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

A perfect cartoon for a Friday afternoon, from the Abstruse Goose:

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Hat tip Mike S

Bill Moyers sits down with veteran regulator William K. Black, who says Wall Street is already been breaking current rules.

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click for video

Transcript after the jump

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At right is the front page of Today’s Handelsblatt (April 29), a business newspaper in Germany of about 150,000.  It competes with the German editions of the Wall Street Journal and Financial Times.

On a normal day, the Handelsblatt cover looks like the example at bottom — full of words and stories.  Today, however, their cover is all black to powerfully illustrate the extreme distaste and opposition to a Greek bailout. They called yesterday “black Wednesday” in reference to German Prime Minister Angel Merkel’s change of heart regarding the need for a bailout of Greece.

Markets are rallying (again) on the idea that Greece will be bailed out and once and for all this issue will be put behind us.  We say “again” because this is the fourth or fifth time risk markets have rallied on the idea a bailout is coming and this story will be over.  In all those cases, they were disappointed.

• Bloomberg.com – Merkel Pressed to Enlist Banks in Greek Rescue as Bill Drafted
  German lawmakers considering a bill to aid Greece challenged Chancellor Angela Merkel to involve banks in the rescue, refusing to back down after her government said that would send a “fatal signal” to markets. The main opposition Social Democratic Party threatened to withhold support for aid next week when the bill is fast-tracked through parliament unless banks are asked to contribute. Members of Merkel’s Christian Democrats said the government should ask banks to voluntarily accept losses on their investments.
• Der Spiegel – Euro Fears Force Merkel To Act
  After weeks of hesitation over the German response to the Greek crisis, Chancellor Angela Merkel is suddenly calling for swift action.  “It is clear that the negotiations must now be accelerated,” she said Wednesday at an appearance with Dominique Strauss-Kahn, the head of the International Monetary Fund (IMF), in Berlin. A serious-looking Merkel called for an agreement to assist Greece “within the next few days,” adding: “We will not back out.”  Observers were surprised by Merkel’s strong words. Until now, the chancellor has not exactly come across as a driving force when it comes to action on the Greek crisis. Merkel has long been reluctant to promise the Greeks billions of euros in European aid, something which has earned her the nickname “Madame Non” in the European Union. At home in Germany, however, she has been feted by the tabloid press as the “Iron Chancellor” because she had rebuffed the “bankrupt Greeks.”
• Marketnews – EBRD Head Warns Against Banks Absorbing Costs Of Greek Rescue
  The president of the European Bank for Reconstruction and Development (EBRD), Thomas Mirow, warned Friday against making banks shoulder part of the aid for Greece because this would weaken them again. “Therefore a bailout that would include the banks could be more costly for taxpayers than a straight bailout by states,” Mirow, a German national, told reporters on the sidelines of a conference organized by the Aspen institute here. “This is what one has to be very careful [about],” he said. A senior member of German Chancellor Angela Merkel’s CDU/CSU-FDP government coalition said Thursday that there should be discussions with Greece’s creditors about a voluntary haircut on their claims. “We should talk with banks and other investors about voluntarily forgoing their claims” against Greece, Leo Dautzenberg, the CDU/CSU’s parliamentary financial policy speaker, urged. Nobert Barthle, the CDU/CSU’s parliamentary budget speaker, said on Wednesday there was significant resistance inside the CDU/CSU parliamentary group against aid for Greece without participation of the creditors.

This is a terrific chart (via Invictus) showing the past two — really three — asset bubble tops.

1. Tech/Dot.com bubble 1990s

2. Credit Bubble/Housing boom 2002-07

3. Finance collapse 2008-09

The second two are obviously related: The easy money, credit driven financialization of the economy led to two asset class peaks: Stocks and Houses

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Three Giant Bubbles in a Decade

The April Chicago PMI was a better than expected 63.8 vs the estimate of 60. It’s up from 58.8 in March and at the highest since April ’05. New Orders rose 3.4 pts to 65.2, just below the recent high of 66.4 and Order backlogs rose 7 pts to 61.4. The Employment component rose 4 pts to 57.2 and just shy of the recent high in Jan of 59.8. After spiking in March to 52.4, Inventories slipped back to 50.1. Prices Paid, following the recent rise in commodity prices, rose to 71.4 from 66.6, the highest since Sept ’08. The ISM will reconcile the regional surveys on Monday and will provide us with an export component which has been a nice source of strength for US manufacturing. Looking out towards the rest of the year following the inventory restocking boost to growth, all eyes have to be on end demand to see whether the manufacturing rebound is sustainable at current levels.

