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

Nice Tatts, Warren!

This video features real GEICO associates and a cameo appearance by Warren Buffett.

hat tip Time

Nice NYT infographic/Map showing the regional differences between bigger (TBTF) banks and the smaller regional banks.

click or ginormous map

Of course, looking at a map shows you land mass, not population, Most of the non-coastal western third of the country is very lightly populated.

When you look at the map above, you should also consider a cartograph like this:

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via Worldmapper

The above map is an “equal area cartogram,”  also known as density-equalising maps. The cartogram re-sizes each territory according to the variable being mapped.

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Source:
Metrics A Banking Battleground
NYT, March 7, 2010
http://www.nytimes.com/interactive/2010/03/07/business/07metricsg.html

Diana Olick found some interesting stats on the it offered:

* 1.76 million taxpayers have filed for this credit in 2008 and 2009
* $12.45 billion in credit has been claimed
* It appears as though the share of the homebuyer market consisting of first-time buyers topped out in November at almost 50%

For more on our thoughts on this government subsidy and how it is affecting the market, see our recent post “The Anatomy of a Housing Bottom“.

I’ve previously shown the AAII survey of equity exposure. Several of you have commented (or emailed) that the AAII data only goes back to 1987.

Household balance sheet data is accumulated by the Fed, and no one makes it look prettier than Ned Davis Research. Using the Federal Reserve data, NDR shows that households are now fully invested, roughly equivalent to 1972 (when rates were much higher)

Not to differ with NDR, but the present levels are only modestly over-exposed to equities — nowhere near 2000, and still a good ways below 2007 peak.

I am not sure we can say the US household is “All In” just yet. Somewhere in the 1200- to 1250 range should get us pretty close . . .

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Chart via Ned Davis Research

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Okay, it’s time for our early spring sermon on sampling and seasonal adjustments perverting PPI and CPI.

For the past month or so, oil and gasoline have rallied, as they tend to do at this time each year. But PPI showed a larger than expected decline for February because of seasonal adjustments on energy.

Still not convinced? Natural gas has collapsed in price over the past few months, yet the BLS is showing an increase in natural gas prices for February due to seasonal adjustments.

PPI declined 0.6% in February, because energy was down 2.9% m/m (+16.6% y/y). Gasoline declined 7.4% but residential natural gas increased 0.8%!

But there’s more nonsense in the PPI. The BLS samples prices on the Tuesday of the week that contains the 13th of the month. So the sampling was done on Tuesday, February 9 – if that’s still the methodology.

Gasoline made a three-month low on Friday, February 5 near 1.95. Two weeks later it was north of 2.20.

On Tuesday, February 9 gasoline futures traded between 2.00 and 2.05. Oh, and don’t forget the at gasoline prices tend to increase on the weekend when more consumers are out shopping.

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Gasoline futures for April delivery – one day’s price determines the entire month for PPI and CPI.

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Natural gas futures were the mirror image of gasoline futures. The high for February was Monday, February 8 at 5.60ish. The next day it traded below 5.40 and collapsed below 4.70 by month’s end.

So PPI and CPI, and even elements of NFP, data comes from a sample on one day. This is exactly like saying the price of IBM in February was its price at some point on Tuesday, February 9. But it is a means to keep inflation and inflationary expectations ‘subdued’. This is lazy, erroneous data gathering because private industry knows what the monthly cost of a unit of gasoline or natural gas to the penny. It’s nothing more that revenue divided by unit sold.

Here’s the problem, the seasonal adjustments for energy will turn negative by summer, so energy prices will be adjusted higher, when they might be declining in the real world.
US Senators, led by democrats Charlie Schumer and Debbi Stabenow and Republicans Sam Brownback and Lindsey Graham introduced legislation to make it easier for the US to declare China a currency manipulator.

For decades US politicians and hackneyed economists have brayed that a lower dollar is the panacea to US economic problems because it will stimulate exports. If currency debasement were the key to export supremacy, Mexico, Latam and Italy would be China, Japan and South Korea.

