Posts filed under “Think Tank”

Housing Starts

August Housing Starts totaled 598k annualized, right in line with expectations while the prior month was revised up by 8k to 589k. The gain m/o/m was solely led by multi family construction as single family starts fell and the same can be said about Permits. Permits were 579k, 4k below the consensus but July was revised up by 4k. Both Starts and Permits are at the highest since Nov ’08. Single family starts rose in the Midwest but fell in the Northeast, South and West. With respect to housing construction, the tax credit’s both nationally and in CA, have distorted the housing market in terms of determining what would have happened without them and in the context of an industry that still has too much inventory and didn’t need more building. The fate of the tax incentives are still to be determined but the NAR estimates that about 350k people of the 1.8-2mm that have used the credits to buy their first home would not have bought one without it.

Category: MacroNotes

How much debt do we have?

An expected positive Q3 GDP reading will technically end the recession and the rebound should continue into Q4. The question though is what the sustainability of growth will be in ’10. Consumer demand will be the key factor in how that question is answered and the labor market outlook and thus the ability of consumers…Read More

Category: MacroNotes

Who is Feeling Smart These Days?

Good Evening: U.S. stocks rose once again on Wednesday, extending what has become a rather remarkable equity rally. Taken in context with another down day for Treasurys and the U.S. dollar (and another up day for commodities), market participants should be forgiven for feeling Yogi Berra’s sense of deja vu all over again. A slate…Read More

Category: Markets, Think Tank

NAHB housing and tax credit impact

The Nat’l Assoc of Home Builders index was 19, in line with expectations but is up 1 point from August. It’s now at the highest level since May ’08 but is still well below the magic level of 50 which is the breakeven between those that say things are better and those that say worse….Read More

Category: MacroNotes

TIPS/gold

With another record high in gold and the slightly higher than expected headline CPI reading, the implied inflation rate in the 5 year TIPS has risen 6 bps today to 1.55%, the highest level in 3 months. Expectations in the 10 yr TIPS are up 3 bps to 1.86%, the most since August 21st. One…Read More

Category: MacroNotes

> Long-time readers know that for years we have inveighed that there is a huge, historic disconnect between the stock market and the economy due to funny money. Easy Al and now Benito have transformed the stock market and other markets from gauges of the economy to generators of economic activity via their deployment as…Read More

Category: Think Tank

More economic data

August Industrial Production rose .8%, .2% more than expected and July was revised up a strong .5% to a gain of 1%. Capacity Utilization in response rose to 69.6% from 69% and was .6% more than expected. In terms of the output gap argument keeping a lid on inflation, 80% is the 30 year average….Read More

Category: MacroNotes

CPI

August CPI rose .4% headline, (.1% more than the estimates) but fell y/o/y fell 1.5% (.2% higher than expected). The 9.1% m/o/m gain in gasoline prices was the main contributor. Food prices rose .1%. Ex food and fuel, prices rose .1% m/o/m, in line with estimates and is up 1.4% y/o/y. Owners Equivalent rent, 24%…Read More

Category: MacroNotes

When does asset price inflation lead to consumer price inflation?

With asset price inflation the unofficial policy of our Federal Reserve in driving economic growth over the past 11 years and particularly over the past two years, the question of late has been when does the easy money lead to consumer price inflation. Aug CPI is expected to rise .3% m/o/m but fall 1.7% y/o/y…Read More

Category: MacroNotes

Commodity Futures Trading Commission (CFTC)

Michael Martin is a proprietary commodity trader. He is a commodity instructor for the CFA Institute and a frequent lecturer on risk management.  Until September 2008 he was an Associate Editor at Trader Monthly magazine.  He blogs at http://martinkronicle.com and at www.huffingtonpost.com/michael-martin.

Victor Sperandeo is professional trader also known as Trader Vic —  is generally considered an expert on commodities (particularly in the Energy and Metals sectors), where he has earned a reputation for profitably trading in declining markets. His market crash prediction during the September 1987 Barron’s interview earned him widespread recognition of his understanding of the financial markets.

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Sitting On One’s Hands

There are several things that the Commodity Futures Trading Commission (CFTC) will be considering as they convene hearings. Hopefully they will hear well-researched, and well-thought out opinions, unlike that of Michael Masters – who’s testimony was slammed equally by the left and the right by the likes of Nobel Laureate Paul Krugman and Commodity trader Jim Rogers. Among the issues that the CFTC is looking at are transparency in the markets and the position reporting limits where they are not currently any Federal guidelines. A third issue is the stratification of the COT — the commitment of traders — which characterizes how the market participants are biased in the marketplace. Ultimately, these make for good talking points, however, regulation in these areas will not stamp out speculation nor insure Americans against high commodity prices.

Position Limits

That commodity futures contracts have position limits is not a new concept. The various exchanges set position limits, except for Agriculture futures which are set (Federally) by the CFTC. Each commodity has its own position limit and they tend to be very specific. NYMEX Crude oil, for example, has the position limit of 10,000 net futures in any one month and 20,000 net futures contracts for all months combined. You are limited to “only” 3,000 contracts in the last 3 days of the spot month, including any concurrent Call or Put Option positions on the same commodity. The question before the CFTC is how to account for the Over the Counter (OTC) market in aggregating position sizes. Also, the Intercontinental Exchange (the ICE), has evolved substantially since trading has become much more electronic. The ICE offers “look-alike” futures which are cash-settled and no physical commodity is ever involved by definition. The position limits for the ICE Crude Oil Futures are exactly the same as those set by the NYMEX on its crude oil contract. These are two different contracts on two different exchanges and their limits should be separate.

If Victor decides to sell 5,000 NYMEX crude oil contracts and Mike is buying 5,000 NYMEX crude oil contracts at the same time, there is no effect on crude oil itself. Neither of us is creating nor producing the physical oil – we are trading against one another. We are not impacting the consumer, unless the consumer happens to be a speculator and is taking part of the position. What we are doing, however, is providing valuable information to the marketplace on the outlook for Crude Oil. We already abide by the reporting levels. Further transparency will not annul volatility in commodity futures trading. Uncertainty causes volatility. Hedgers, real hedgers, are hedged oftentimes to the back of the board and they use several techniques beyond futures contracts.

Commodity investors, also called Indexers, invest in commodities for the long-term to assuage the effect of inflation on their traditional investments and “paper assets,” such as stocks and bonds. Through passive investments such as the US Oil Fund, LP (ticker:USO) discussed below, or through the asset class known as Managed Futures, they seek diversification along their investment frontier to enhance their returns while reducing risk. These indexers, which have billions and billions under management, are the large pensions (and in some cases Endowments) that have Defined Benefit plans that they are legally bound to pay out of to plan beneficiaries – retirees – in the future. It has been alleged that such indexers, due to their sheer size, are driving up the price of commodities. So far, there has been no evidence of fact to this regard. Regulating pensions and endowments out of the market or to the point where their participation would be meaningless, would be a great disservice to them and frankly, discriminatory because of their size. Such regulatory banishment would likely come back to haunt lawmakers and tax payers because if there was a shortfall in corpus that is due to be paid out, it would have to be made up. This would be a drama known as Social Security, Part II.

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Category: Commodities, Regulation, Think Tank