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

An old, pre expiration of the home buying tax credit pricing survey, the March S&P/CaseShiller index, rose 2.35% y/o/y, slightly below the expected gain of 2.5%. On a m/o/m basis though, the index is down for a 6th straight month on a non seasonally adjusted basis but should rebound in the data over the next few months as we enter a seasonally busier time for the industry. Adjusting for seasonals, the price index is down for a 2nd month after rising for 8 months in a row. On a y/o/y basis, 10 of the 20 cities surveyed saw a gain, led by San Francisco and San Diego. The decline was led by Las Vegas and Detroit. As I said yesterday on Existing Home Sales, “the data is old news because now the market is subject to good ole fashioned supply and demand where still subdued prices and lower mortgage rates will face off against a still tough labor market, no tax credit and still big supply.”

I’ve been putting together a longer post called “Residential Real Estate: The Second Leg Down.”

Today’s Case-Shiller Home Price Index confirms that a softening of residential sales and prices is already under way. It is likely to accelerate over the next few quarters.

Here is Case-Shiller:

Data through March 2010, released today by Standard & Poor’s for its S&P/Case-Shiller Home Price Indices, show that the U.S. National Home Price Index fell 3.2% in the first quarter of 2010, but remains above its year-earlier level.

In March, 13 of the 20 MSAs covered by S&P/Case-Shiller Home Price Indices and both monthly composites were down although the two composites and 10 MSAs showed year-over-year gains. Housing prices rebounded from crisis lows, but recently have seen renewed weakness as tax incentives are ending and foreclosures are climbing.

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I left Vegas on Friday, but before I split, I took one final lap around the Skybridge Alternative Investment conference to say goodbye to a few people.

On the way out, I interrupt a tall old codger making time with Sandra, who works as Roubini’s Research Strategies Director. She is quite fetching, and since I was late, I bulled in, barking “Pardon the interruption.” I hurriedly air kiss her goodbye (European style, MWA! on each cheek), all the while thinking about my flight to San Diego. She introduces me to Lurch, but I’m only half listening, and I shake the old guy’s hand before bolting for my flight.

In the cab from the Bellagio to the airport, it dawns on me just what Sandra said: “Barry, this is Robert Rubin.” No bullshit, that’s who it was. He looked terrible; Clinton who just had quadruple bypass, looked much better.

Then again, Slick Willie’s biggest crime was sexual, not economic in nature. Whatever rationales Rubin’s conscious mind may have made about his role in the collapse, his subconscious knows better. And while no one else seems to be doing this, his subconscious is in the process of kicking his own ass. He seems to be slowly dying inside, at the behest of his own brain’s sense of guilt.

Regardless, I was reminded of that when I came across this list of the “corrupt corporate capitalists who leveraged their connections in government for their own personal profit . . . Today we know these opportunists as deregulatory hacks hellbent on making a profit at any cost.”

And look at this! Number 1 (with a bullet), turns out to be the former Treasury Secretary of State, whom I barely acknowledged while I was rudely interrupting his rap to a young hottie so I could say good bye to her:

America’s Ten Most Corrupt Capitalists

1. Robert Rubin
2. Alan Greenspan
3. Larry Summers
4. Phil and Wendy Gramm
5. Jamie Dimon
6. Stephen Friedman
7. Robert Steel
8. Henry Paulson
9. Warren Buffett

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Some interesting charts in this:

Profits and Balance Sheet Developments at U.S. Commercial Banks in 2009
Federal Reserve Bulletin
Seung Jung Lee and Jonathan D. Rose

Reviews recent developments in the balance sheets and in the profitability of U.S. commercial banks. The article discusses how developments in the U.S. banking industry in 2009 and early 2010 were related to changes in financial markets and in the broader economy.

