fell into rebel hands early on during the revolution, that overlap was severely damaged, which in turn degraded the Gadhafi regime’s overall air defense network. The Syrians are not facing this difficulty.

 

A Feb. 28 CNN report said that the Pentagon had drawn up detailed plans for military action against the Syrian regime. The U.S. military indeed has updated its order of battle (orbat) for Syria in preparation for any contingency operations, and this work allegedly produced the best orbat the United States has had on Syria since 2001. However, contingency plans exist for numerous countries with which war is unlikely. The situation in Syria — whether through the loss of territory, massive defections from the regime or the loss of Russian support — will have to change before Washington implements any of the plans it has prepared.

 

 


Morning Report

Vital Statistics:

Last Change Percent
S&P Futures 1361.8 9.0 0.67%
Eurostoxx Index 2494.7 33.9 1.38%
Oil (WTI) 106.55 0.4 0.37%
LIBOR 0.4736 -0.001 -0.21%
US Dollar Index (DXY) 79.298 -0.414 -0.52%
10 Year Govt Bond Yield 1.99% 0.02%

Markets are stronger this morning a strong economic report out of Germany and optimism that Greece’s debt swap will go through without major problems. Markets are continuing yesterday’s rally that was sparked by QEIII hopes. Initial Jobless Claims were 362k.

I was at the JP Morgan Securitized Products conference all day yesterday. Congressman David Schweikert (R-AZ) spoke regarding the regulatory environment. It is an election year, so expect more initiatives out of the administration to provide relief. A couple takeaways from his talk:

  • LIberals agitating for wholesale principal reductions are just conducting election – year posturing. Everyone in Congress is getting phone calls from their state pension funds (who are large holders or MBS) begging them not to do it. Liberals acknowledge in private they would annihilate pension funds and would do great damage to the future housing finance system if they allowed large-scale principal forgiveness in GSE paper. Which makes FHFA Director Ed DeMarco a very convenient figure at this point and means he probably isn’t going anywhere.
  • The MERS headache is generating preliminary discussion of a global settlement fund (a la asbestos or tobacco) to settle all of the claims coming from the financial crisis. Probably a low-probability event, but it is out there.
The other takeaways from JPM speakers.  (For the ATiM folks, a lot of this is going to be really “inside baseball”)
  • Origination margins have spiked – originators are probably making 3-4 points on new loans (pre-expenses)
  • QEIII will not do much for housing. The Fed is pushing on a string at this point. Fund managers are at record overweight levels on MBS, which means the Fed could spend a lot of money and not move mortgage rates (or affect house prices) all that much.
  • The Fed thought it would be cute to institute new fail charges right ahead of QE, thus adding a short squeeze to the mix. Dealers are having a tough time getting paper to satisfy the appetite of the Fed and won’t short due to the fail charges. This is part of what is driving MBS spreads so tight.
  • Ally is scaling back the correspondent business, while Wells and Citi are getting more aggressive. Chase overshot in downsizing correspondent lending and plans to increase it this year.
  • House prices will fall another 3% this year and that should mark the bottom
  • The government is probably going to experiment with a “first loss” tranche in conforming paper. Expect this in the next 3 – 6 months. This would accomplish two things – first it would start the process of handing off mortgage financing to private capital and it would give a market-based indication of what it should charge for its guarantee (its G-fee). The G-fee is set on the basis of politics and funding needs (for example, it was just raised 50 bp for 10 years to pay for the 2 month payroll tax extension). It would be subordinated paper that absorbs the first 5%, making FHA more of a re-insurer. Concern is demand for the first loss tranche.  Banks would have to reserve 100% for it, so hedge funds would have to buy it. The concern is that they don’t have the capacity.
  • JPM estimates the shadow inventory to be about 5.5 million homes and net demand for housing is 1.25 million per year. Household formation has fallen off a cliff.
  • Basel III requirements for MSRs are extremely harsh (MSR value over 10% Tier 1 becomes a capital deduction) Expect MSRs to remain very cheap. Banks are contemplating cutting servicing fees to 12 basis points.
  • Fan and Fred will remain wards of the state. It would take $250 – 300 billion to capitalize them and they already owe Treasury $160 billion. That is basically the enterprise value of Exxon Mobil. You can’t raise that kind of capital in the private sector.
  • Once the economy picks up steam, the fiscal problems will become front and center. We are looking at about half a trillion of contraction in early 2013, with the expiration of the Bush tax cuts ($250B), the sequestration due to the failure of the debt supercommittee ($100B) and the expiration of the payroll tax cut ($120B). Don’t be surprised if we fall into a recession early next year.
  • Household balance sheets are improving, (DTI ratios are falling) but this has been 100% due to defaults. Debt service ratios are at multi-decade lows due to low interest rates.