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

Dec New Home Sales, a measure of contract signings of new homes, totaled 342k annualized, 24k below estimates but Nov was revised up by 15k. With the extension of the tax credit in the first week of Nov, its best to take both months together to smooth out any lumpiness because of it and the result is sales are just modestly below expectations but at 356k on average, the lowest since the spring. Even though the tax credit was extended for 1st time buyers, there is no question that the summer and fall jump took sales from the Nov-Dec time frame. The main area of weakness was in the Midwest and South while rising in the Northeast and West. Months supply rose to 8.1 from 7.6, the highest since June ’09 but the absolute amount of homes for sale fell to the lowest since 1971. Prices fell 3.6% y/o/y but rose 5.2% m/o/m. As I’ve been saying, it won’t be until the summer when we’ll know what the true dynamic of supply and demand is in the industry.

If there ever was a day that encapsulates the new economic world we live in, it is today. The President in his State of the Union address will tell us how he plans to create jobs and the FOMC will tell us how they will craft the right policy to grow the economy. Also, Geithner testifies about the AIG bailout. Remember the days of focusing on P/E ratios, returns on equity and other fundamental research. We all have become political science majors, not because we want to but because we have to in order to better waddle thru the markets that have been driven more by DC policy than the industriousness of America’s private sector. Newsletter writers were very adept at getting extremely bullish right at the recent top and the pullback last week has greatly cooled the enthusiasm. II said Bulls fell 12 pts to 40 while Bears rose more than 4 to 23.3. Those that expect a correction (bulls who want to buy the pullback) rose to the highest since Nov ’86.

Greek bonds are getting slammed after the Greek finance minister denied an FT report that said “Greece is wooing China to buy up to 25bn euros of government bonds.” Their 10 yr yield is rising 23 bps to 6.47%, the highest since Feb ’00. Also weighing on European bonds was a comment from the always hawkish ECB member Weber after he said about monetary policy that as the economy gets better “not all measures are needed to the same degree, so I don’t rule out that we take additional steps (to withdraw) even before the 2nd half.” I know he’s stating the obvious but the timing is worth noting. A hawkish BoE member also expressed some modest concern with inflation and the pound is up in response. ABC confidence rose 1 pt to -48 and the MBA said refis fell 15.1% and purchases were down 3.3% even as the average 30 yr mortgage rate was steady at 5.02%. New Home Sales are out at 10am.

There is quite a bit of reading on this today:

• ‘It All Came Together’: Emails Reveal Fed Staffers During AIG Crisis (WSJ)

• Two at Fed Had Doubts Over Payout by A.I.G. (NYT)

• Geithner Defends AIG Rescue as TARP Watchdog Probes (Bloomberg)

• November 2008 BlackRock Paper for Accepting Much Less than Par for AIG Paper (BlackRock)

Via the WSJ’s Dealbook, here are the players who will be testifying at the congressional hearings on AIG today.

Timothy Geithner, Treasury secretary; former Fed Bank of New York president

Thomas Baxter, Executive Vice President and General Counsel for the Federal Reserve Bank of New York

Neil Barofsky, Special Inspector General for the Troubled Asset Relief Program

Elias Habayeb, the former Senior Vice President and Chief Financial Officer of the AIG Financial Services Division

Henry Paulson, former Treasury Secretary

Stephen Friedman, a Goldman Sachs Group director and former Chairman of the Federal Reserve Bank of New York

More on this later . . .

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Source:
The AIG Hearings
Stephen Grocer
WSJ, January 26, 2010
http://blogs.wsj.com/deals/2010/01/26/pre-gaming-the-aig-hearings-what-you-need-to-know/

Whenever people ask me what my party affiliation is, I respond “Pragmatic Independent.”

The question usually comes up in response to something I wrote. I’ve been contacted by Republicans, who want me to join or advise their committees. I usually tell them that I find much of their ideology intellectually indefensible, and their marriage to the religious right offensive.

When I get the same question from Democrats, my response is they seem to not understand how the economy works, are too spineless to get anything done, and are way too politically correct for my tastes.

I agree with Krugman that Obama has been wimpy, when he should have been relentlessly beating the opposition over the head. Reagan never let the public forget who had driven the country into a ditch, nor did he let Congress forget he was in charge. Imagine his response if the other party rejected his plan for a bi-partisan panel.

There are notable exceptions — the two NY Senators when I was growing up were statesmen — Jacob Javitz and Daniel Moynihan (a Dem and a Repub). They seem to be part of ancient history. Today, I have to search far and wide to find congress critters who are uncorrupted, understand how business works, and have the balls to call it like it is. Alan Grayson of Florida is the closest thing I have seen to what a modern Congressman should be like.

We have a Congress that is a Parliament of Whores of who sold themselves to the highest corporate bidder. Why do I want to have any affiliation with either group? And I am not sure if a 3rd party can break the death grip on America the parties have.

