Posts filed under “Think Tank”

Trading Observations

A friend (A) at a major trading house is a young but astute market oberver.

He notes some details of today’s action:

1. Volume is tracking for 11.7 billion shares, which if accomplished would be the largest volume day since June 26th. On that particular day, personal income and spending data for May revealed a sharp rise in the savings rate to 6.9% (which was revised down yesterday to 6.2%). Breadth is negative for both the NYSE and the Nasdaq, but the Arms Index (the ratio of NYSE advancers to NYSE decliners divided by the ratio of NYSE up volume to NYSE down volume) is ridiculously low at 0.37, indicating an outsized amount of volume in advancing stocks relative to the number of stocks which are advancing. Thank Jim Cramer: his call on Mad Money last night to buy Bank of America (its price is high enough now that institutions will feel comfortable buying it…the logic of which I think speaks for itself) has galvanized the bank stocks amidst an otherwise negative tape. JPMorgan’s tender offer for $3.4 billion of its preferred notes for roughly 60 cents on the dollar is also helping sentiment, as is what I’m guessing is a short covering exercise in Citigroup shares ahead of its preferred-to-common conversion tonight. Bank of America is up by about +5%, as is Citigroup, with those two stocks accounting for 1.2 billion shares so far today (at 1:15 p.m.). That puts the better than usual volume in perspective too.

2. Tech is dragging us lower today, both in price and breadth. An “MGIP” chart on Bloomberg reveals that the separation between the two occurred at 10:00 a.m. when the June Factory data (better than the Street’s expectation for -0.8% m/m at +0.4% m/m, with the inventory/shipments ratio declining to 1.42 from 1.45 which indicates that the inventory bulge is moving through the supply chain) and weaker-than-expected ISM non-manufacturing data came out. We saw an immediate separation between the two indices at 10:00 a.m. of about 20 basis points, and that has since widened out to about 50 basis points. Breadth for the two indices also diverged, with NYSE breadth improving after a 10:30 a.m. bottom (-1124 on the A/D line) while Nasdaq breadth rolled over and made a new intraday low just after 1 p.m. (-1144 on its A/D line).

Source for all data is Bloomberg.

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Category: Markets, Think Tank

rate hike odds/$, bonds, stocks

Coincident with the US$ weakness, rise in bond yields, increase in inflation expectations in the TIPS and relentless rally in stocks, the fed funds futures are moving closer to pricing in a 100% chance of a Fed rate hike of 25 bps by January. Looking at the Feb fed funds futures contract, odds right now…Read More

Category: MacroNotes

Cost of Living in America

investing in real estate, budgeting

Category: Digital Media, Think Tank

ISM services index

The ISM services index (services make up about 80% of the labor market) was 46.4, 1.6 points less than estimates and down from 47 in June. Business Activity fell 2.7 points to 46.1 after almost reaching 50 in June. New Orders fell .5 point to 48.1 but off the highest reading since Sept ’08. Backlogs…Read More

Category: MacroNotes

All About Picking Losers as Winners: Interview With Bob Feinberg

Today we ran an interview with Robert Feinberg, who is one of Washington’s veteran observers of the financial industry.  We also commented on the latest outburst by Treasury Secretary Tim Geithner.   Enjoy.  Chris

The Institutional Risk Analyst

August  5, 2009

On Friday we described to subscribers of The IRA Advisory Service why we downgraded our outlook on US Bancorp (NYSE:USB) from “positive” to “neutral,” and reaffirmed our “positive” outlook on Cullen/Frost Bankers (NYSE:CFR).  For more information about this report or our coverage universe, please contact us: info@institutionalriskanalytics.com

Today we are in Samoset, Maine, at the meeting of the National Business Economic Issues Council (NBEIC). Despite the interesting presentations and views expressed at NBEIC, we could not help but take a moment to comment on the regulaltory reform process since it seems that the Secretary of the Treasury forgot to take his Xanax last week.

The WSJ reports that “Timothy Geithner blasted top U.S. financial regulators in an expletive-laced critique last Friday as frustration grows over the Obama administration’s faltering plan to overhaul U.S. financial regulation.” Among those gathered in the Treasury conference room were Federal Reserve Chairman Ben Bernanke, Securities and Exchange Commission Chairman Mary Schapiro and Federal Deposit Insurance Corp. Chairman Sheila Bair.  Friday’s roughly hour long meeting was described as unusual, not only because of Mr. Geithner’s repeated use of obscenities, but because of the aggressive posture he took with officials from federal agencies that are, by law, considered independent of the White House.

Secretary Geithner reportedly reminded attendees that the Obama Administration and Congress set policy, not the regulatory agencies. Presumably the target of Geithner’s ire was FDIC Chairman Bair and SEC Chairman Schapiro, who expressed a collective unwillingness to yield power over to Fed Chairman Ben Bernanke.  Chairman Bernanke, of note, seems to be running for reappointment based on the FOMC’s incredible, single-digit unemployment projections for 2010.

Secretary Geithner is correct that the Congress makes policy.  The executive branch only proposes and implements, right?  Until the Congress actually votes and the President signs the legislation, though, there is no new policy.   Given the complete lack of leadership from the White House on regulatory reform, the agency heads can probably be forgiven for focusing their attention on the Congress and not the wants and needs of Secretary Geithner, who we still believe is not long for this political world. When the next round of good news comes out of American International Group (NYSE:AIG), we expect that Secretary Geithner’s inability to sell his home in New York may cease to be a problem.

