Credit Writedowns

Jobs data highlight huge potential for capital loss in Treasuries

Marshall Auerback — Fri, 03 Feb 2012 20:45:36 +0000

I have been making a big deal about strength in the household series of employment and the trend in IUCs. These are statistical series that do not get revised out of recognition. They often tell the tale at turning points. Given that past household survey employment and IUC trends have persisted, the current bond market rally will be even more insane and the stock market will probably continue to work higher, even though the favorable seasonable window has closed. I expect the recent trend of large outflows from stocks to bonds over the last year (and last five years) to be reversed in 2012. Not only are interest rates at generational lows but many high-quality companies are yielding (at 2.5% or even better) well above the yield on the 10-year U.S. note

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El-Erian on jobs: Headline bullish but structural issues remain

Edward Harrison — Fri, 03 Feb 2012 19:14:10 +0000

Bloomberg Television has another video with PIMCO head Mohamed El-Erian, this time on the jobs number. This one number has the potential to set the tone for the short-term because it was so far ahead of consensus estimates. El-Erian cautions about getting to far into the risk-on trade because of the number though as the US still has structural issues. I would add that it is a long way to November and this is just one number. Let's see how the picture develops

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Chart of the day: Labor force participation rate at 30-year low

Edward Harrison — Fri, 03 Feb 2012 17:40:11 +0000

The jobs data were the best we have seen in a long time and well above expectations. This and the first upward revisions to the annual revisions were a pleasant surprise. While a lot of people are in disbelief because of a present bearish bias, you have to take the numbers for what they are and they are bullish. I still feel that the US economy is at stall speed and expect a second recession by the end of 2013 but I am prepared to upgrade my assessment based on how things proceed. That said, this is just one month's data in a notoriously noisy month for employment data (See the premium post Jobless claims jump may be seasonality)

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The Unlikely Bull Market

Niels Jensen — Fri, 03 Feb 2012 16:30:46 +0000

This is not the time to be fully invested but neither is it the time to be side lined. We are in a nervous market where great opportunities present themselves at regular intervals. We recommend holding 25-50% in cash or cash like instruments (depending on your risk profile) which can be deployed at short notice when those opportunities arise

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[PREMIUM] If you were looking for a reason to be bullish, this jobs report is it

Edward Harrison — Fri, 03 Feb 2012 13:34:46 +0000

The jobs report has just come out and the numbers are amazingly bullish. This article for subscribed members looks at what the report means.

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Friday’s Thoughts and Seven Investment Themes

Marc Chandler — Fri, 03 Feb 2012 12:41:28 +0000

First, the trajectory of monetary policy in the US, Europe, China and Japan is in a more accommodative direction. Second, the underlying economies are showing preliminary signs of stabilizing. Third, the combination of easing monetary conditions and economic stabilization has boost demand for higher risk assets. In addition to major equity markets, emerging markets off to a strong start. Funds that exited the emerging markets in Q4 11 return. This has helped fueled currency and asset (bonds and stocks) appreciation

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News Links 02/03/2012

Edward Harrison — Fri, 03 Feb 2012 05:30:50 +0000

Financial news links for 3 February

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Doug Casey on the Coming War with Iran

Casey Research — Fri, 03 Feb 2012 04:16:04 +0000

It could just be saber rattling during an election year, but Western powers have been provoking Iran for years now - two decades, really. I just saw another report proclaiming that Iran is likely to attack the US, which is about as absurd as the allegations Bush made about Iraq bombing the US, when he fomented that invasion. It's starting to look rather serious at this point, so I do think the odds favor actual fighting in the not-too-distant future

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Chart of the Day: Government Deficits as Far as the Eye Can See

Edward Harrison — Thu, 02 Feb 2012 21:51:17 +0000

The chart below from the blog Pragmatic Capitalism shows the U.S. Federal government deficit for each quarter since 1952. As you can see, almost the entire period is marked by deficits

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With heavy Greek exposure, three largest banks in Cyprus now junk

Edward Harrison — Thu, 02 Feb 2012 21:00:11 +0000

Cyprus is not an important player on the world's financial stage but it does bear noting that banking and sovereign debt problems run both wide and deep in the European Union. The latest news underscoring these difficulties comes via Fitch, which has just downgraded the largest banks in Cyprus to below investment-grade status

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Auerback: Austerity during recession is equivalent to medieval bloodletting

Edward Harrison — Thu, 02 Feb 2012 15:30:27 +0000

Here's a good video performance by Marshall Auerback on BNN's Business Day program. Marshall thinks the Greek default deal is actually a relatively good one. But sees a Portuguese default after the Greek default as a real possibility and envisions a scenario in which Portugal and Spain look to extract similar terms. Moreover, the quid pro quo for Greece is austerity - and that makes getting debt loads down harder when implemented during a downturn

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Obama Administration propaganda on prosecuting elite financial frauds

