The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

Airtime: Wed. Jul. 29 2009 | 8:50 AM ET

Art Cashin, head of floor operations at UBS, has the buzz from the NYSE

This should be the last of the Seasonal adjustment discussions, but note the difference between the two data runs: Non Seasonally Adjusted and Seasonally Adjusted .
>
click for larger chart

via Bianco Research

>

~~~

Media coverage was mostly gushing:

Read the rest of this entry »

Housing Foreclosures:

~~~

Starts at the 4 minute mark

Good show — first time I met Arianna Huffington, and we obviously disagree about Foreclosure, but she was very nice.

I’ll get the video posted as soon as it comes out.

Late getting back to the office from 30 Rock — I need a few minutes to catch up

~~~

Housing & Madoff Video

Macromarkets Chief Economist Robert Shiller and Macromarkets CEO Sam Masucci weigh in on the state of the housing market and economy.

Video after the jump

July 28, 2009

David R. Kotok co-founded Cumberland Advisors in 1973 and has been its Chief Investment Officer since inception. He holds a B.S. in Economics from The Wharton School of the University of Pennsylvania, an M.S. in Organizational Dynamics from The School of Arts and Sciences at the University of Pennsylvania, and a Masters in Philosophy from the University of Pennsylvania. Mr. Kotok’s articles and financial market commentary have appeared in The New York Times, The Wall Street Journal, Barron’s, and other publications. He is a frequent contributor to CNBC programs. Mr. Kotok is also a member of the National Business Economics Issues Council (NBEIC), the National Association for Business Economics (NABE), the Philadelphia Council for Business Economics (PCBE), and the Philadelphia Financial Economists Group (PFEG).

~~~~~

Being in the Sweet Spot (twice)
July 29, 2009

At the moment we are in the “sweet spot” in markets and soon, in Maine. We must enjoy it while it lasts. Some bullets follow.

1. Fed policy is on hold at Quantitative Easing (QE), which means short-term interest rates near zero and plenty of liquidity in the financial system. The Fed has said it will continue this posture for a period of time. Markets do not expect any change until well in to 2010 at the earliest.

2. The much-feared Obama healthcare initiative seems to be stalled. Markets are relieved, because this initiative, as it was presented, amounted to a huge transfer payment that would be funded by future tax increases. The tax hikes would come on top of those already discounted by markets. Lifting the double tax whammy has given stocks a boost.

3. Foreigners are buying US Treasury securities again, and that has quieted the fearmongers who have been crying that the US will be abandoned and the dollar will face a crisis. That may still occur, but the day of reckoning for our fiscal profligacy seems to be postponed. Markets like dodging this bullet.

4. Markets have not priced in any risk premium on the Bernanke-stays or Bernanke-goes debate. Markets are also not pricing any risk premium on how and when the Fed will exit the QE strategy. Right or wrong, markets are now powered higher by bullish momentum coupled with positive economic signs. The Fed and other central banks in the world are on hold. Markets like stasis and have it for the time being.

Read the rest of this entry »

>

This morning, I will visiting with Dylan Ratigan & Co. on MSNBC’s Morning Meeting at 9:15 and 10:00 am. We will be discussing Housing, and possibly Bernie Madoff’s first prison interview (Madoff: Can’t Believe I Got Away with It). As I noted back when Bernie was arrested, the I worked alone story Smells Funny.

The most recent Housing data has been grossly exaggerated — its been mediocre to poor at best — and is not remotely the proof of a bottom its been portrayed.

It it important to note that many of the same analysts and reporters who missed the warning signs of the Housing collapse are now very keen to declare a bottom. If they lost you money missing/ignoring the top, is there any reason to buy into their bottom calls?

The sad truth is that many media reporters who cover Housing and the Economy are innumerate — mathematically illiterate — and simply do a poor job of sifting thru monthly statistics (I do try to highlight the exceptions here all the time).

Anyway, MSNBC at 9:15 and 9:45/10:00 am

>

Previously:
Why Economists Missed the Crises (January 5th, 2009)

http://www.ritholtz.com/blog/2009/01/why-economists-suck/

Madoff Story Smells Funny (December 14th, 2008)

http://www.ritholtz.com/blog/2008/12/madoff-story-smells-funny/

Worst June New Home Sales Since 1982 (July 29, 2009)

http://www.ritholtz.com/blog/2009/07/more-charts-on-new-home-sales/

After an amazing 100% run from the early Nov ’08 lows, the Shanghai index took its biggest one day hit since the rally began, by 5%. There is talk that the Chinese may raise bank reserve requirements and the stamp duty tax on stock executions to prevent overheating in the economy. To quantify, new Yuan loans totaled 7.36T Yuan in the first 6 months of ’09 compared to 4.9T Yuan for all of 2008 and highlights the peddle to the meddle stimulus plan that has lifted China off the mat. Since China has been the main catalyst in the global stabilization in equities and commodity prices over the past 8 months, where Chinese stocks go from here will have implications for many other markets. For at least today, European markets didn’t shrug and are at and about rally highs after some good earnings reports. With mortgage rates at 1 month highs, the MBA said refi’s fell 10.9% while purchases were flat. ABC confidence rose 3 points to -47, a 7 week high.

