Posts filed under “Think Tank”

A Sense of Optimism ?

The sense of optimism that the worst of the economic downturn has passed
and the outlook looking forward is much improved continues to spread
around the globe. Today the affirmation of this belief was reflected in
Germany as the ZEW investor confidence expectations # in their economy
rose to the highest level since June ’06, rising to 31 from 13 and well
above the consensus of 20. However, the jump was solely in the outlook
as the current situation fell and was almost 3 pts less than expected.
Less bad gives hope that things turn into good sooner rather than later
but there is still an acknowledgement that conditions are still
difficult and uncertain. The Euro is rallying to near its highest level
since early Jan in response, German bund yields are rising to the
highest since Nov ’08 and US yields are also higher as a result. Apr US
Housing Starts are expected to total 520k with Permits at 530k. Lower
will be better in terms of inventories.

Category: MacroNotes

VIX

If the VIX closes below 30 today, it will be the first time since Sept 12th, the Friday before the Lehman bankruptcy announcement on the 15th. The Sept 12th close was 25.66.

Category: MacroNotes

Credit Crisis Watch: Thawing – noteworthy progress

Credit Crisis Watch: Thawing – noteworthy progress Are the various central bank liquidity facilitiess and capital injections having the desired effect of unclogging credit markets and restoring confidence in the world’s financial system? This is precisely what the “Credit Crisis Watch” is all about – a review of a number of measures in order to…Read More

Category: Credit, Economy, Think Tank

Here is an excerpt from our latest issue of The Institutional Risk Analyst comment and some additional thoughts since we’ve published.  Got some very good responses/retorts that we’ll share with with la famiglia ritholtz as with previous comments.

“Kabuki is classical ancient Japanese folk theater performed broadly and loudly for the general public. I became familiar with it when I lived in Tokyo years ago. Kabuki on the Potomac this week fit Kabuki’s theatrical definition with lawmakers wailing loudly, uttering angry threats, and rhythmically pounding podiums in a performance of mangled metaphors and fantasy.”

The Rag Blog
March 22, 2009

We gratefully acknowledge contributions for today’s comment from members of the Herbert Gold Society, an informal group of current and former employees of the U.S. Treasury and the Federal Reserve System.

Despite bringing the world economy to its knees and costing taxpayers hundreds of billions of dollars in bailouts for events such as Bear Stearns, Lehman Brothers and American International Group (NYSE:AIG), the Masters of the Universe who run the largest Wall Street firms of have learned not a thing when it comes to credit default swaps (“CDS”) and other types of high-risk financial engineering. Indeed, not only are the largest derivative dealers fighting efforts to reform the CDS and other derivative instruments that caused the AIG fiasco, but regulators like the Federal Reserve Board and US Treasury are working with the banks to ensure that a small group of dealers increase their monopoly over the business of over-the-counter (“OTC”) derivatives.

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Category: BP Cafe, Think Tank

He’s just not that into you

Vincent Farrell, Jr. is Chief Investment Officer of Soleil Securities, a New York based investment management company. Over his long career on Wall Street, he has worked for numerous distinguished firms. Mr. Farrell graduated from Princeton University in 1969 and received his M.B.A. from the Iona College Graduate School of Business in 1972. ~~~ I…Read More

Category: Think Tank

Geithner’s Generosity Earns Wall Street’s Applause

Good Evening: U.S. stocks rose smartly today after some better than expected news on both the economic and earnings fronts. Financial stocks especially took flight after some generous comments from Treasury Secretary, Timothy Geithner, that seemed to ease some previous concerns about compensation limits. Whether emboldened by this change of heart at Treasury or not,…Read More

Category: Markets, Think Tank

inflation/if only lunch was free

Assuming no change by days end, the implied inflation rate in the 10 yr TIPS is about to close at its highest level since late Sept at 1.595%, exceeding the recent high of 1.58% 1 1/2 weeks ago. The price movement today follows the action in the stock market in the belief that the Fed’s…Read More

Category: MacroNotes

NAHB

The May Nat’l Assoc of Home Builders index is 16, up two pts from April but in line with expectations and is now 8 pts off the record low and at the highest level since Sept. Both Present and Future expectations rose while Prospective Buyers Traffic remained unchanged, with the biggest % increase in the…Read More

Category: MacroNotes

AIG’s Cassano: Trillion-Dollar Price on His Head

Great article on the AIG mess in the Times of London: Joseph Cassano: the man with the trillion-dollar price on his head. I am not referring to the fact he quotes me, but rather some of the other detail that you never see in the US media. Excerpt: “Until now, the economic crisis has been…Read More

Category: Bailouts, Credit, Derivatives, Think Tank

Words from the (investment) Wise: 5.17.09

Words from the (investment) wise for the week that was (May 11 – 17, 2009)

A long-awaited reversal in the monumental global stock market rally since early March finally arrived last week. As the first-quarter earnings season started winding down and post stress-test capital-raising weighed on some banks, investors were faced with a slew of gloomy economic reports suggesting the recent optimism about a global recovery might have been premature.

“This week, the hard economic data remind us that the global recession is ongoing: exports remain deep in the red; retail sales disappoint; inflation gets a small energy bump but is still down; and industrial production declines. However, the data are consistent with the story of a slowing economic decline, foretold by several ‘green shoot’ survey reports,” said Rebecca Wilder (News N Economics).

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Source: Tom Toles, Washington Post.

“Less bad” economic reports provided investors with little comfort, sparking a reassessment of their risk appetite and leading to profit-taking on most bourses. Also, commodities retreated after recording four-month highs earlier in the week, and high-yield corporate bonds and emerging-market currencies came off the boil. On the other hand, safe-haven assets such as government bonds, gold bullion, the US dollar and Japanese yen attracted buying. Investment-grade corporate bonds and Treasury inflation-protected securities also closed the week in positive territory.

