• The Busts Keep Getting Bigger: Why? (NY Review of Books)
• Pioneer to Revisit Subprime (WSJ)
• JPMorgan Gets a Break Where Goldman Got Nailed (Bloomberg)
• Betting on last six months’ momentum (Market Watch)
• Bernanke Offers No New Answers to Economic Conundrum (Barron’s) see also QE3? Bond market does the Fed’s job (MoneyCNN)
• For Many in Britain, Being a Homeowner Is a Fading Dream (NYT)
• Will Higher Taxes Tank the Economy? (Fiscal Times)
• Americans See Debt Threat as They Reject Tax ‘Scare Tactics’ (Bloomberg)
• Why Eric Cantor won’t make the budget deal (Washington Post)
• How to Know if Hackers Have Stolen Your Password (Scientific American)
• Now You Can Unsubscribe.com From Social Apps Too (Tech Crunch)
This morning I’ll be joining Tom Keene and Ken Pruitt on Bloomberg Radio, broadcasting live from the Loews Regency Hotel (home of the power breakfast), along with Jimmy Rogers of Rogers Holdings, Mickey Levy of BofA ML, Robert Sinche of RBS Securities.
I will be on from 9:30 to 10am. Listen for me — I’ll be the guy in Friday jeans not wearing a tie.
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You can stream Bloomberg Radio live by clicking below:
Durable Goods orders in May rose 1.9% headline and .6% ex transports. The headline figure was .4% better than expected while the latter was .3% below. Most importantly, non defense capital goods orders ex aircraft orders were up 1.6%, better than the 1% estimate and after a drop of .8% in April. For all 3 of the categories, the April figures were revised higher. Its important to note that these are orders and the Japanese supply issues will likely impact the timing of the actual shipments of some big ticket items. Also, it’s possible that orders were accelerated due to concern with supply issues out of Japan so as to better stock inventories with the uncertainty of delivery timing. Shipments in May rose .3% but after falling 1.4% in April. Shipments of transportation goods fell .4% in May after a 3.8% decline in April. Because inventories rose 1.2% and shipments were up just .3%, the inventory to shipments ratio rose to 1.83, the highest since June ’09. Bottom line, durable goods orders rebounded from the April weakness but as mentioned above, the Japanese delivery issues have and will distort the data for a few more months.
Michael Lewis, Everyone’s favorite financial narrator, has a new book coming out in the Fall: Boomerang: Travels in the New Third World release date is October 3, 2011.
I totally loved The Big Short, and am looking forward to this read as well.
Here is the publisher’s comments:
The tsunami of cheap credit that rolled across the planet between 2002 and 2008 was more than a simple financial phenomenon: it was temptation, offering entire societies the chance to reveal aspects of their characters they could not normally afford to indulge.
Icelanders wanted to stop fishing and become investment bankers. The Greeks wanted to turn their country into a piñata stuffed with cash and allow as many citizens as possible to take a whack at it. The Germans wanted to be even more German; the Irish wanted to stop being Irish.
Michael Lewis’s investigation of bubbles beyond our shores is so brilliantly, sadly hilarious that it leads the American reader to a comfortable complacency: oh, those foolish foreigners. But when he turns a merciless eye on California and Washington, DC, we see that the narrative is a trap baited with humor, and we understand the reckoning that awaits the greatest and greediest of debtor nations.
First Ben, then Jean-Claude, now Wen in national figures impacting markets with their rhetoric. Throw in the political action of oil reserve releases and we have another week of government event risk impacting markets both up and down and making the market almost unanalyzable day to day. I’m glad I went macro because there used to be a time when I just read annual reports. In our new world, micro research no longer suffices and there is no wonder volumes have been declining for two years, who wants to play in this new world? Chinese Premier Wen used the FT to give his State of the Union address but it was his comments specifically on their inflation battle that had Asian markets higher as they implied he would step off the tightening peddle. Wen said “There is concern as to whether China can rein in inflation and sustain its rapid development. My answer is an emphatic yes.” In terms of the steps taken, “these have worked. The overall price level is within a controllable range and is expected to drop steadily.” With Greece, the weekend will be spent by the PM and his supporters to convince the opposition to vote yes next week on their updated budget with more spending cuts and higher taxes. While without passage Greece would default, the opposition is right in wanting to pass pro growth strategies as part of the deal. German IFO business confidence was unexpectedly up slightly.
The following data is taken from Congressional testimony of the well respected banking analyst, Bert Ely, illustrates how the Federal Reserve has gone from being a taxpayer subsidized monetary authority to one of the world’s largest and most profitable bank/fixed-income hedge funds. Mr. Ely points out the pre-crisis Fed balance sheet (Table 1) consisted mainly of “Fed-issued currency intermediated into Treasury securities with both of those items compromising 90% of their side of the Fed balance sheet.” On the income side, Table 2 shows that in 2007, which Ely calls the last “normal” year, the U.S. taxpayer provided a $5.7 BN indirect subsidy to the Fed by paying $40.3 BN (line 1) of interest of the Fed’s holdings of Treasury securities, of which a $34.6 BN surplus (line 17) was returned to the Treasury.
