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

Let’s check in with Victor Sperandeo today for some perspective on the Markets.

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Hat tip Martin Chronicles

When top advertising creative directors Googled themselves, they got a message from me asking for a job. Read more about the experiment here: http://bit.ly/c4Fx7n

With the Dow off over 200 points today, the psychology of the moment is to once again blame the Europeans for the market’s woes.

The latest rumors comes supposedly from Dick Bove –  Instant messages across NY trading desks are repeating rumors of a potential downgrade of France. Bove was supposedly saying that chatter about France’s Debt downgrade could be a huge negative (if it comes true). IMs such as this one: IF THIS HAPPENS, WATCH OUT! IT WOULD BE A HUGE NEGATIVE WORLD WIDE!!

Now, I have no idea if there is there is slightest truth to this. I am merely explaining what trading desks are up to. These rumors run rampant during dislocations.

However, I came across a different theory that I put much more stock in: The reason for all the problems in Europe has nothing to do with France, and everything to do with a subtle problem that goes beyond the PIIGs.  It turns out that Europe, is in fact, Marge Simpson:

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But then again, here maiden name was Marjorie Bouvier — so perhaps there is a French connection after all!

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Here are the map details by specific nation:

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Hat tip Flowing Data, via Strange Maps

March Business Inventories rose by .4%, in line with expectations and up for the 5th month in the past 6 after 13 months in a row of declines but because sales rose 2.3%, the inventory to sales ratio fell to 1.24 months, matching the lowest level on record dating back to 1980. On one hand, the historically lean inventories seen is a reflection of the wait and see attitude on the part of businesses to the still uncertain economic environment but on the other hand provides a great backdrop for a hoped for pick up in production if confidence in the outlook grows and end demand improvements becomes more longer lasting.

The May preliminary UoM confidence # at 73.3 was a touch below expectations of 73.5 but is up from 72.2 in April. The high in the rebound over the past year was 73.6 back in Feb and March. Current Conditions were about flat with April at 81.1 while Expectations rose almost 2 pts to 68.3. Interestingly, one year inflation expectations rose to 3.1% from 2.9%, the highest since June ’09 as my guess is higher gasoline prices in particular are having an impact on psychology. While down on average as of last night to a two week low, many are paying $3 per gallon or close to it (avg is $2.88) up from an average of $2.65 at the beginning of the yr and as we approach the summer driving season. Five yr inflation expectations rose to 2.9% from 2.7%, the highest since Jan. Bottom line, today’s survey is a phone in conducted just days ago so its a timely capture of consumer sentiment.

Floyd Norris has today’s must read discussion on avoiding another May 6th (MAYDAY MAYDAY WE ARE GOING DOWN. OVER) type of day at the exchanges.

He points out 4 factors that regulators (or deregulators) need to consider when trying to fix this

1. Markets are utilities for investors.
2. Price discovery is an important function of markets.
3. No evidence that investors caused the crash.
4. Functioning markets require someone to provide liquidity.

These days, we seem to have replaced the exchanges as monopolies with a loose form of anarchy . . .

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Source:
Time for Regulators to Impose Order in the Markets
FLOYD NORRIS
NYT, May 13, 2010  
http://www.nytimes.com/2010/05/14/business/14norris.html

April Retail Sales rose .4% headline, .4% ex auto’s and .4% ex auto’s and gasoline. Ex auto’s were in line with expectations but headline was .2% above and ex auto’s and gasoline was .1% above. Also March was revised higher. Building materials rose by 6.9% after a large 7.8% rise in March, motor vehicles/parts rose by .5% and gas station sales were up .5%. BUT if you take out building materials, auto’s and gasoline sales (a core figure), retail sales were DOWN .2%. Sales in clothing, sporting goods, gen’l merchandise, furniture, electronics and in food/beverages all fell. Thus, on the surface, sales look good but the core figure of ex auto’s, gasoline and building materials fell for the first time since Dec ’09. Also, in terms of retail company equity performance, earnings this week from M, KSS, JWN and JCP has provided us with plenty of info on the retail outlook and state of consumer spending.

