Posts filed under “Think Tank”
James Bianco is founder and CEO of Bianco Research in Chicago. He has been producing fixed income research with a circulation of hundreds of portfolio managers and traders since 1990.
Jim’s commentaries have a special emphasis on: money flow characteristics of primary dealers, mutual funds, hedge funds, futures traders, banks, and institutional investors.
Prior to founding Bianco Research, Jim spent time in New York as Market Strategist for UBS Securities, and Equity Technical Analyst at First Boston and Shearson Lehman Brothers. He is a Chartered Market Technician (CMT) and a member of the Market Technicians Association (MTA).
- The Financial Times – Investors’ fears are eased on Talf
The Federal Reserve and the US Treasury on Monday extended a $200bn programme designed to revive the securitisation market, bringing relief to investors concerned that the supply of cheap government financing was set to end. The term asset-backed securities loan facility (Talf), in which the Fed lends to investors wanting to buy securitised loans, is to be extended by three to six months from the original year-end expiry date.
- The New York Times – U.S. Extends Effort to Ease Tight Credit Into 2010
With banks still tightening their lending standards, and borrowers skittish about taking on debt, the Federal Reserve and the Treasury extended one of their main emergency credit programs — the Term Asset-Backed Securities Lending Facility, or TALF — for several more months. Despite signs of an economic recovery, and vast government assistance to financial institutions, the Fed reported on Monday that banks were still tightening their lending standards and did not expect to reverse course until the second half of next year.
Last week we noted that the FOMC’s actions speak louder than words. Specifically we said:
[T]he Federal Reserve has been known to withhold some information from the statement, opting instead to release details of new programs or tweaks to old programs a day or two after the FOMC meeting…More often than not over the past year, the juicy details of the FOMC meeting are released a day or two after the statement. We’ll be watching over the next few days to see if the same happens after this meeting.
This happened Monday morning when the Federal Reserve posted the following on their website:
Release Date: August 17, 2009
For release at 9:00 a.m. EDT
[T]he Federal Reserve and Treasury approved extending TALF loans against newly issued ABS and legacy CMBS through March 31, 2010. Because new CMBS deals can take a significant amount of time to arrange, the Federal Reserve and Treasury approved TALF lending against newly issued CMBS through June 30, 2010. The Board will continue to monitor financial conditions and will consider in the future whether unusual and exigent circumstances warrant a further extension of the TALF to help promote financial stability and economic growth. The Federal Reserve and Treasury had previously authorized TALF loans through December 31, 2009.
Last week’s FOMC statement left market pundits with the idea that things are getting better:
As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve is in the process of buying $300 billion of Treasury securities. To promote a smooth transition in markets as these purchases of Treasury securities are completed, the Committee has decided to gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.
Both Treasury purchases and the TALF are important Federal Reserve programs. One program (Treasury purchases) was prominently featured in the FOMC statement, leading to a mind-numbing amount of analysis while the other program (TALF) was quietly revised in a press release yesterday. The Treasury purchases program was restricted and expected to end by October while the TALF was expanded. What are we to make of all of this?
As we also noted of the FOMC statement last week:
Could it be…that the Federal Reserve was afraid that the “teenagers” would misinterpret its meaning? If so, does this mean that the FOMC statement is now devoid of real information?
We believe yesterday’s press release underscores this idea. The FOMC statement is now a political tool and nothing more. By highlighting the Treasury program and not the TALF, the Federal Reserve was “leading the witness” to think monetary policy was going one way when, in actuality, it was going in other directions at the same time.