William Black — Thu, 02 Feb 2012 14:00:47 +0000

The Obama administration’s record of prosecuting elite financial frauds is worse than the Bush administration’s record, which is a very large statement. Neither administration has prosecuted any elite CEO for the epidemic of mortgage fraud that drove the ongoing crisis. This contrasts with over 1,000 elite felony convictions arising from the S&L debacle. The ongoing crisis caused losses more than 70 times greater than the S&L debacle and the amount of elite fraud driving this crisis is also vastly greater than during the S&L debacle

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Dollar Mixed as Spain raises 4.5 bn euros in bond auction

BBH — Thu, 02 Feb 2012 12:30:28 +0000

The dollar is currently mixed against the majors and EMs as asset markets consolidate near recent highs. Spain raised 4.5 bn euros in a bond auction the upper end of their desired range. On the data front, Australia’s December trade surplus exceeded expectations increasing to A$1.71bln in December from a revised A$1.34 bln in November (was A$1.38 bln). Chinese markets outperformed the region closing nearly 2% higher, but the news flow was mixed, and even slightly contradictory

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News Links: The perils of Mario Draghi’s €1.5 trillion blitz

Edward Harrison — Thu, 02 Feb 2012 05:31:19 +0000

News Links for 2 Feb

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John Reed on Big Banks and Corporatism

Edward Harrison — Thu, 02 Feb 2012 04:00:28 +0000

Bill Moyers talks to former Citicorp and Citigroup head John Reed about what's wrong in the banking sector. John Reed readily acknowledges his role in bringing down the Glass-Steagall Act (Hat tip finance Addict)

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More on Banks Making Shed Loads But Fannie And Freddie “Losing Money as a Matter of Policy”

Edward Harrison — Wed, 01 Feb 2012 20:30:01 +0000

Fannie and Freddie have already been nationalized and the government is already on the hook for hundreds of billions of dollars of losses as a result. Clearly, this makes it a lot easier to use the GSEs as vehicles to pump money into the economy because any incremental loss is completely obscured by the existing gargantuan losses. Fannie and Freddie can essentially become a giant stimulus slush fund for the Obama Administration as we head into the 2012 election

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Get Out of Jail Free, European Edition

Edward Harrison — Wed, 01 Feb 2012 19:44:31 +0000

I was thinking about that last post I wrote on the euro zone and regulatory forbearance. They say a picture is worth a thousand words. So here's a picture that captures my thinking pretty well

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Is the Greek PSI Sweetener Enough?

Marc Chandler — Wed, 01 Feb 2012 19:30:10 +0000

Even if the private sector participation sufficiently high, will it be enough to put Greece's debt on a sustainable path? This seems unlikely and there is increasing risk that the ECB forgoes getting anything but its initial investment back

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Economics in the Age of Deleveraging

Guest Author — Wed, 01 Feb 2012 16:00:05 +0000

Clearly, economic policy is now far more complex than it appeared to be before the GFC. As we enter this Age of Deleveraging, the worst thing we can do is apply policies that appeared to work during the preceding Age of Leverage—but were in fact predicated on ever-rising private sector indebtedness. Politicians should be sceptical of conventional economic advice at this time; it would be much wiser to study the history of the 1930s instead

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A Real Phony

Frederick Sheehan — Wed, 01 Feb 2012 15:00:21 +0000

A quote from Former Federal Reserve Chairman Alan Greenspan, who centrally controlled and underpriced the most over-leveraged interest rate in the world for 18 years and is now cashing in like a reality TV celebrity

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Short Note on ISM Manufacturing Survey

Marc Chandler — Wed, 01 Feb 2012 14:50:38 +0000

The Institute for Supply Management reports its January manufacturing survey on February 1. The Bloomberg consensus expects a small increase to 54.5 from

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The European Sovereign Debt Crisis, the US Savings and Loan Crisis and Regulatory Forbearance

Edward Harrison — Wed, 01 Feb 2012 13:48:21 +0000

This is me thinking out loud about how regulatory forbearance in the S&L crisis mirrors today's policy path

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News Links 02/01/2012

Edward Harrison — Wed, 01 Feb 2012 05:30:52 +0000

News links for 1 Feb

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European Sovereign Supply and LTRO

Marc Chandler — Wed, 01 Feb 2012 03:00:00 +0000

The headline story in the Financial Times today is that "Banks set to double crisis loans from the ECB". The report says that "several" large banks from the euro zone told the FT that they "could double or triple" their takes at the

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Chart of the Day: S&P500 Up 4.36% in January

Global Macro Monitor — Wed, 01 Feb 2012 02:30:54 +0000

Interesting couple of charts on the S&P500. The top shows the narrowing upward channel in which the index has traded since the beginning of the year relative to the wider medium-term channel. The collapse in volatility was the direct result of the massive liquidity injections of the ECB’s LTRO program, in our opinion

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The Fetish for Liquidity (and Reform of the Financial System)