The fact is, there is no great push from either the public nor the Congress for regulatory reform, no more than there is a great groundswell of public demand for health care reform.  In both cases, the Obama Administration is playing political poker with a very weak hand.  It looks to us like both regulatory reform and health care, if they get them done at all, will look nothing like the proposals emanating from the White House.

For example, we hear that the Obama Administration’s new proposal for regulating OTC derivatives (it will cover ALL OTC derivatives, not just credit default swaps or “CDS”, including interest rate swaps).  Our sources expect the headline language will represent very real regulation of OTC and may negatively effect the larger dealer banks.  We hear that the proposal will ensure that the system evens the playing filed between the dealers and end-users in terms of economics, access and information.

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Category: Markets, Think Tank

ADP jobs report

ADP said there were 371k private sector jobs shed in July, 21k more than expected but it’s the slowest pace of decline since Oct ’08. As has been seen, small and medium sized businesses led the way. The goods producing sector shed 169k jobs, 99k of which was manufacturing. The service providing sector lost 202k…Read More

Category: MacroNotes

Sentiment getting very bullish

Unlike the world of consumer products where lower prices bring out the buyers (free money from CF clunker’s as an example), investors get more bullish the more expensive stocks get. The weekly II data said the number of bullish newsletter writers rose to 47.2, up 5 points for the week while bears fell to 25.8…Read More

Category: MacroNotes

Toothless SEC Leaves SOX Full of Holes

Good Evening: After a morning decline, the major U.S. stock market averages rallied back to close higher today (this is a recording). Worries about a drop in personal incomes was overcome by a rise in pending home sales, though, as we’ll see, the former should matter more than the latter. The reflation trade (stocks &…Read More

Category: Markets, Think Tank

Consumer, Where Art Thou?

This week I am in the office for just one day, but I can rely on my friend Dave Rosenberg to give us solid insight on the latest GDP numbers for this week’s Outside the Box. Dave slices and dices to show us what really happened. David was the former Chief Economist at the former Merrill Lynch (ah, Mother Merrill, we barely knew ye.) and is now Chief Economist at Gluskin Sheff + Associates Inc., which is one of Canada’s pre-eminent wealth management firms. Founded in 1984, they manage $4.4 billion. David notes that the data gives us a mixed picture.

I am in Maine later this week. It is likely I will be on CNBC, as they will be shooting live from our fishing camp. Also, they plan to do a one hour special with a number of interviews. I will let you know when it airs. A quick note from me: The third quarter is likely to be positive, especially given the success of the “Cash for Clunkers” program which it looks like our Congress is going to pass another round of spending which taxpayers (our kids) will get to pay off, or more likely pay $50 million per years for decades in interest. Sigh. Essentially, we are moving up car sales today which would have been made later, except that if you can get someone else to make your down payment, why not make that purchase today? A very reasonable response on the part of the consumer.

A teaser from Dave’s work below: “Consumer spending came in at -1.2% annualized, twice the decline expected by the consensus. This occurred in the face of gargantuan fiscal stimulus and leaves wondering how this critical 70% chunk of the economy is going to perform as the cash-flow boost from Uncle Sam’s generosity recedes in the second half of the year. Imagine, government transfers to the household sector exploded at a 33% annual rate, while tax payments imploded at a 33% annual rate and the best we can do is a -1.2% annualized decline in consumer spending in real terms and flat in nominal terms? What do we do for an encore? In the absence of the fiscal largesse, it is quite conceivable that consumer spending would have shrunk at a 10% annual rate last quarter!”

Encore, indeed.

John Mauldin, Editor
Outside the Box


Lunch with Dave

by David A. Rosenberg

U.S. GDP Review — Consumer, Where Art Thou?

While the headline real GDP number came in a tad better than expected, at -1.0% QoQ annualized rate, the back data were revised lower and show the recession to be deeper. First quarter of this year, for example, was revised to -6.4% from -5.5% previously. And, it may not be lost on anyone that the four consecutive quarters of economic contraction was unprecedented in the post-WWII era; ditto for the -3.9% year-on-year trend. In other words, while nobody is willing to go out on the limb and call this a depression (the same academics that brought you “The Great Moderation” during that last great albeit leveraged economic expansion are now labeling what we have endured over the past year-and-a-half as “The Great Recession”). This does go down as the worst economic performance both in terms of duration and intensity since “The Great Depression”. While we are past the most pronounced part of the downturn, it may still be premature to call for the end of the recession merely because of the prospect of a positive third-quarter GDP result. After all, we saw GDP advance at a 1.5% annual rate in last year’s second quarter, and if memory serves us correctly, the NBER did not subsequently declare the end of the recession. And even if the recession is ending, as we saw in 2002, that does not guarantee a durable rally in risk assets. Sustainability is the key, and it remains the wild card.

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Category: Think Tank

Gold, has been around for 5000 years

That barbaric 5000 year old metal, gold, is just $30+ from $1000 and just a few dollars more from its all time record high. I’m not familiar with any other asset that is this close to its record high and not coincidentally coincides with the dollar index being near its record low. Gold is now…Read More

Category: MacroNotes