Kevin Lane is one of the founding partners of Fusion Analytics, and is the firm’s director of Quantitative Research. He is the main architect for developing their proprietary stock selection models and trading algorithms. Prior to joining Fusion Analytics, Mr. Lane enjoyed success as the Chief Market Strategist for several sell side institutional brokerage firms….Read More
July Housing Starts totaled 581k, 18k less than expected and down from 587k in June while Permits were 17k less than the consensus and 10k below the prior month. The drop in starts and permits was solely in the multi family category as single family starts and permits rose to the highest since Oct ’08….Read More
“The Future’s So Bright, I Gotta Wear Shades,” sang Timbuk3 but helps to sum up the much better than forecasted German ZEW figure which measures the expectations of future economic growth within the next 6 months. It was 56.1 vs the estimate of 45, up from 39.5 in July and is at the highest level…Read More
Good Evening: Global equities suffered a broad retreat today, with most of the damage centered in Asia. China in particular has been a standout to the downside of late, a situation I tried to call attention to last Wednesday. Including Monday’s 6% drubbing, the major Chinese indexes have declined 15% or more (the CSI 300,…Read More
On the question of whether or not banks are lending and also where the level of demand is for loans, weekly Commercial and Industrial loan data (out on Friday) can be a helpful gauge. C&I loans outstanding for the week ended Aug 5th fell by $4.6b to $1.475t, the lowest since the week ended Feb…Read More
The August NY Fed survey, the first August industrial number out, was a much better than expected 12.1 vs the consensus of 3 and up from -.6 in July. It’s the first positive reading since April and the highest since Nov ’07. The number however does not measure the degree of the improvement, just the…Read More
David R. Kotok co-founded Cumberland Advisors in 1973 and has been its Chief Investment Officer since inception. He holds a B.S. in Economics from The Wharton School of the University of Pennsylvania, an M.S. in Organizational Dynamics from The School of Arts and Sciences at the University of Pennsylvania, and a Masters in Philosophy from the University of Pennsylvania. Mr. Kotok’s articles and financial market commentary have appeared in The New York Times, The Wall Street Journal, Barron’s, and other publications. He is a frequent contributor to CNBC programs. Mr. Kotok is also a member of the National Business Economics Issues Council (NBEIC), the National Association for Business Economics (NABE), the Philadelphia Council for Business Economics (PCBE), and the Philadelphia Financial Economists Group (PFEG).
Moody’s, Munis & Cousin BABs
August 16 2009
In their August 13 “Special Comment” Moody’s outlined the current condition of the state budgets and of the various revenue sectors like airports, toll roads, higher education facilities, and hospitals. Nearly two years into a recession, the report is not pleasant reading.
Expenditure budgets are being cut. Tax receipts continue to arrive below projections, which necessitates further budget cuts. A downward spiral seems to be underway. The Muni sector appears to be in a depression.
In part, the damage to state and local budgets has been blunted by huge federal stimulus. This is viewed as temporary by government finance officers, since they must attempt to balance their budgets and may only count on federal assistance that is funded. The term “funded” means that they have the money in hand or will definitely receive it so that they can pay the bills. Thus unfunded items do not count even though they may be anticipated.
Forward-looking projections for municipal bond issuers are truly bleak. They show reduced revenues based on the most current projections of economic weakness. Tax receipts are forecast at extreme recession levels. These budgets do not include any unfunded federal help. Projections are based on all federal programs expiring as determined by present law. Credit ratings by Moody’s and other agencies are based on these worst case scenarios, which is why so many issuers are on credit watch or have been downgraded.
Direct payments are one form of help from the feds to the states and locals. Indirect forms are another. Build America Bonds (BAB) are an example of the indirect form. When certain qualifications are met, the federal government will reimburse the state or local issuer 35% of the interest cost on BABs issued in 2009 and 2010. The current law that authorized BABs expires after 2010. No one knows if Congress will extend it; hence, local government savings from using BABs is not projected after 2010.
In 2009, between $60 billion and $80 billion of BABs will be issued as taxable fixed-income securities; these are substitute issues for what would normally be tax-free Munis. Buyers of these new instruments include tax-deferred accounts like pensions or IRAs in the US and various foreign investors who find the yields on BABs attractive. Neither of these bond-investor groups would be interested in lower-yielding tax-free Munis, since they are not paying taxes to the US government. But they are seizing the opportunity to own BABs.
There is no excerpt because this is a protected post.
Category: Think Tank