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OK, enough political nonsense on this SOTU day. Back to the markets . . .

With everyone trying to guess what the new iSlate will look like, let’s take a step back. Expectations are high, and are probably overwrought for what could very likely be a niche product.

A few caveats first: I’ve long been an Apple fan boy, since my Mac Classic (and I am usually disgusted with Mister Softee products). Over the years, I’ve had some pretty good calls on Apple’s stock (none better than recommending it as a buy in 2003 at (pre-split) $15, with $13 cash). And I’ve enjoyed making forecasts (i.e., wild-ass guesses) about what their new products will be — despite a less than stellar record. How bad? Let’s just say I better stick to stocks and markets than trying to earn a living forecasting Apple product releases.

But that doesn’t mean we can’t have a little fun trying to suss out what Apple is up to. I expect it to be slick and cool and make me want to have one — but I am not sure if its something I need or even really want.

When iSteve takes the stage tomorrow, there are 5 questions I hope he will answer about the device:

• Is the iSlate a category killer, like the iPod?

Probably not. From reports, this sounds like its one part netbook,  one part Kindle, one part iPod touch. A niche product between the MacBook and the iPhone.

When the first iPod arrived, it was a terrific usage of off the shelf components and unique Apple interface (plus ITMS) that made the entire process of managing, listening to and carrying around your music utterly seamless.

We will find out if the iSlate can accomplish nearly as much.

• Is the iSlate a game changer, like the iPhone?

When the iPhone first arrived, it totally upended the cellular phone market, wresting design control away from the carriers. A flurry of activity from handset manufacturers responded to the challenge, and the entire cellular phone industry was changed. Will the iSlate be as influential?

• Can the iSlate rescue the publishing industry?

While that is an interesting question, the short answer is “I doubt it.” Unless they can sell 20 million of these and build in a $50 annual fee to pay the NYT, WSJ, and various book publishers, etc.

• How does this position Apple versus its peers?

The company continues to innovate, take chances roll out new products. Whether this is a home run or a dud, it almost doesn’t matter — as long as they keep rolling out enough new products to keep gadget happy consumers coming back for more.

And it shows. Both consumers and investors have drunk the Kool-Aid. Consider Apple’s market cap — it is an astonishing $186.7 billion dollars — that’s bigger than:

Google $172B
Cisco $131.7B
HP $117.5B
Intel $110.4B
Verizon $85.7B
Amazon $51.7B
Research In Motion $34B
Dell $26.5B

Even more amazing when you recall this was a company that many people had written off as dead a few short product cycles ago . . .

• What does this do to the competitive landscape?

Is this a broadside against the Amazon Kindle? (How much does that device gall Steve, I wonder?). Does this respond to any of Google’s recent initiatives? (and are they still “frenemies”?) Is the iSlate a response to cheap netbooks? An upscale iPhone that will get a foot int he door with Verizon? Is Apple, with its huge cash war chest,  positioning this product in a niche market they think might grow over time, potentially replacing laptops? Is this an entertainment device, replacing DVD players and small TVs?

I don’t have much in the way of answers, only questions. We’ll find out tomorrow at Noon . .  .

I did about a 45 minute interview with Jon Miller yesterday:

You can listen on iTunes or click the picture below for audio

Interesting graphic approach describing  the recent crisis from the Harvard Business Review:

Each big circle on the map represents GDP; the 3.6 trillion in Bailouts and the 9.4 trillion in Stimulus are reflected as a percentage of GDP in red and blue respectively . . .

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Hat tip Joe C.

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Source:
Vision Statement: A Map to Healthy—and Ailing—Markets
Grail Research and de Luxe & Associates
January–February 2010
http://hbr.org/2010/01/vision-statement-a-map-to-healthy-and-ailing-markets/

I’ve been meaning to share this with you, and having David Rosenberg of Gluskin Sheff on Bloomberg Surveillance this morning reminded me:

Have a look at the table of S&P 500 sectors — the only one that has outperformed in each of the past three decades is health care. No, Medical and pharmacy inflation was not in your imagination.

Telecom services is the only sector to underperform in all three decades.
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As the pile of revelations regarding the NY Fed’s bailout of AIG gets deeper and uglier, the sense that Treasury Secretary — and former NY Fed President — is a short timer.

On the interview with Jim Bianco, he mentioned Geithner was a dead man walking — and He has been for sometime. The White House is just waiting for the right time to dump him.

That might be true — and changing the preserve the status quo parts of the Economic team is a good idea.

But what does that say about Summers? In some quarters, he is the most important person on the planet — Politico shows the President’s calendar everyday. He has a daily economic briefing at 10AM everyday when he is in town.

This briefing is run by Summers.

In other words, Summers controls the economic information flow to the President. With this as a job description, Treasury Secretary is a step down . . .