The performance of the major asset classes is summarized by the chart below.

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Source: StockCharts.com

After nine straight weeks of gains, global stock markets succumbed to profit-taking last week with the MSCI World Index falling by 3.4% (YTD +0.1%) and the MSCI Emerging Markets Index down by 2.4% (YTD +24.8%).

Similarly, the major US indices reversed course. The Nasdaq Composite Index (-3.4%, YTD +6.5%) and the Russell 2000 Index (-7.0%, YTD -4.7%) declined after rising for nine consecutive weeks and the Dow Jones Industrial Index (-3.6%, YTD -5.8%) and the S&P 500 Index (‑5.0%, YTD -2.3%) fell after being up eight out of nine weeks.

After last week’s sell-off the Nasdaq is the only major US index still in the black for the year to date, finding itself in the company of the majority of emerging and mature markets.

Click here or on the table below for a larger image.

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Returns around the world ranged from top performers Serbia (+10.0%), Cyprus (+9.7%), Bermuda (+9.5%), Namibia (+8.5%) and Vietnam (+6.5%) to Romania (-12.2%), the Czech Republic (-8.3%), Finland (-6.9%), Luxembourg (-6.9%) and Indonesia (-6.0%) which experienced headwinds. (Click here to access a complete list of global stock market movements, as supplied by Emerginvest.)

China (+33.3%), one of the leading stock markets for the year to date together with Brazil (+46.7%) and Russia (+94.6%), notched up another gain (+0.5%) last week despite disappointing economic data. A revival in Chinese property transactions has been a major contributor to China’s recent recovery in industrial activity. Good news for Chinese equity bulls is the close historical relationship between property sales and the performance of Chinese stocks.

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Source: US Global Funds – Weekly Investor Alert, May 15, 2009.

With nearly all the US companies having reported first-quarter earnings, the S&P 500 saw earnings decline by 34.6% compared to the same quarter in 2008, reported Bespoke. At the start of the earnings season, a decline of 38.2% was expected. The percentage of companies lowering guidance was cut by more than half, while the percentage of companies raising guidance increased by over 70%. A tough second quarter undoubtedly still lies ahead, especially as companies will not have the advantage of non-recurring cost cutting.

John Nyaradi (Wall Street Sector Selector) reports that the strongest exchange-traded funds (ETFs) on the week were SPDR Russell/Nomura Small Cap Japan (JSC) (+6.1%), Market Vectors Agribusiness (MOO) (+5.4%) and iShares MSCI Chile Index (ECH) (+4.4%). On the other end of the performance scale KBW Bank (KBE) (-15.4%), iShares Dow Jones US Regional Banks Index (IAT) (-14.5%) and KBW Regional Bank (KRE) (‑13.7%) were underwater as positive catalysts for the banking sector dried up.

As far as the economic sector ETFs are concerned, defensive sectors outperformed during the week, with Health Care SPDR (XLV) and Consumer Staples SPDR (XLP) leading the way. Financial SPDR (XLF) and cyclicals such as Consumer Discretionary SPDR (XLY) and Industrial SPDR (XLI) were on the receiving end of the selling pressure.

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Source: StockCharts.com

Lower interbank lending rates indicated reduced strains in the financial system, as seen from the three-month dollar, euro and sterling LIBOR rates declining to record lows. After having peaked on October 10 at 4.82%, the three-month dollar LIBOR rate declined to 0.83% on Friday. LIBOR is therefore trading at 58 basis points above the upper band of the Fed’s target range – a great improvement, but still high compared to an average of 12 basis points in the year before the start of the credit crisis in August 2007.

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Gold bullion seems to be regaining its luster and again edged higher last week. “As sure as night follows day, the Federal Reserve’s purchase of bonds and home mortgages and the resulting rapid increase in bank reserves (quantitative easing in Fed-speak) – unless soon reversed – are underwriting a coming acceleration of inflation,” said gold specialist Jeffrey Nichols. “… by the time the broad financial markets register a worsening of inflation expectations gold will already have made a major move to the upside. It provides an early warning or leading indicator of inflation, signaling the coming acceleration long before financial markets begin to quiver.”

As to be expected, there is a strong relationship between the yellow metal (green line) and Treasury inflation-protected securities (red line).

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Source: StockCharts.com

The quote du jour relates to whether the fact that bank stocks have rallied and in some instances been able to raise private capital, augurs an end to the financial crisis. Barry Ritholtz, editor of The Big Picture blog and author of Bailout Nation, a newly published and must-read book, succinctly remarked: “You can’t drink yourself sober and you can’t leverage your way out of excess leverage.” Many big banks remain technically insolvent and “are only being held together by spit, bailing wire and tape,” said Ritholtz in an interview with Yahoo Finance, Tech Ticker.

The banking system needs more time, at least three to five years, to deleverage before it can be left to its own devices, Ritholtz remarked, suggesting only time can heal the sector’s wounds.

In other news, the US Treasury announced that it would make $22 billion available to insurers from the Troubled Asset Relief Program (TARP), and the Obama administration sought new authority to bring transparency to the credit derivatives markets and also to crack down on the credit card industry.

Next, a tag cloud of all the articles I read during the past week. This is a way of visualizing word frequencies at a glance. Key words such as “market”, “financial”, “prices”, “banks”, “government” and “economy” again featured prominently. For the rest, it is really a bit of everything.

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Back to the stock market. An analysis of the moving averages of the major US indices shows the spring rally having encountered resistance at the important 200-day line and/or the early January highs. The highs of May 8 are the most immediate target to the upside, whereas the levels from where the rally commenced on March 9 should hold in order for base formations to remain in force.

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Category: Economy, Markets, Think Tank