David R. Kotok, Cumberland Advisors
May 13, 2010

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“We have breaking news on the oil spill in the Gulf. There’s new information that it could be much worse than believed.”
Anderson Cooper, 10 PM, May 13, 2010, CNN

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CNN breaking news tonight reports that the estimate of 5000 barrels a day spilling from the BP well in the Gulf of Mexico may be very low. A Purdue University professor has used sophisticated scientific analysis to estimate the flow visible in the now-famous video, and has revised the estimate to 70,000 barrels a day, with a margin of error of plus or minus 20 percent. That is the equivalent of an Exxon Valdez spill every four days. Another way to put it is that about 20 million gallons a week or some 60 million gallons have polluted the Gulf since this started.

The new estimate helps explain the large size of the slick, as estimated by NOAA. It also leads us to move to our second case among the three scenarios we have discussed in part 1 and part 2 of this series. See www.cumber.com for the other parts of the series. We were already at “bad.” Now we may be at “worse” if tonight’s effort by BP is unsuccessful. We should know within 48 hours.

According to Anderson Cooper, other experts who have responded to the new estimate have now called on the federal government to intervene massively and to stop leaving this issue to the oil company. They allege BP is purposefully covering up or excluding information and keeping professionals from participating in a coordinated national effort to deal with this catastrophe.

We have no way to know what is going on inside BP. We do know that the reports continue to be alarming.

Tonight there is another attempt by BP to use another method to stop the flow. BP says that we shouldn’t deal with measuring and that we should focus on stopping the spewing of oil. They are partially correct.

Of course the stoppage must come first. But measuring is a way to determine the responses needed to minimize the damage and clean up the mess. And this is a very big mess. BP’s liabilities are growing exponentially, as are those of its suppliers and partners who are involved.

In addition there is now risk to shipping lanes, because ships and barges cannot safely navigate through oil spills and slicks. The fire hazard has also greatly intensified. There are insurance requirements to prevent the transiting of ships. In sum, it is not wise to sail through a dangerous stretch of oil-contaminated ocean.

We have seen some firms make investment recommendations favorable to BP and the others involved. They claim the existing loss of market cap makes them cheap. We think that an unknown and growing liability is enough to dissuade us from attempting to bottom fish. You could catch a falling knife. We are not positioned in the ETFs that have heavy weights of these companies.

The other issue has to do with the 30,000 existing drilling rigs in the Gulf. They too must be cognizant of the risk of operating with an oil slick underneath them that is spread widely on the surface. Fire hazard again emerges as one of the considerations. We are told by petroleum engineers that these rigs may have to be evacuated if the slick reaches the sort of proportions to be dangerous to them. This is true for both drilling rigs and production platforms.

This situation in the Gulf has gone from bad to worse. It still may be contained. BP’s efforts to capture the gushing oil with the funnel-type device they are attempting to use tonight may still work. We certainly hope so.

Meanwhile the combined federal and oil company effort has now widened to over 500 vessels and 13,000 people. 1.5 million miles of boom and containment-type barriers have been installed, and more are coming. Coastal cities in Florida are making emergency plans. We have evidence of oil spill damage in three states: Mississippi, Louisiana, and Alabama.

Like Yogi Berra said: “It ain’t over till it’s over.”

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David R. Kotok, Chairman & Chief Investment Officer, Cumberland Advisors, www.cumber.com

The CEO of Deutshe Bank echoed today what many of us know but European officials and the ECB don’t want to admit as evidenced by the historic bailout plan. In an interview he said “I would doubt that Greece over time will be in a position to come up with the economic potential” to pay its debts. If Greece, Portugal and others can’t generate nominal GDP growth above its cost of funding, they enter a debt death spiral that can only be rescued by debt extinguishment thru restructuring which then lays the foundation for future growth. With another day of European stock weakness, global growth concerns, and capital requirement uncertainties in the banking system (due to both European authorities and the US Congress debate on Fin Reg) US$ 3 mo LIBOR rose to a fresh 9 month high, rising to .445%. Retail Sales, IP, Consumer Confidence and Business Inventories flood the wires this morning.