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Bank Profits 10

First it was the study of finance, then the markets demanded reading up on political science and now an education on military exercises and strategy are necessary and unfortunately we can’t get it from the video game Call of Duty: Modern Warfare. Back in ’03, Iraq was market moving for only a short period of time and hopefully North Korea will be too if the Chinese can step up to calm down their insane friend. Government event risk is now polluting everyday of trading. As if European banking concerns weren’t enough, Asia got hit hard with the South Korean Kospi down 2.8% in particular and the Won is down to the lowest level since Aug ’09 vs the $. Spanish banking worries has sent the 5 yr Financial iTraxx CDS to a 2 1/2 week high, up by 18 bps to 183 as 3 mo US$ LIBOR rose another .25 bps to .536%. Spain’s 5 yr CDS is up by 40 bps to 255 bps and bond yields are higher across their curve. Since the bailout they are up 140 bps and Greece by 260 bps.

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Global markets are showing all red, with most markets off by 3%.  Nikkei 225 is down -3.06%; Hang Senf Index is off -3.47%.

European Bourses are also off 3%, with Spain down 5%.

Futures indicating a big gap down here, with the Dow set to open down 250 points.

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Look Out Below (part 7 trillion)

From (who else?) The Onion:

“Securities and Exchange Commission officials are calling it the strictest regulatory reform since the Great Depression: CEOs of major financial institutions will now be required to humbly shrug and smile sheepishly before accepting huge salary bonuses.

The new regulation, SEC rule 206(b)-7, will reportedly target Wall Street executives who accept disgustingly bloated annual payouts, forcing them to raise and then lower their shoulders in a manner that conveys a mild degree of humility or a sense of “Aw, shucks. Who? Me?”

“This sweeping new reform sends a clear message to fat-cat CEOs at firms like Goldman Sachs and AIG,” SEC chair Mary Schapiro said Monday. “Never again will they be able to receive massive bonuses unless, at a minimum, they flash a gee-I-don’t-think-I-should expression and say something like ‘Well, all right, but only if you insist’ first.”

“Mark my words,” she continued, “The days of greedy, out-of-touch executives pocketing outrageous $40 million bonuses without acting slightly embarrassed about it are over.”

The crackdown comes on the heels of Wall Street’s 2010 bonus season, during which not one executive was observed to look at the floor meekly, sink his hands into his pockets, or dig his right toe awkwardly into the ground before taking his cut of the estimated $55 billion in payouts.”

-New Law Forces CEOs To Humbly Shrug Before Receiving Massive Bonuses

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Source:
New Law Forces CEOs To Humbly Shrug Before Receiving Massive Bonuses
The Onion, May 6, 2010 | ISSUE 46•18

http://www.theonion.com/articles/new-law-forces-ceos-to-humbly-shrug-before-receivi,17380/

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This has the potential to be a fascinating development:

“When Bloomberg introduced a credit rating function to its terminals May 10, some wondered whether the company that revolutionized technology for traders was trying to steal market share from Moody’s, Standard & Poor’s, and Fitch, the world’s three largest rating agencies. An internal Bloomberg memo obtained by the Daily Mail reportedly says that the company wants to offer a “robust gauge” of a debt issuer’s creditworthiness.

“Anyone looking for a Moody’s killer was quickly disappointed. The new tool (or function, in Bloomberg parlance) doesn’t rate bonds when they are issued, so it doesn’t address the “issuer pays” conflict of interest. It only rates corporate debt, not the structured bonds that were at the heart of the credit crisis. And Bloomberg has not applied to become a Nationally Recognized Statistical Rating Organization (NRSRO), the designation that makes its ratings count in rules and regulations that depend on ratings. Since non-NRSRO ratings don’t give a bond a regulatory seal of approval, they’re not going to challenge the regime of the Big Three.

But what Bloomberg’s rating tool does do is use a quantitative model to evaluate a company’s credit health and the probability that its bonds will default. The model is completely transparent — Bloomberg explains all of the assumptions that went into the model’s creation, so investors know all of the data used and they can stress test it with their own inputs.”

It would be interesting to see a move away from subjective ratings, and towards something more objective. And any change away from reliance on a 3rd party for opinion might force the buyers to actually do some homework . . .

