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

Back in September, we discussed the Ghost Fleet of the Recession.

Here’s the latest (via Bloomberg) on the tanker glut:

“A 26-mile-long line of idled oil tankers, enough to blockade the English Channel, may signal a 25 percent slump in freight rates next year.

Traders booked a record number of ships for storage this year, seeking to profit from longer-dated energy futures trading at a premium to contracts for immediate delivery, according to SSY Consultancy & Research Ltd., a unit of the world’s second- largest shipbroker. Ships taken out of that trade would return to compete for cargoes just as deliveries from shipyards’ largest-ever order book swell the global fleet.”

If you view the recovery as mediocre, stimulus-driven, hampered by a credit-constrained consumer, than tgius is what you would expect.

The trade in oil that would surprise most people isn’t a rise to $100 from $75, its a drop to $50 . . .

Source:
Tanker Glut Signals 25% Drop as 26-Mile Queue Overwhelms Demand
Alaric Nightingale and Alex Kwiatkowski
Bloomberg, December 28, 2009

http://www.businessweek.com/news/2009-12-28/tanker-glut-signals-25-drop-as-26-mile-queue-overwhelms-demand.html

Source:
One Year After Near Financial Collapse, Americans Wonder: Where’s MY Bailout?
Heesun Wee
Dec 28, 2009

http://finance.yahoo.com/tech-ticker/one-year-after-near-financial-collapse-americans-wonder-where%27s-my-bailout-396702.html

Stephanie Pomboy of MacroMavens was quoted extensively in this week’s Up and Down Wall Street column by Alan Abelson:

“The people necessary to drive the kind of increase in spending that would justify this year’s sizzling move in markets are consumers at the high end, the top 5% of households who own no less than 84% of equities. Yet, all the evidence suggests, they’re far from spending with their old abandon.

Stephanie speculates that one reason for their reluctance could be that while stocks have rallied, thus enriching their portfolios, dividends have been relentlessly shrinking: the $775 billion-plus annual dividend windfall the affluent had grown accustomed to has been slashed by a third or so. Or, it just may be that “even for the high-end, housing deflation outweighs equity inflation.”

Pomboy further notes that so far, we have only seen a temporary rebuild of balance sheets:

“Ben Bernanke has achieved through his unprecedented actions over the past year, it’s “only a pause in a broad deleveraging story.”

But, she warns, the game is far from over. “As the clock starts on the New Year, the likes of exotic mortgage recasts, small-biz failures and state and local tax hikes will take the field. And the realization will dawn that none of our fundamental problems — most notably excess leverage — have been solved…And just as one could argue that markets were overly aggressive in discounting the end of existence as we knew it back in March, so, too, they may be guilty of anticipating our imminent arrival at Nirvana today.”

The agent of the great awakening will be gathering pressures on the credit market, as banks are “forced to re-provision, and resurgent delinquencies find Fannie and Freddie (and everyone else) putting ill-made mortgages back to lenders.”

Credit will grow dear and do so precisely as the demand for it from borrowers looking to roll over maturing obligations swells.

The numbers, Stephanie exclaims, are unbelievably big. Uncle Sam must roll over $2.5 trillion in debt during the next two years, banks worldwide have some $7 trillion due in the same stretch and commercial real estate will weigh in with another $750 billion.

Oh, dear . . .

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Source:
A Jolly Good Year
ALAN ABELSON
Barron’s, December 28, 2009

http://online.barrons.com/article/SB126167188897704489.html

Have stock markets run away from reality? Be mindful of Santa Claus Rally and other year-end/new-year indicators

If Santa has not yet made his way to your investment portfolio, don’t despair. According to Jeffrey Hirsch (Stock Trader’s Almanac), the “Santa Claus Rally” normally occurs during the last five trading days of a year and the ensuing first two trading sessions of the new year. During this seven-day period stocks historically tend to advance (by 1.5% on average since 1950), but when recording a loss, they frequently trade much lower in the new year. Well, yesterday marked the official beginning of the Santa Claus Rally period, with the Dow Jones Industrial Index off to a 0.5% start.

Another old stock market saw tells us the first five trading days of January sets the course for January (known as the “First Five Days Early Warning System”), and if the month of January is higher, there is a good chance the year will end higher, i.e. the so-called “January Barometer”. Every down January since 1950 has been followed by a new or continuing bear market or a flat year. “As January goes, so goes the year,” said Hirsch.

Lastly, according to Hirsch, the “December Low Indicator“ says that should the Dow Jones Industrial Index close below its December low anytime during the first quarter, it is frequently an excellent warning sign of lower levels ahead. The number to watch is the low of 10,286 recorded by the Dow on December 8.

Time will tell whether the year-end/new-year indicators play out according to the historical pattern. Meanwhile, we’ll have some fun tracking how it pans out.

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The S&P 500 closed at 1126 this week — 5 points over the 1121 level.

