Posts filed under “Think Tank”

10 yr auction

The $19b reopening of the May 6th 10 yr auction was mixed as a higher than expected yield of 3.99% was needed to bring out the buyers where the bid to cover of 2.62 was the most since Sept ’07 and above the one yr average of about 2.30. The level of indirect bidders, mostly foreign buyers, totaled 34.2% which is the most since Nov and also above the one year average of 27%. Bottom line though, the higher yield needed to get this done is what the bond market is focused on and the reason for further selling after the auction.

Category: MacroNotes

Gasoline prices, not again?

As if the US consumer didn’t have enough to worry about, following the DOE data, the front gasoline contract is rallying to the highest level since Oct 15th ’08. This morning, AAA said the national average for unleaded gasoline rose to $2.63, the most since Oct 28th ’08, up from the recent low of $1.62…Read More

Category: MacroNotes

TARP Repayment — Some Questions for the “Perfect 10″

Good Evening: There has been no shortage of news items since I last wrote on June 2, but the S&P 500 today closed almost at the same price as it did one week ago. While equities have essentially moved sideways during this time frame, Treasury yields, the dollar, and commodity prices have all risen to…Read More

Category: Markets, Think Tank

3 year auction

With yields at their highest level since mid Nov up 40 bps in just a week and less sensitive to inflation due to its shorter maturity, the 3 year note auction was solid. The bid to cover of 2.82 was the highest since mid Nov ’08 and above the one year average of 2.49. Indirect…Read More

Category: MacroNotes

A Brief History of Credit Disasters

I introduced Josh Rosner at TBP conference as the best analyst you never heard of. Despite his having written extensively on these subjects in a prescient fashion, many investors and fund managers still don’t know who Rosner is.

I want to change that. I asked Josh sometime ago to assemble a timeline of his most important writings and calls, and he has — finally — complied.

-Barry Ritholtz


From Josh:

In July 2001 I wrote:

“Specifically, it appears that a large portion of the housing sector’s growth in the 1990’s came from the easing of the credit underwriting process. Such easing includes:
The drastic reduction of minimum down payment levels from 20% to 0% · A focused effort to target the “low income” borrower · The reduction in private mortgage insurance requirements on high loan to value mortgages · The increasing use of software to streamline the origination process and modify/recast delinquent loans in order to keep them classified as ‘current’ · Changes in the appraisal process which has led to widespread over-appraisal/ over-valuation problems If these trends remain in place, it is likely that the home purchase boom of the past decade will continue unabated. If there is an economic disruption that causes a marked rise in unemployment, the negative impact on the housing market could be quite large. These impacts come in several forms. They include a reduction in the demand for homeownership, a decline in real estate prices and increased foreclosure expenses… These impacts would be exacerbated by the increasing debt burden of the U.S. consumer and the reduction of home equity available in the home…However, a protracted housing slowdown could eventually cause modifications to become uneconomic and, thus, credit quality statistics would likely become relevant once again. The virtuous circle of increasing homeownership due to greater leverage has the potential to become a vicious cycle of lower home prices due to an accelerating rate of foreclosures.

In 2003 & 2004 I was among the first to identify fraud at FNM/FRE while 25 traditional analysts said “buy”. I can offer you report after report on this if it would be helpful.

January 12 2004 the WSJ recognized the views expressed in my reports and wrote:

“If “2003 was the year of questions about Freddie Mac’s accounting, 2004 will likely be a year in which investors increasingly question the lack of volatility at Fannie Mae and regulators take a closer look at their a 1000 accounting practices,” says Josh Rosner, an analyst at Medley Global Advisors, a financial research firm in New York. While Mr. Rosner favors Freddie Mac on a fundamental basis for 2004, he says that the many potential political and regulatory developments that could affect these companies this year could alter that outlook.”

