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

I am going to do this in real time: I will add some links, and unless you see “Done” at the end, this will still be a work in progress.

• Top Paid Bank & Wall Street Executives (Bloomberg)
• Dan Gross: Will Europe Take America Down? (Slate)
• Treasury sells 1.5 billion Citi shares for $6.2 billion  (MarketWatch)
• Gold? Not a bubble. Yet. (Kedrosky)
• Martin Wolf: The grasshoppers and the ants – a modern fable (FT)
• 25 Questions To Ask Anyone Who Believes The Economic Recovery Is Real (Black Listed News)
• California Leads States With Mortgage Interest Tax Deduction  (Real Time Economics)
• Fanboys Rejoice!: Apple Surpasses Microsoft in Market Cap (MarketBeat)
• BP America’s Twitter feed
• David Byrne sues FL gov over unauthorized use of “Road to Nowhere” in senate campaign ad (boingboing)
• The classic comedy AIRPLANE! is essentially a remake of the 1957 movie ZERO HOUR (YouTube).

Done!

What are you reading?

Amusing, via Inspiration Labs:

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Nice looking chart from Doug Short regarding how the major bourses have been trading:

“Here is a new overlay of five world markets since March 9, 2009. The start date is arbitrary: The S&P 500 hit a low on March 9th, the Nikkei 225 on March 10th, the DAX on March 6th, the FTSE on March 3rd, and the Hang Seng 4.4 months earlier on October 27, 2008. However, by aligning on the same day, we get a better sense of the present-day synchronous behavior of the markets than if we align the lows.”

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That hottest known planet may be its shortest-lived …

This NASA artist’s concept image shows that the hottest known planet in the Milky Way galaxy may also be its shortest-lived world. The doomed planet is being eaten by its parent star, according to observations made by a new instrument on NASA’s Hubble Space Telescope, the Cosmic Origins Spectrograph (COS). The planet may only have another 10 million years left before it is completely devoured.

Yahoo via Carl

David Leonhardt discusses 4 easy ways to improve the Financial Reform legislation:

DERIVATIVES Too many investors used debt to buy their derivatives, leaving no margin for error when prices fell.Put these on exchanges, disallow debt for purchases, place some restrictions on  iBank derivative trading;

CONSUMER PROTECTION Why didn’t any government agency prevent banks from issuing mortgages that homebuyers obviously could not repay?

Create a new consumer watchdog for credit cards, mortgages and other financial products. A separate agency — away fromt he Fed, with an independent budget, and White House appointment of director;

FED CREDIBILITY The more checks and balances on the Fed, the better the odds of avoiding another crisis. Audit the Fed’s actions before, during and after the crisis. Create an independent Office of Financial Research, that could identify problems even if the Fed does not.

BAILOUTS Banks will get in trouble again, just as they have for 800  years. The government may then need to prop up a bank to avoid another panic.

Better approach: Permanent tax on banks, based on how much debt they have and how risky their holdings appear. This goes int a future bailout fund. Let thew finance sector fund their own bailouts, not the tax payers.

Good stuff, worth a read.  . .

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Source:
Four Ways to a Better Finance Bill
David Leonhardt
NYT, May 25, 2010 http://www.nytimes.com/2010/05/26/business/economy/26leonhardt.html

In the last home sales figure to reflect the home buying tax credit, the masses came out as April New Home Sales, a measure of contract signings, totaled 504k, 79k higher than expected and at the highest level since May ’08. However, as seen with the purchase component of the weekly MBA data, the May data will show a sharp decline. We know a hangover is coming but we don’t know what happens after. Due to the sharp April gain and 16k home decline in the absolute # of homes for sale (the lowest since 1968), months supply fell to 5 from 6.2, the smallest since Dec ’05. This is a healthy backdrop going into an expected short term buying decline but foreclosure inventory is more than offsetting this. Evidence of this competition with foreclosures and other existing homes, the median price fell 9.7% sequentially and 9.5% y/o/y to $198,400, the lowest since Dec ’03, notwithstanding the healthy April sales data.

Durable Goods orders rose by 2.9%, more than twice expectations and Mar was revised higher but it was all aircraft orders as ex transports, orders fell by 1% vs an expected rise of .5%. But, Mar ex transports were revised up by 2 % pts, thus taking the two months together has the data above expectations. New order drops in electrical equipment, machinery and primary metals just partially reversed the gains in Mar. Non defense capital goods ex aircraft fell by 2.4% after strong gains in the prior two months but is up 23.5% y/o/y. Shipments, which follow orders and get directly plugged into GDP, rose by 1.4%. While inventories rose by .7%, the inventory to shipments ratio fell to 1.54 months from 1.55. Bottom line, the data has always been volatile as evidenced by the sharp revisions to March but is still good overall. The real test remains though what impact China and Europe will now have on US growth that this data didn’t reflect.