The final April UoM confidence # was 72.2, 1.2 pts above expectations and is up from the preliminary reading on April 16th of 69.5 but is down from 73.6 in March and is the lowest since Nov ’09. This survey has been tracking the weekly ABC poll which also has been lackluster relative to the better economic data seen and the extraordinary optimism of the US stock market. Both Economic Conditions and the Outlook rose from the 1st April reading but both fell from March. One year inflation expectations at 2.9% were flat with the 1st April survey but up from 2.7% in March and is at the highest since Oct ’09. Gasoline prices, which of course are a daily, high profile price point for the average consumer, rose last night to the highest level since Oct ’08 at $2.88 per gallon, up from $2.05 one year ago. We’ll see next week’s jobs data to give color on whether confidence may turn better or not from here.

The New Yorker-like photo caption contest from earlier this week was a big success — over 400 entries in about 8 hours.

Many of the responses were in similar veins, with plenty of movies quotes. The Matrix, Godfather, A Few Good Men, Goodfellas, Caddyshack, and Holy Grail were all sources of popular suggestions. But none were more popular than The Princess Bride, due to the more than passing similarity between Lloyd Blankfein and the character Vizzini. The relative position of Lloyd’s hands seem to inspire many captions — most of which were too obscene to use.  And several readers suggested lines from Seinfeld, primarily attributed to George Costanza. They did not win the contest, but they were quite compelling.

You can see all 428 submissions here.

OK, on to the contest winners: It was for the funniest, cleverest most poignant punch line. The winners, and all the runners up are below. My two favortites were so close, I had to declare a tie — Congratulations to Ken B, and to VennData — I’ll ping you for the address  to send your signed copies of Bailout Nation.

Our Caption Contest winners:

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“Shitty for whom?”

“I’m shorting me!”

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Caption Contest Runner ups:

3. “You’ve been giving Hank’s TARP money to companies making shitty cars since this whole thing started — so what’s wrong with a few shitty mortgages?”

4. Our motto at GS is “we screw the other guy and pass the savings on to you!”

5. I can’t wait to get home and stick some pins in my Taibbi doll!

6. Senator, trust me, this is the best CDO you can buy! In fact, we call it “The Shit”!

7. “Look, I said 30 cents on the dollar was plenty, but Hank insisted.”

8. We don’t just have brass balls, we have Gold Man-Sacks!

9. You fool! You fell victim to one of the classic blunders – The most famous of which is “never get involved in a land war in Asia” – but only slightly less well-known is this: “Never go against Goldman when money is on the line”!

10. I gotta take this crap from congress? You people have been doing this since the ink used for “We the people” was even dry.

11. “I don’t understand whats wrong, you guys all voted for Gramm-Leach-Bliley”

12. “They always look like that!” – (referring to the despondent, stupefied, gaze of his fellow Goldmanites behind him to the left and right.

13. Was that wrong? Should I not have done that? I tell you, I gotta plead ignorance on this thing, because if anyone had said anything to me at all when I first started here that that sort of thing is frowned upon… you know, cause I’ve worked in a lot of offices, and I tell you, people do that all the time.

14. “…..we are selling weak securities all the time. We decided to offer a special on shitties for our most loyal and sophisticated clients.”

15. But it’s all in the Ferengi rules of acquisition.”

16. “I am not guilty, Senator, but I have hedged against my acquittal, just in case.”

17. “Don’t tase me, bro!”

18. How dare you call me a greedy, lying, thief! I’m not greedy! -

19. “INCONCEIVABLE!”