Randall Wray — Tue, 31 Jan 2012 19:00:03 +0000

So here’s the deal. What happened is that the financial sector taken as a whole moved into extremely short-term finance of positions in assets. This is a huge topic and is related to the transformation of investment banking partnerships that had a long-term interest in the well-being of their clients to publicly-held, pump-and-dump enterprises whose only interest was the well-being of top management. It also is related to the rise of shadow banks that appeared to offer deposit-like liabilities but without the protection of FDIC. And it is related to the Greenspan “put” and the Bernanke “great moderation” that appeared to guarantee that all financial practices—no matter how crazily risky—would be backstopped by Uncle Sam. And it is related to very low overnight interest rate targets by the Fed (through to 2004) that made short-term finance extremely cheap relative to longer-term finance. All of this encouraged financial institutions to rely on insanely short short-term finance

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Dollar Heading Lower after Constructive Outcome of EU Summit

BBH — Tue, 31 Jan 2012 12:30:06 +0000

Dollar is heading lower after the EU summit saw 25 of the 27 nations endorse the new fiscal compact. EuroStoxx 600 is nearly 1% higher as a result, banks up nearly 1.3%; MSCI Asia Pacific index up 0.7%. Japanese data showed a surge in December production; Germany’s Dec. job boost offset by retail sales

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News Links 01/31/2012

Edward Harrison — Tue, 31 Jan 2012 04:31:18 +0000

NIALL FERGUSON: Okay, I Admit It—Paul Krugman Was Right Professor Ferguson’s take on the United States has changed notably over the past year. He still thinks the U.S. budget deficit is unsustainable and that our entitlement programs will ultimately have to be cut. But he has changed his mind about the U.S.’s ability to sustain

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On Canadian and Australian bank risk

Marc Chandler — Mon, 30 Jan 2012 20:00:00 +0000

Banking sectors in both countries are highly concentrated. The top four banks in Australia account for about three quarters of the banking assets. The top six Canadian banks account for upwards of 90% of the Canadian banking assets. According to Fitch, the concentration and high profits of the banking sector is favorable to each as it provides a cushion against losses and need to pursue higher risk activity/lending. Both Canada and Australia are experiencing over-valued housing markets. The IMF estimates Canadian house prices are about 10% risk while Australia is 10-15% over-valued

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Functional Finance and Exchange Rate Regimes: The Twin Deficits Debate

Randall Wray — Mon, 30 Jan 2012 14:00:46 +0000

In conclusion, while there are links between the “twin deficits”, they are not the links usually imagined. US trade and budget deficits are linked, but they do not put the US in an unsustainable position vis a vis the Chinese. If the Chinese and other net exporters (such as Japan) decide they prefer fewer dollar assets, this will be linked to a desire to sell fewer products to America. This is a particularly likely scenario for the Chinese, who are rapidly developing their economy and creating a nation of consumers. But the transition will not be abrupt

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Dollar Pops Back

BBH — Mon, 30 Jan 2012 12:30:21 +0000

Dollar is broadly stronger against the majors and EM currencies after Greece rejected calls for direct budget control. Asian stocks fell, with the MSCI Asia Pacific index down 0.9%; EuroStoxx 600 is currently down 0.7%. Economic data saw Spanish Q4 GDP contract, EZ confidence rise less than expected; US personal income

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News Links 01/30/2012

Edward Harrison — Mon, 30 Jan 2012 03:31:22 +0000

The Best Alternative Financial Blogs – CNBC To assemble our list, we polled our friends, our sources, and our followers on Twitter. We excluded many of the sites we really enjoy because they are associated with major media organizations. tags: blogs finance Posted from Diigo. The rest of my favorite links are here. Related Posts

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Banking Wasn’t Meant to Be Like This

Michael Hudson — Mon, 30 Jan 2012 02:00:36 +0000

the banks now browbeat governments – not by having ready cash but by threatening to go bust and drag the economy down with them if they are not given control of public tax policy, spending and planning. The process has gone furthest in the United States. Joseph Stiglitz characterizes the Obama administration’s vast transfer of money and pubic debt to the banks as a “privatizing of gains and the socializing of losses. It is a ‘partnership’ in which one partner robs the other.” Prof. Bill Black describes banks as becoming criminogenic and innovating “control fraud.” High finance has corrupted regulatory agencies, falsified account-keeping by “mark to model” trickery, and financed the campaigns of its supporters to disable public oversight. The effect is to leave banks in control of how the economy’s allocates its credit and resources

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Greek private sector involvement: So what?

Marc Chandler — Mon, 30 Jan 2012 01:10:21 +0000

The market has been focused on the negotiations over the private sector involvement in reducing Greece’s debt burden. Yet, the PSI is so yesterday. There are many moving parts and the PSI, which has dominated the market’s attention, is being superseded by other developments, even if an agreement is still not in hand

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News Links 01/28/2012

Edward Harrison — Sat, 28 Jan 2012 03:30:31 +0000

Greece plans orderly exit of the Eurozone – National International Trade | Examiner.com Greece plans an orderly exit out of the Eurozone according to two sources close to Mr. Papademos, Greek Prime Minister, who spoke on condition of anonymity earlier today. tags: greece currency euro Charles Murray on the New American Divide – WSJ.com If

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