In October 2004 I told the NYT:

“Still, the most damaging legacy of Fannie Mae’s years of unchecked growth may not be evident until the next significant economic slump. Only then, argued Josh Rosner, an analyst at Medley Global Advisors in New York, will the effects of Fannie Mae’s relaxed mortgage underwriting standards be felt. A result could be a more pronounced downturn in the real estate market and more stress on the consumer. ”The move to push homeownership on people that historically would not have had the finances or credit to qualify could conceivably and ultimately turn Fannie Mae’s American dream of homeownership into the American nightmare of homeownership where people are trapped in their homes,” Mr. Rosner said. ”If incomes don’t rise or home values don’t keep rising, or if interest rates rose considerably, you could quickly end up with significantly more people underwater with their mortgages and unable to pay.””

In the October 18, 2004 Newsweek profiled my work:

“A Wall Street analyst raised some red flags about Fannie Mae’s accounting practices long before regulators issued their recent reports, Newsweek reports in the current issue. And that report may rekindle questions about Wall Street’s ability to issue unbiased research. After Wall Street’s biggest firms settled with regulators in April 2003 over charges of fraudulent stock research, the industry promised a new era of independence…There is one analyst who raised some red flags: Josh Rosner of Medley Global Advisors, which sells research analysis to big investors.”

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Category: Bailouts, Credit, Think Tank

On Rukeyser, Financial TV, and CNBC

A smart observer of Business Television writes: The answer to the question was buried in the comment on Rukeyser comment on #9. Louis was by all accounts a genuinely snarling ass of a person but he had an informative show. The two were inextricably linked. Louis didn’t suffer fools, a population he defined as “everyone…Read More

Category: Financial Press, Think Tank

King Report: More BLS Chicanery

> We opined that the May Employment Report would be better than expected due to BLS B/D and other chicanery, and because it was necessary to fabricate a good report. We also said any rally on a ‘good’ NFP would be ephemeral because most people were set up for a better than expected report. Part…Read More

Category: Economy, Employment, Think Tank

Now what?

Now what? With the DJIA back to unchanged on the year, the S&P at the highest level since Nov 5th and the market’s punk reaction to the much better than expected May payroll # (helped by funky estimates within it) where it was one of the few examples since the March lows of stocks not…Read More

Category: MacroNotes

Words from the (investment) wise June 7, 2009

Words from the (investment) wise for the week that was (June 1 – 7, 2009)

Ups and downs on financial markets were plentiful during the past week, but investor sentiment, on balance, brightened on the back of constructive financial and economic data – capped by a better-than-expected US non-farm payrolls report on Friday.

“It appears that the global economy has finally found the ripcord,” said Rebecca Wilder (News N Economics) in her weekly review of global economic reports.

“The global economic reports are becoming saturated with signs of forming a bottom. Auto sales in Japan and the US are improving somewhat; exports are dangling in the double-digit loss rates; and GDP really couldn’t get much worse (the inventory cycle alone will create some growth). Finally, money growth rates are slowing, perhaps an indication that policymakers feel that the worst is behind us,” she commented.


Source: Scott Stantis, June 1, 2009.

As the risk appetite of investors swelled on the prospect that the global economy was on the mend, many stock markets reached their highest levels this year, and metals and oil continued their surge. After trending down since early March, the US dollar snapped back on the employment data, but government bonds tanked as yields rose to six-month highs. Interbank lending rates edged down, whereas corporate bond spreads touched their lowest levels since October. Gold and silver – strong performers in recent times – took a breather, but platinum gained strongly from better vehicle sales in many parts of the world.

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



The MSCI World Index (+1.3%) and the MSCI Emerging Markets Index (+1.8%) last week added to the rally’s gains to take the year-to-date returns to +6.7% and a massive +38.8% respectively. Both these indices have only had one down-week since the advance commenced in early March.

The major US indices gained for a third straight week – and for the eleventh week out of the past 13 – as seen from the movements of the indices: S&P 500 Index (+2.3%, YTD +4.1%), Dow Jones Industrial Index (+3.1%, YTD _0.2%), Nasdaq Composite Index (+4.2%, YTD +17.3%) and Russell 2000 Index (+5.7%, YTD +6.2%).