Why is that significant? Because 1121 marks the midpoint between the index’s 2007 peak of 1565 and its 2009 low of 676. If you prefer to use intra-day peak and trough numbers — 1576 and 666 — you still get 1121 as a midpoint. (Bloomberg has the 50% mark pegged as 1,120.84).

As the Barron’s Trader column points out:

“Enough traders watch this to turn it into a self-fulfilling prophecy: Failure at this key juncture foments doubt, but surmounting it will mean the stock market has recovered half of its bear-market losses, which might validate the recovery and beget more buying.”

A classic “If it goes up, we are going higher, if it goes down, we are going lower” type of analysis.

Here’s a purty chart that shows the numbers more clearly:

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click for larger chart

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Note that the 200 week moving average is a reasonable upside target from here. Worth noting for you chart watchers . . .

A gas or energy tax seems unthinkable, but WSJ’s David Wessel says the national deficit and climate change could soon make it a reality.

Bailout Nation made another “Best of” year end list:

A look back at the best business books of 2009

I didn’t — couldn’t — read every business book published during the past year, but I was still gob-smacked by the number of books that I did read in 2009, including a few just for fun. (Imagine that!) But among those that I read and reviewed in this space, these titles represent the ones that I thought were exceptional, have lasting value and were worth my time — and yours.
A few things that may have deserved inclusion didn’t make the cut for one reason or another, and some worthy titles that came out in 2009 won’t get reviewed until January. Them’s the breaks. You may have a few choices that aren’t here either. If you’d like to share, I’m always happy to get e-mail from readers. After all, you make this all possible.

Thanks for reading!

(Books listed in chronological order by review. Date of original review follows each title. Full reviews of all books on this list are online at www.richardpachter.com)

Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy. Barry Ritholtz. Wiley. 332 pages. 6/1/09

Economist and investment guru Barry Ritholtz’s blog, The Big Picture, is a mandatory daily stop for many. This honest, unvarnished look at the forces that screwed up the U.S. economy is a worthy candidate for a time capsule so that future financial operators can avoid the same traps that we fell into. Or at least howl when history repeats itself.

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Source:
A look back at the best business books of 2009
Business Monday books columnist Richard Pachter offers his highly subjective list of favorites.
RICHARD PACHTER
Miami Herald, 12.28.09

http://www.miamiherald.com/business/v-fullstory/story/1399600.html

I had to do a double-take when I saw this headline on the Bloomberg news service this morning:

War on Wall Street as Congress Sees Returning to Glass-Steagall
“A one-page proposal gaining traction in Congress could turn back the clock on Wall Street 10 years, forcing the breakup of banks, including Citigroup Inc.  Lawmakers in both parties, seeking to prevent future financial crises while soothing public anger over bailouts and bonuses, are turning to an approach that’s both simple and transformative: re-imposing sections of the 1933 Glass-Steagall Act that separated commercial and investment banking.”

How exactly is this a “War on Wall Street?”

The 1933 Glass-Steagall Act was designed to prevent a Wall Street catastrophe from spilling over into the real economy. For 65 years, it did just that. And thanks to Gram & Co., it was repealed just in time for the crisis to erupt.

Nice work.

Undoing one of the factors that made the impact of the crisis much worse is hardly a “War on Wall Street.” Putting this law back on the books is prudent, and long overdue.

Note: That hedline is a quote from former Fed Governor Lyle Gramley. Perhaps its a Bloomberg style requirement not to use quotes in hedlines, but it changes the information communicated by omitting them.

One suggestion for Bloomberg hedline writers is to use quotes when quoting. Your hedline should have read:

“War on Wall Street” as Congress Sees Returning to Glass-Steagall

It communicates far more effectively with rather than without . . .

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Source:
War on Wall Street as Congress Sees Returning to Glass-Steagall
Alison Vekshin and James Sterngold
Bloomberg, Dec. 28 2009

http://www.bloomberg.com/apps/news?pid=20601109&sid=aeQNTmo2vHpo&pos=10

Bill over at Calculated Risk put together an excellent survey of Government Housing Support programs. It is reproduced with permission here in its entirety:

Posted by CalculatedRisk on 12/27/2009 05:52:00 PM

For better or for worse, the US Treasury comes to market this week with $118b worth of 2′s, 5′s and 7 year maturities. For better in that higher yields will bring out the buyers, for worse, a light week and the scare of higher yields will keep the buyer’s home, thus sending yields even higher. This comes as the yield spread between 2′s and 10′s is back at a record high of 285 bps as the bond market has begun the tightening process for the Fed and also adjusts to the ever deteriorating financials of the US government as 5 yr CDS trade near 6 month highs. The 2010 action in the stock market will be predominantly determined not by earnings (as the ’09 rally has priced in much of the rebound) but by interest rates. The 10 yr note yield today at 3.85% is matching the highest level since June. But for now, stocks continue their path of least resistance as the focus is on the improving global economic picture.