20. You leave my World of Warcraft character out of this.

This is the way to start a Friday:

Microsoft was supposed to be the evil one, but now Apple is busting down doors in Palo Alto while Bill Gates rids the world of mosquitoe

Commerce Dept:

The increase in real GDP in the first quarter primarily reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, exports, and nonresidential fixed investment that were partly offset by decreases in state and local government spending and in residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

The deceleration in real GDP in the first quarter primarily reflected decelerations in private inventory investment and in exports, a downturn in residential fixed investment, and a larger decrease in state and local government spending that were partly offset by an acceleration in PCE and a deceleration in imports

Noteworthy details:

-Consumer spending rose at the fastest rate in 3 years in Q1, driving the expansion to a 3.2% annual growth rate.
-Private domestic demand was the primary engine of growth.
-Consumer spending: up 3.6% annual rate.
-Business investments in equipment and software skyrocketed 13.4%.

Final caveat: This is the preliminary estimate, and is often revised. We will get the Q1 2010 GDP second estimate on May 27, 2010, at 8:30 A.M.

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Source:
Gross Domestic Product: First Quarter 2010 (Advance Estimate)
Commerce Department APRIL 30, 2010

http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

There is no change to the belief that by the end of the weekend Greece will have its debt obligations satisfied for the next 3 years with 120b euro’s of funding. Greece’s 2 yr yield is falling as a result as are yields in the other overleveraged European countries. It is now up to the Greek’s to follow thru on what will be a tough few years in terms of higher taxes and big spending cuts. Even with the upcoming bailout, their 10 yr yield is up 40 bps this week and the 2 yr is up 220 bps. US Q1 GDP is expected to rise by 3.3%, helped by an expected rise in personal consumption of 3.3%, the biggest gain since Q1 ’07. The UoM confidence # is also important to watch to see whether it confirms the bounce in Tuesday’s confidence figure or lags as has the ABC poll. The home buying tax credit expires at midnight tonight and it will be interesting to see how busy realtor offices are tomorrow.

I made a few tweaks to the earlier draft of this — its now tighter and more specific:

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The screen is dark. There is a soft heartbeat in the background

White letters appear on the screen: 1998 Glass Steagall Repeal
Voiceover: In 1998, Congress repealed the Glass Steagall act. It had kept banks separated from Wall Street since 1932 (pause) . . . After the repeal?
(Citigroup, Countrywide, and Washington Mutual logos on screen. They shatter and collapse).
Voiceover: Major banks collapsed, and we had the worse recession in generations
(Heartbeat gets a little louder and quicker).

White letters  Commodity Future Modernization Act of 2000
Voiceover: In 2000, Congress passed the Commodity Future Modernization Act. It made Derivatives completely free from all oversight and regulation (pause) . . . The result?
(AIG logo appears . . . and explodes)
Voiceover: The AIG collapse cost taxpayers $185 billion in bailouts.
(Heartbeat is now louder and faster).

Letters: 2004 Wall Street gets SEC approval for radically increased leverage
Voiceover: In 2004, the 5 biggest investment houses requested a special SEC waiver to radically increase their leverage (pause) . . . The result?
(Logos appear; Bear Stearns, Lehman roll into view, with a burning fuse, then blow up; Merrill Lynch turns gray — and keels over; Goldman Sachs, Morgan Stanley spiderweb crack — but don’t fall)
Voiceover:  Lehman & Bear — gone. Merrill Lynch rescued by billions of Taxpayer dollars. Goldman and Morgan borrowed billions from Uncle Sam.
(Heartbeat is very rapid and loud).

More white letters: 2010 Financial Reform legislation . . . is . . . blocked
(heartbeat stops . . .  screen fades to white light)

Voiceover: Wall Street Lobbyists are blocking financial reform in Congress . . . but YOU can help move it forward.
(heartbeat starts again)
Tell your congressman and senator to stop listening to Wall St lobbyists, and pass financial reform NOW.

Bold lettering fades in and out rapidly:

-Regulate Derivatives
-Mandate Capital Requirements
-Stop Too Big To Fail
-Restore partnership liability to Investment Houses
-Rein in Ratings Agencies
-NO MORE TAXPAYER FUNDED BAILOUTS

Because the last thing any of us wants is another financial heart attack.

Lettering:  Please pass financial reform . . . or else.
(heartbeat stops, letter replaced with flatlined EKG)
Lettering:  Call your congressman today  (phone number)