The Dow remains the only major index still in the red for the year to date, albeit only by 0.2%, trailing the Nasdaq (+17.3%) by a wide margin.

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


As far as non-US markets are concerned, returns ranged from top performers Vietnam (+16.3%), Serbia (+12.0%), Qatar (+10.9%), Egypt (+10.2%) and the Czech Republic (+10.0%), to the Ghana (-8.7%), Cyprus (-5.6%), Pakistan (-_5.3%), Croatia (-5.0%) and Estonia (-3.7%), which experienced headwinds. (Click here to access a complete list of global stock market movements, as supplied by Emerginvest.)

John Nyaradi (Wall Street Sector Selector) reports that as far as exchange-traded funds (ETFs) are concerned, the “ETF of the Month” was PowerShares India Portfolio (PIN), which gained a whopping +32.5% during May. The leaders for the week included Claymore/MAC Global Solar Energy (TAN) (+10.9%), Market Vectors Coal (KOL) (+9.4%) and United States Oil (USL) (+7.0%). Poor performers were again all things “short”, with notable laggards being ProShares Short Russell 2000 (RWM) (-7.8%), ProShares Short QQQ (PSQ) (-5.1%) and ProShares Short Dow30 (DOG) -5.4%.

The higher Treasury yields had a further negative impact on mortgage rates, with the 30-year fixed rate increasing by 19 basis points to 5.46% on the week and the 15-year fixed rate by 15 basis points to 5.02%, as indicated by

“That’s quite a jump,” said Donald Rissmiller, chief economist at New York-based Strategas Research Partners, in a Bloomberg interview. “The more rates go up, the more we need home prices to go down to equalize consumers’ payments. It’s those payments that have brought about a level of stability in housing unit sales.” Policymakers might be forced to increase their Treasury buy-backs.

The quote du jour comes from Dallas Fed President Richard Fisher who seems to share Bespoke‘s concern that listening to the rating agencies is like making investment decisions based on last month’s newspaper. In a recent Wall Street Journal interview, he said: “I served on corporate boards. The way rating agencies worked is that they were paid by the people they rated. I saw that from the inside.” He said he also saw this “inherent conflict of interest” as a fund manager. “I never paid attention to the rating agencies. If you relied on them you got … you know. You did your own analysis. What is clear is that rating agencies always change something after it is obvious to everyone else. That’s why we never relied on them.”

In other news, during his first visit to Beijing as Treasury secretary, Timothy Geithner went out of his way to assure the Chinese that their large holdings of US dollar assets were secure and that the US administration remained committed to a strong dollar and keeping inflation under control. Although the Chinese leaders did not again raise their unease that the US will inflate away its mounting debt, there were “plenty of other signs of concern”, including tough questioning at Peking University, reported the Financial Times.

Regarding the outlook for the Chinese renminbi versus the US dollar, James Grant (Grant’s Interest Rate Observer) said: “We are bearish on the renminbi. On the other hand, we are also bearish on the US dollar, euro, pound, Swiss franc and Zimbabwean dollar. We hate them all, with appropriate analytical nuances. Show us a monetary asset whose value is not subject to governmental debasement, and we will show you a Krugerrand.”

According to MarketWatch, President Barack Obama plans to announce on Monday how his administration is speeding up implementation of his $787 billion economic stimulus plan.

Oh yes, General Motors filed for Chapter 11 bankruptcy protection, and was duly replaced as one of the 30 constituents of the Dow, whereas a judge cleared the path for Chrysler to exit bankruptcy by approving the sale of the bulk of the automaker’s assets to a new entity to be managed by Italy’s Fiat.

Next, a quick textual analysis of my week’s reading. No surprises here, with the words “financial”, “bank”, “economy” and “market” still dominating the media. But, strikingly, “value” and “yields” have soared in prominence as pundits debate whether equities and government bonds have seen secular turning points.