Asian markets bounced from the North Korean psycho selloff the day before with South Korea in particular higher by 1.4%. Europe followed helped out by an optimistic economic outlook by the OECD who believes that emerging market growth can help offset any moderation in the developed world. They also believe that German and French banks can deal with losses from their Greek exposure. They have a combined 120b euro exposure to Greek debt. Also lending support to the markets was the fixing of US$ 3 mo LIBOR which rose again but at the smallest % since Apr 15th. With this said, the cost of funding is higher in Europe today after Italy sold 6 mo bills at a yield of 1.33%, well above the Apr auction of .81% and the .57% they borrowed at in March. They released a budget cutting plan just before today’s auction. Portugal sold 5 yr notes at a yield of 3.7%, up 21 bps from the last one in Feb.

The MBA said purchases fell another 3.3% for the week ended Friday and is now down 36% over the past 3 weeks without the home buying tax credit. It’s now at the lowest level since Apr ’97. We knew there would be a drop off, the question though remains of what happens after. Refi’s continued to benefit from the recent drop in interest rates as they rose 17% to the highest level since Oct ’09. ABC confidence fell by 1 pt to -45 but is still 2 pts above the one yr average and has hung in pretty well notwithstanding the turbulence in the markets over the past few weeks. This turbulence though has changed the mood in the newsletter writer community as II said Bulls fell to 39.3 from 43.8 while Bears rose to 29.2 from 24.7, the highest since July ’09.

One of the data points that has been getting some attention is the total withholding tax receipts, as reported by the IRS.

According to the table below, it is down year over year. Some are interpreting this to contradict BLS, and likely means that the improving jobs data are bogus. Bill King specifically noted that “as of May 20, IRS data shows Withheld Income & Employment Taxes declined 3.36% y/y. This means income is still declining and by extension, meaningful jobs are still decreasing (the BLS considers someone that has done one hour of work on the day that it samples as ‘employed’. So theoretically a person can work one hour a month and be counted as employed.)”
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Witholding Data, 2009, 2010

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BLS, via the King Report

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That certainly is a possibility. Might there be a better, higher probability explanation?

I am less sure of that conclusion. While I have been skeptical over the years about BLS model changes, I do not believe they are simply making up numbers to please their political masters. Before jumping to conclusions, I suggest we consider other possibilities: If the Employment data is okay, then what might explain the change in withholding?:

- The 2009 tax cut that impacted the vast majority of salaried workers.

- A shift down the payscale by workers;

- Changes in with holding rules as part of the Stimulus package;

- Start up business founders working for little or no pay;

- Hours worked continues to get cut

We can come up with others, but each of these facts impacts the amount of dollars withheld by the IRS, and would explain a modest decrease in W/H while employment rose year-over-year.

Sometimes, we can look at the psychology of thew crowd for some insights. In this case, it is the willingness to change jobs — replace the devil you know with one you don’t — as insight into the labor market.

The WSJ reports that more employees are quitting their jobs and moving on:

“As the job market begins to loosen up, human-resource managers might increasingly be surprised by an announcement from employees they haven’t heard in a while: “I quit.”

In February, the number of employees voluntarily quitting surpassed the number being fired or discharged for the first time since October 2008, according to the Bureau of Labor Statistics. Before February, the BLS had recorded more layoffs than resignations for 15 straight months, the first such streak since the bureau started tracking the data a decade ago. Since the BLS began tracking the data, the average number of people voluntarily leaving their jobs per month has been about 2.7 million. But since October 2008, the average number dropped to as low as 1.72 million. In March, it was about 1.87 million.

And recent sentiment indicates that the number of employees quitting could continue to grow in the coming months. In a poll conducted by human-resources consultant Right Management at the end of 2009, 60% of workers said they intended to leave their jobs when the market got better. “The research is fairly alarming,” says Michael Haid, senior vice president of global solutions for Right Management. “The churn for companies could be very costly.” (emphasis added)

Why is this significant? It implies the job market is improving. Turnover more or less froze during the recession, because jobs were scarce. Even for those who found new gigs, Fear kept employees staying with the safety of the known.

Moving while the world is in flux is not something that many workers find comfortable. So the backlog of “workers waiting for better times to make a move to better jobs” is now acting like pent-up consumer demand — only for employees. The natural wanderlust of a segment of employees was suppressed, and is now busting out again.

Note that the Journal reports the median monthly voluntary turnover rate in 2009 was 0.5%, half of the rate in 2008. I’ll see if I can dig up the data for the first half of 2010 . . .

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Sources:
More Workers Start to Quit
JOE LIGHT
WSJ, MAY 25, 2010
http://online.wsj.com/article/SB20001424052748704113504575264432377146698.html