Table 1 also illustrates how, since the crisis began, the Fed has more than tripled the size of its balance sheet, increasing its Treasury holdings by $650 BN and purchasing of over $1 TN of MBS and Agency debt. As of May, according to Ely, the Fed held 14 percent of the total debt and MBS issued or guaranteed by the three housing-finance GSEs and Ginnie Mae. The balance sheet growth was financed almost entirely by the creation of bank reserves held as deposits at the Fed (line 10). These reserves now account for almost 10 percent of total banking-industry assets, which, prior to the crisis was effectively a rounding error.
Table 2 shows the Fed’s net income has grown from $38.7 BN in 2007 to $81.7 BN in 2010 (line14). Though the sharp decline in interest rates reduced the Fed’s interest income on Treasuries from $40.3 BN to $26.4 BN, the more than $1 TN purchase of agency debt and MBS helped to generate $53 BN in interest income (line 3) in 2010, up from $.6 BN in 2007. The Fed returned $79.2 BN to the Treasury in 2010 (line 17) and after accounting for the $26.4 BN of interest on Treasuries generated a $52.9 BN profit for taxpayers.
The risks? Take a look the leverage ratio in Table 1 (line 13). John Hussman points out the Fed’s leverage ratio in now higher than that of Bear Sterns and Fannie Mae with similar interest risk though less credit risk. He writes,
The maturity distribution of these [Fed] assets works out to an average duration of about 6 years, which implies that the Fed would lose roughly 6% in value for every 100 basis points higher in long-term interest rates. Given that the Fed only holds 2% in capital against these assets, a 35-basis point increase in long-term yields would effectively wipe out the Fed’s capital…
To avoid the potentially untidy embarrassment of being insolvent on paper, the Fed quietly made an accounting change several weeks ago that will allow any losses to be reported as a new line item – a “negative liability” to the Treasury – rather than being deducted from its capital. Now, technically, a negative liability to the Treasury would mean that the Treasury owes the Fed money, which would be, well, a fraudulent claim, and certainly not a budget item approved by Congress, but we’ve established in recent quarters that nobody cares about misleading balance sheets, Constitutional prerogative, or the rule of law as long as speculators can get a rally going, so I’ll leave it at that.
We’re not sure of the endgame and when and how all this is going to play out. But we do agree with Mr. Hussman that “the predictable outcome is instability.” Toto, I have a feeling we’re not in Kansas anymore.
It ain’t slick, and that’s its charm. Take a look at the audience. Even the oldster is into it!
Despite being a TV mix, you can hear all the instruments. The drumming is so simple, yet it pushes the performance forward like a caboose with an engine inside. The sound of the guitar, played Townshend/windmill style, is unprocessed and real, its imperfection is riveting. And then you’ve got the bass dancing under the whole thing, like a stoner in a trance possessed by the music. The organ adds texture, but it’s Van Morrison’s harmonica that cuts to the bone.
And the way he’s oblivious to the audience, a slave to the music.
When done right, music is performed in one’s head, the audience is superfluous.
The sound is so infectious. It’s akin to what Nirvana did almost three decades later. Strip it down, expose the essence, make it about the emotion, and the sound.
And halfway through, when they switch to “Gloria”…
You actually get the feeling there’s a real “Gloria”. You can picture her, yup, about 5’4″. And her name is…G…L…0…R…I…A!
So simple, yet so right, this song is so infectious that it was a hit in America by a completely different group.
But this version is different. Its got AUTHENTICITY!
You wonder why women are drawn to musicians. Why they need to get close, why they’ll follow them to the ends of the earth. WATCH THIS CLIP!
There’s something inside Van Morrison.
And you just want to get closer. You NEED to get closer!
This may be forty five years old, but it’s more vital than anything on the hit parade. Makes you want to pick up an instrument and play yourself.
As a matter of fact, that’s what we did!
(Thanks to Harold Bronson, the Rhino co-creator and sixties aficionado, for the heads-up.)
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• Federal Reserve Frets Over Fiscal Recklessness Behind Calm of 0.09% Yield (Bloomberg) see also QE3? Bond market does the Fed’s job (CNNMoney)
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• The Verizon iPhone Halted Android’s Surge. The iPhone 5 Could Reverse It. (Washington Post)
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• High-Speed Rail Poised to Alter China (NY Times)
• Gretchen Rubin on How to Be Happier (The Browser)
• Romney Doesn’t Scare Obama. This Guy Does. (Esquire)
• Our Lefty Military (Kottke.org)
After 3 quarters in a row that averaged just 1.2%, Q4 GDP grew 2.8%, a touch below expectations of 3.0% BUT Nominal GDP grew well below forecasts. Because the price deflator was up just .4% vs the estimate of 1.9%, Nominal GDP was up 3.2% vs the estimate of 4.9%. Personal Consumption rose 2.0% vs the forecast of 2.4%. Fixed Investment rose 3.3% helped by a 5.2% increase in equipment and software spending and residential construction rose by 10.9%. Trade was a slight drag on GDP growth and government spending was as well led by a 12.5% decline on national...
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