The dollar has lost 75% of its value versus the yen (~360 to 90) since 1970. How’s that working out?

People, including the duly elected of the US, keep averring that the yuan is undervalued. But the flip side, and this might be more accurate, is that the dollar is overvalued.

Traders tried to affect a Weird Wednesday [of expiry week] rally but there are so few ‘legitimate’ orders on the Street that the usual triple-digit DJIA rally for expiry didn’t materialize.

Instead we got what has been the standard 30 to 50-points DJIA rally. And of course,

Our earlier post noted the regulatory capture of the SEC by Wall Street. Later in the WSJ piece we referenced, SEC Chairman Mary Schapiro hinted that the issue might be even worse. She blamed the agency’s ineffective oversight of Lehman Brothers was partly due to insufficient staffing.

So that set me off looking for how the SEC staff and funding levels have changed over the past few decades relative to their workload .

What I found was deeply disturbing: Over the past 30 years, the financial world has grown exponentially in size, breadth and complexity of products, trading volume, and total assets under management.  In terms of personnel, assets under management, numbers of trader, managers, sales  people,  and mathematical PhDs., who work on the street increased dramatically.

The SEC did not.

Indeed, almost by design, the SEC has done a mediocre job keeping up with the finance sector over the past few decades. Their budgeting and salary allowances was far outpaced by Wall Street. The bodies the SEC can throw at any problem are dwarfed by what Wall Street manages. Consider that there are 1,000s of quants working on Wall Street. At the SEC, there are approximately zero.

The SEC appears to have suffered from what can be best described as a benign neglect. However, if you conclude it was  malignant congressional intent, you wont get much of a fight out of me. The agency was all but abandoned

Consider this March 2002 GAO report to Congress on the SEC. To summarize their conclusion:

“U. S. securities markets have grown tremendously and become more complex and international. As a result, SEC’s workload has increased in volume and complexity over the past decade. As illustrated below, around 1996, SEC’s workload (e.g., filings, applications, and examinations) started to increase at a much higher rate than SEC staff years devoted to this workload. Although industry officials said that they respect SEC as a regulator, they said that SEC’s limited staff resources have resulted in substantial delays in SEC regulatory and oversight processes, which hampers competition and reduces market efficiencies. In addition, they said information technology issues need additional funding, and SEC needs more expertise to keep pace with rapidly changing financial markets. Finally, the officials said that SEC’s reliance on a small number of seasoned staff to do the majority of the routine work does not allow those staff to adequately deal with emerging issues.

The GAO also identified other budgetary related issues: Low salaries, inexperienced staff, high turnover, outdated equipment, etc.

The charts tell all:

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Percent Change SEC Staff Workload: 1991 -  2000

All charts sourced via GAO analysis of SEC data

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This leads us to asking Congress to accept responsibilty for the ineptness of the SEC. Congress failed to provide adequate funding for the agency. It didn’t require tax dollars, it could have been funded through SEC action, fines and settlements.

Congress did not need to deregulate Wall Street — they only had to defund the SEC –which is what effectively happened. Hence, the chief cop on the Wall Street beat was outgunned, overmatched, undermanned and out-lawyered by the industry they were supposed to be regulating.

How can that possibly have been any good for investors . . . ?

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More charts after the jump . . .

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Source:
SEC OPERATIONS Accountability Integrity Reliability Increased Workload Creates (GAO-02-302)
A report to Paul S. Sarbanes, Chairman, Committee on Banking, Housing, and Urban Affairs, U.S. Senate; Christopher J. Dodd, Chairman, Subcommittee of Securities and Investment; and Jon S. Corzine, Member, Committee on Banking, Housing and Urban Affairs, U.S. Senate.
GAO, March 2002
http://www.gao.gov/new.items/d02302.pdf

Read the rest of this entry »