Focusing on the US stock markets, the most recent Investors Intelligence sentiment report shows that 42.5% of portfolio managers are now bullish on equities versus 25.3% that are bearish. While the high level of bullish sentiment seems to indicate an overbought market, the spread of 17.2% between bulls and bears is still below the ten-year average of 19%, according to Bespoke.

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Category: Think Tank

The New, New Normal

We are coming to a critical inflection point, perhaps the most critical point that we have had in 70 years for the US and to a great extent the global economy. The choices we make (or that Congress and the Fed make for us) will affect not just our investment portfolios but business and our jobs for a very long time. Last week I talked about the three paths we face as a nation. I want to go back to that theme and expand upon it. You need to clearly understand what the risks are so that you can interpret the actions and data that will be coming at us in the next few
quarters. I am feeling a little tired today, so I am going to take the liberty to reproduce Bill Gross’s latest comments as well, which are somewhat in line with my own.

A Different Perspective on Health Care

But before we jump into the letter, I want to acknowledge the very large response I got from readers about the cut and paste I did about the differences between the national health care systems of Canada and Great Britain the health care system of the US. To say that I touched a raw nerve is an understatement. I should also admit that I learned a great deal from some very cogent and thoughtful letters. I often write about
the problems with using selective statistics in gauging the economy. I have
learned that you can do the same with health care statistics.

There are many letters I could quote, but let me give you a counter for the statistics from last week from Raoul Pal of Spain. And of course, there are other statistics that can be brought in to make almost any case you want. But I found these to be very thought-provoking.

“Using the Economists World in Figures I think there is a very interesting and maybe appalling story to tell. In its simplest terms a healthcare system is
there to extend the longevity of live of the population. It is the single best
and simplest way to judge it because we can all find examples of where one
country is better than another but the longevity stats don’t lie. When we use
that framework the picture is incredibly different. The US has many of the best
doctors and medical care in the world but it doesn’t work for the population as
a whole and therein lies the problem.

“According to the Economist the total US spend on healthcare is 15.4% of GDP including both state and private . With that it gets 2.6 doctors per 1,000 people, 3.3 hospital beds and its people live to an average age of 78.2

“UK – spends 8.1% of GDP, gets 2.3 doctors, 4.2 hospital beds and live to an average age of 79.4. So for roughly half the cost their citizens overall get about the same benefit in terms of longevity of life.

“Canada – spends 9.8% of GDP on healthcare, gets 2.1 doctors, 3.6 hospital beds and live until they are 80.6 yrs

“Now if we look at the more social model in Europe the results become even more surprising:

“France – spends 10.5%, 3.4 docs, 7.5 beds and live until they are 80.6

“Spain – spends 8.1% , 3.3 docs , 3.8 beds and live until they are 81

“As a whole Europe spends 9.6% of GDP on healthcare, has 3.9 doctors per 1,000 people, 6.6 hospital beds and live until they are 81.15 years old.

“The list goes on. The truth is that in many cases as is pointed out the healthcare
system is better in the US than in some other countries BUT US citizens must
therefore get ill more often than any other country in the West in order to
achieve the truly appalling statistic that they are the 41 longest living
nation on earth with France, Spain, Norway, Switzerland, Italy, Austria,
Andorra, Holland, Greece and Sweden all featuring in the top 20 longest
living nations and the UK and Germany at 22.

“This is the big failure of the US system. It is unforgivable. You may get a better
chance of recovering from certain diseases but as a whole you will die younger
in the US than most developed countries. … Something is severely broken.”

I had many letters from all over the world on this issue both pro and con. And some
very lively discussions with health professionals. One pointed out to me that
the uninsured in the US when they need a doctor often go to an emergency room
for what should be a $50 office visit and end up with a $5,000 bill, which does
not get paid and runs up insurance costs for those who do have it. As Dr. Mike
Roizen points out in his many books, simply eating right, exercising and other
common sense things would cut out much of our health care costs. When one-third
of children in elementary schools are overweight, we need to get a grip on what
we are doing to the next generation.

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Category: Think Tank