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Source:
What Bloomberg brings to the credit ratings game
Katie Benner
Fortune, May 24, 2010
http://money.cnn.com/2010/05/24/news/companies/bloomberg_credit_ratings.fortune/index.htm

via Cosmic 140, we get the universe of Twitter influence:

Here’s what the full Twitter universe looks like:

PDF here

Hat tip Flowing Data

David R. Kotok, Cumberland Advisors

May 24, 2010

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“The most recent satellite imagery indicates that the portion of the oil previously observed moving to the SE towards the Loop Current (LC) has largely been entrained into a counter-clockwise rotating eddy to the north of the LC. Over flight observations report this oil is in the form of very scattered light sheens. It is possible for sheens on the southern edge of the eddy to become entrained into the LC and persist as very widely scattered tar balls not visible from imagery. Model trajectories do not indicate additional oil from the source region will move south towards the LC during this forecast period.”

Source: NOAA, May 22, 72-hour offshore trajectory forecast through May 25
So far we are still going from “bad” to “worse,” as outlined in our series on Oil Slickonomics. It’s not in the Loop Current, yet.

Meanwhile, BP is trying new measures to slow or stop the leak. So far attempts to mitigate the flow have mostly failed. BP and the US Coast Guard each admit that they do not know how much oil is flowing into the Gulf. 5000 barrels a day is an estimate, but there are many other estimates and they range widely.

Some leaking oil is being captured and brought to the surface. Most is still going into the waters of the region. NOAA has now declared about 1/5 of the Gulf’s federal waters off limits to fishing. This is about 50,000 square miles. Shellfish buyers told me that, essentially, if shrimp or oysters come from west of the Mississippi River they are OK and east of the river they are to be avoided. In the region there is now a term, “Texas oysters,” to describe what is edible. So far the western Gulf has been spared damage, while Louisiana and Mississippi are the hardest hit.

Notice NOAA’s use of the term “federal waters.” Remember that NOAA is a US government agency. It only deals within its jurisdiction. In addition to the federal waters there are state jurisdictional waters, which amount to the coastlines; and there are international waters, which are beyond the NOAA jurisdiction. We have yet to see any reports of the slick reaching international waters.

Many details may be found on the CNN website www.CNN.com. We will not repeat them here, but we recommend readers to spend a few minutes on the CNN reporting, which has been excellent.

We will comment on three items. First: the drilling rigs and platforms in the Gulf that are registered in the US are under the supervision of our federal government. Others, like the one that is the source of this catastrophe, are registered in foreign jurisdictions. That is done by the oil companies in order to save money. There are representations made about compliance with US law. But the evidence is that the US-registered vessels get much more inspection and scrutiny than the non-US ones. This foreign registry issue is now an exploding area of inquiry and controversy.

The second item is dispersants. EPA has ordered the cessation of the use of Corexit, a dispersant that BP had been using to combat the spill. The reason is that it is too toxic. EPA admits that there is no precedent for the amount of dispersant used in this event and the type used. This is truly an uncharted area. They are now concerned enough to call for only mild dispersants, so as to reduce the risk from the toxicity. No one knows how much damage has been done by the dispersants already used.
Third, The New York Times reports that the laboratory used to do the sampling and testing to determine degrees of damage and eventual liability is owned by an oil-services firm that “counts BP” among its biggest clients. Critics claim conflict of interest. The lab owner says its work is “unbiased.”

Several websites have erroneously quoted our writings as estimating the final cost to be $125 billion. They are in error. We have used the $12.5 billion number and have been gradually increasing it to “tens of billions.” I believe the website put the decimal point in the wrong place.

If we get confirmation that the oil is in the Loop Current, then our assessment will go from the “bad” condition to the “worse” condition. That confirmation would mean Florida’s west coast is in danger and that the possible spread around the tip of Florida has become a serous risk. So far we have evidence that the slick reached within a few miles of the LC, but the establishment of a serous amount of oil there is still not confirmed.

We watch; we wait; we hope. But in our gut we know that the unfolding drama in the Gulf of Mexico is destined to become the largest and most costly oil pollution event in global history. We reiterate our recommendation to avoid investment in BP shares or related companies. Their liabilities grow every day.

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