Following the essentially in line NY manufacturing survey, the Mar Philly manufacturing # was also about in line at 18.9 vs expectations of 18 and up from 17.6 in Feb. The components were mixed though. New Orders fell to 9.3 from 22.7 but follows a 3.2 reading in Jan. Inventories went negative again to -11 from +3.2 in Feb and is below zero for the 29th out of the last 30 months. The positive was the Employment component which rose 1 pt to 8.4 and is at the highest since Aug ’07. Backlogs rose 2.6 pts but were still below zero. Prices Paid rose 6.2 pts to the highest since Aug ’08 but mfr’s had trouble passing it on as Prices Received fell to -.4 from +3.7, the lowest since Nov. The overall 6 month manufacturing outlook in this region to rise to 52 from 35.8 and is at the highest since June. Bottom line, manufacturing continues to be a place of optimism as this index is now above zero for a 7th straight month due to both slowing inventory destocking and export growth.

Just when we thought the Greece financing fire was temporarily out, some embers still exist and it’s causing more uncertainty. The next issue Greece must tackle outside of implementing its own deficit plan is to set up a financing backstop in case they have difficulty in rolling over upcoming maturities which are rather large in the next two months. The hope was an EU agreement to provide it and to avoid the IMF in the process but today a German gov’t official said only the IMF has “the instruments to push for Greece to restore its capital markets access” if they end up needing it. The fear of the IMF is the tough austerity program they would expect and the stigma attached to the bailout. In response, Greek stocks are down for the 5th day in the last 6, lower by 3%, 5 yr CDS are wider by 10 bps, 10 yr bond yields are up by 13 bps and the 2 yr yield is up by 30 bps. The euro is lower too.

Feb CPI was flat m/o/m, .1% less than expected but the core rate was right in line up, .1%. Keeping a lid on the headline CPI was a 1.4% drop in gasoline prices which have since reversed higher. AAA last night said the avg gallon of gasoline rose to $2.88, the highest since Oct ’08. Owners Equivalent Rent, 24 % of CPI, was flat and this component has helped to subdue CPI as landlords lose pricing power in this environment. Apparel prices fell .7% but vehicle prices rose .4%. The y/o/y gain in CPI is 2.1% and 1.3% at the core. The headline reading is now in line with what the TIPS market has priced in over the next 5-10 years, about 2.2%. The Fed will take comfort in this data (however flawed) but what they are missing right now is the asset inflation their cheap money policy is causing all over again with the question only when, not if, it shows up in consumer price inflation statistics.

Initial Jobless Claims totaled 457k, 2k higher than expected but down from 462k last week. The 4 week average moved down to 471k from 476k. Continuing Claims rose by 12k and were 57k above forecasts. After moderating last week, Extended Benefits (data delayed by 2 weeks) rose a net 353k to a new high in this cycle. Thus, while initial claims have stabilized, the pace of new hiring’s is just not enough to absorb those new filings and today’s data on those who are still receiving extended benefits is discouraging.

The WSJ is reporting that back in 2003, the SEC tried to remove the restrictions on compromised security analysts that tried to prevent them from whoring out recommendations for banking business.

Similar to the prostitution of the ratings agencies, the SEC somehow thought it was okay for iBanks to fuck their stock buying investors, just so long as they got paid enough in banking fees to justify the screwing.

WSJ:

The Securities and Exchange Commission joined 12 Wall Street firms in seeking to scrap a key portion of a landmark 2003 deal that put strict curbs on stock analysts, a move that could heighten the ongoing debate about a broad overhaul of the financial-regulatory system.

In a ruling Monday, U.S. District Judge William H. Pauley III in New York rejected a proposed change to the legal settlement put in place to end abuses on Wall Street. The proposal would have allowed employees in investment-banking and research departments at Wall Street firms to “communicate with each other…outside of the presence” of lawyers or compliance-department officials responsible for policing employee conduct—an activity strictly prohibited by the settlement.

Thank goodness for the judge. This is utterly contemptible.

Like the last scene in Spartacus, I want to see a row of heads on pikes, and crucifixions  stretching from Washington DC to Wall Street. I am beyond disgusted.

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Source:
SEC Tried to Ease Curbs
WSJ, MARCH 17, 2010
http://online.wsj.com/article/SB10001424052748704743404575128122174622274.html

More here

Hat tip ScotT F