Most of the Media and Wall Street economists have had the inherent tendency to get this data wrong . . . the latest batch of releases is no different . . .

Consider these charts before you conclude that Residential RE is improving:

>

June 2009 NSA New Home Sales Worst Since 1982

Source: M Hanson Advisors

As Floyd Norris noted, “This was the second-worst June since they began counting new-home sales in 1963. It was not quite as bad as June 1982, when the country was mired in a deep recession and interest rates were sky high. Then 34,000 new homes were sold.  There are twice as many households in America today as there were then, so relative to population this was the worst June ever, by far.

>

IT’S TAKING A YEAR FOR HOMEBUILDERS TO FIND BUYERS

Source: Haver Analytics, Gluskin Sheff

David Rosenberg notes in the chart above (United States: New Single Family Homes) that Median Number of Months for Sale (months)is still rising. Sign of a bottom? Hardly.

>

Builders Are Slashing Prices to Dump Inventory

Source: M Hanson Advisors

Bbuilders are slashing prices to dump inventory ahead of the slow season after the summer.

>

New Homes, NSA,  Unit Sales and Prices

>
Source: M Hanson Advisors

The chart above shows NOT seasonally adjusted June 2008 vs June 2009 total sales counts and median price. 20% fewer homes sold — at much lower price than last year — is somehow bullish?

~~~

CONCLUSION:  The best thing you can say is the 2nd derivative argument — Real Estate is now getting worse more slowly. Expect more price decreases, foreclosures and distressed sales. A healthy market cleared out of excess inventory with genuine price increases is likely years away . . .

Andy Lees heads up a small macro sales team at UBS. (I have occasionally included some of his quotes at TBP). Anyway he has written a book which he believes has some ground breaking ideas in Below are the accompanying notes he sent with it to his clients yesterday.

The Right Game: The Credit Crunch – Treating the disease rather than the symptoms.

The best book you will ever read…or at least the best book I will ever write.

It looks at the structural issues that explain the build-up in credit and the subsequent crunch. By putting things in a structural context, it suggests that a lot of the policies that governments are pursuing are adding to the imbalances and inefficiencies rather than addressing them. Governments are effectively repeating the same mistakes that got them in this position in the first place.

The world’s shortfall of energy is only going to intensify. Whilst economists dismiss energy as only accounting for 4% or 5% of the modern economy, they fail to understand that this is simply the cost of extracting the fuel. The value to the economy is many multiples bigger, and it is this energy subsidy that effectively explains most economic activity. Understanding how this energy subsidy affects the economy, and how it is collapsing, will explain how the world economy is set to change over the next few years. Even productivity growth itself is explained by the energy subsidy.

Unfortunately the EROIE (Energy Return of Energy Invested) of alternative energies is no more than 15% of the present EROIE of our existing fuel mix. To get the same net energy subsidy from this green energy would mean the energy industry and infrastructure growing from 4% or 5% of the economy to 25% and higher. Either the gross economy would have to soar or the net (non-energy) economy would have to shrink. The implications are huge and will affect every aspect of life, with implications for everything from relative prices to default and credit rates on debt.

The book looks at how this is likely to unfold. Whether we will all go down together or whether certain economies will outperform others. How can countries best protect themselves from the mess and what can investors do. Is there anywhere safe and what will central banks do?

Whilst the press is getting in a fluster about the merits of the Efficient Market Hypothesis and the Capital Asset Pricing Models at the moment, this looks at the “dismal science” of economics in a different light, simply applying some of the most powerful laws of physics to the economy and re-establish simple relationships that over-complicated hypothesis’s have forgotten about.

It is not a 5 minute read but hopefully it is worth the investment of a few hours.

Kind regards

Andy Lees

>

Andy Lees The Weakest Link

~~~

Author Bio:

Andy Lees heads up a small macro sales team at UBS looking across all asset classes. He has been both on the investment management side at a leading UK life assurance company from 1985 to 1992, and since then on the sales side at SG Warburgs through all its various guises to the present day UBS. He likes to think of himself as applying common sense business and mechanical skills to an industry that has forgotton what it is; a source of capital for the real economy. His grounding was in derivatives which gave him access to Treasury, Foreign Exchange and Sovereign bonds, as well as European single stock fund management.On the sell side he helped build the institutional and hedge fund derivatives business into a dominant force before stepping up a bit further and setting up a specialist macro team 3 years ago which has allowed him to remove himself from execution but focus on much more idea generation with clients. Andy looks at short term ideas, but tries to put them in a structural theme; how for example changes in demographics meant that the tide of free capital was about to turn in 2008 and that trading should have that in the back of its mind rather than as one client once said; “so tell me how do I make money trading demographics over the next week”. He has been increasingly interested in the energy market for the last 10 – 15 years watching the declining spare capacity within the industry whilst most commentators looked only at inventory data rather than understanding what was going on beneath the surface. Andy had been asked for the last 10 years to write a book, bringing some of his thoughts and previous ideas and publications together. He wanted the right time to tell this particular story which the credit crunch offered him as he felt it emphasized the bigger story that he was looking at, acting as a focal point.