"Economists are pessimists: they've predicted 8 of the last 3 depressions."
--Barry Asmus

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Thursday, December 23, 2010

Christmas Eve Eve News Wrap-Up

Let's see what we can see...
In a refreshing change of pace for a European nation, Standard & Poor's has maintained it's AAA rating on French sovereign debt. "The stable outlook is based on our view of the French government's substantial achievements with its budgetary consolidation strategy, enabling it to meet its fiscal targets through 2013." There had been some serious concern about the nation's credit rating, mostly due to it's public debt[1], and the cost of insurance for their debt has tripled this year.
Ireland's High Court ruled that Allied Irish Banks can be taken over by the Irish government without shareholder approval. This clears the way for Dublin to pump 3.7 billion euros[2] into AIB, taking their ownership stake from 19% to 92% in the process. (There are, in other words, legitimate reasons why AIB was down about 12% in trading today.) The company will also be delisting from the main Irish and London exchanges.
On the lighter side, an anonymous source at Wikileaks has leaked all of the quarter million or so US diplomatic cables and military records to the Norwegian Aftenposten news service. Quis effluiet ipsos effluoes?[3]
[1] France's public debt stands at 77.60% of GDP, which is worse than Portugal, Italy, or Spain.
[2] Which is about half of the 6.1 billion euros it needs by February 28th to hit its mandatory 12% capitalization.
[3] Who leaks the leakers?

Wrapping Up The Measures

Here's what I wrote earlier: "Consumer Sentiment, due at 9:55 AM EST, is expected to climb 80 bps to 75.0%. New Home Sales, due at 10 AM EST, are expected to climb 17k to 300k new units."
How did we actually do? Well, consumer confidence missed expectations, coming in at 74.5 for December. New home sales also missed expectations, with only 290k sales. Neither of these are considered major market movers, though, so they probably won't do much to shove the market down.

Lucky Chinese PIIGS, Sacred (Crazy) War, And World Stocks

Anyone remember this quote from Monday? "Despite concerns from Friday, North Korea has not felt "any need to retaliate against every despicable provocation", and did not end up reigniting the shooting part of the as-yet unresolved Korean Conflict." Well, it's been three days and Pyongyang has apparently decided to change their minds on the subject. Now, Kim Yong-chun (the North Korean Minister of Armed Forces) is on record as saying that "to counter the enemy's intentional drive to push the situation to the brink of war, our revolutionary forces are making preparations to begin a sacred war at any moment necessary based on nuclear deterrent."[1]
China, which must be getting increasingly tired of North Korea[2], confirmed yesterday's report that it stands ready to bail out the PIIGS. Or, in the words of Foreign Ministry spokeswoman Jiang Yu from yesterday's press conference, "China-EU economic and trade cooperation is featured by mutual benefit, win-win outcome and sound development momentum. The two sides agree that in the context of slow recovery of the world economy and existence of many uncertainties and unstable factors, the two should strengthen cooperation for stable and healthy development of the two economies as well as strong, sustainable and balanced growth of the world economy."
And finally, in the (hopefully) good news category, the MSCI world equity index hit its highest level since September 2008 and is up nearly 10% just in 2010.
[1] Security analysts are pretty sure they don't actually have any way to launch the "nuclear deterrent".
[2] And which still doesn't want to replace the United States as the world's sole military and economic superpower. Really. Trust them.

Metrics? Yeah, We've Got Them

From all over the world, we have them. The majority are from the United States today, but we have an international coalition of economic activity to review.
Right off the bat, New Zealand has had some bad economic performance. Their Q2 GDP was revised downward to 0.1% growth. Analysts were looking for 0.2% growth for Q3, and were rather surprised to instead see a 0.2% decline. This puts their GDP up 1.4% for the rolling year, missing the expectation of 1.9% by 50 bps. The decline is largely blamed on the manufacturing sector (particularly petroleum, chemicals, plastics, rubber, and machinery and equipment manufacturing), although construction and real estate took a dive as well.
French Consumer Manufactured Good Consumption and PPI are out as well. October was a bad month for French manufacturers. Their PPI was up 0.8% (making production more expensive), and simultaneously consumption of manufactured goods was down a revised 0.6% (down 0.3% year over year). Greater costs plus less actual sales equals a manufacturing sector rocking back and forth in the corner muttering "Redrum, redrum, redrum"[1] over and over again. Did things get better in November, or do all work and no play make Jacque a dull boy?
Well, French manufactured good consumption was up 2.8% in November, beating expectations by 180 bps and bringing the rolling year figures up to 1.5% growth - most of it driven by a 15% increase in automobile sales. The PPI, meanwhile, was up 0.4% (exactly in line with expectations). After that, you'd think the CAC 40 would be doing better than it is today.
Leapfrogging across the Atlantic we arrive in Canada, where GDP (which was down 0.1% in September) is anticipated to be up 0.3% for October. Hope springs eternal, but has been dashed by a dose of cold reality - there was growth, but only 0.2%. This has also pulled their rolling year GDP down to only 3.3%. Weep for the Loonie, my friends. Weep for the Loonie.
And now, the United States! Right now we've got Durable Goods Orders, Personal Income and Outlays, and Jobless Claims. Later, we add Consumer Sentiment and New Home Sales to the mix.
Durable Goods Orders were down 3.3% in October, with analysts predicting a less pessimistic (but still not confident) increase to only down 1.0% for November. The actual Census Bureau report shows that we missed expectations, coming in at a 1.3% decline in durable goods orders. This was largely driven by a 11.9% decline in transportation equipment orders, mostly from nondefense aircraft and parts.
October Personal Income was up 0.5%, with consumer spending up 0.4% and the core PCE price index unchanged. For November, analysts are looking for 0.2% growth in personal income, 0.5% growth in consumer spending, and 0.1% growth in the price index. The Bureau of Economic analysis has not yet seen fit to make the official press release available, so we turn to Econoday to find Personal Income up 0.3% (beating expectations), consumer spending up .4% (missing expectations) and the core PCE price index up 0.1% (right in line with expectations).
First time jobless claims were revised upwards to 423k (up from the original report of only 420k) for the week ending 12/11, and analysts are expecting that same number to happen again for the week ending 12/18. Turning to the US Department of Labor, we see that the advance figure for the week ending 12/18 is 420k new claims - exactly in line with expectations. No single state really stood out with significant increases in first time jobless claims, while New York and North Carolina led the pack in reductions in new claims.
Consumer Sentiment, due at 9:55 AM EST, is expected to climb 80 bps to 75.0%. New Home Sales, due at 10 AM EST, are expected to climb 17k to 300k new units.
[1] Maybe that should be "Ertruem, ertruem, ertruem"?

Wednesday, December 22, 2010

Apps, Bills, Bonds, And Justice

Two important bills passed the Senate today. The first, known as the James Zadroga 9/11 health bill, provides 5 years of medical treatment (at a cost of $4.3 billion) for emergency responders with respiratory illnesses caused by inhaled dust from the World Trade Center. The up side is, of course, the simple fact that it's the right thing to do. The down side is that it adds another $860 million or so to the operating costs of the United States each year for the next 5 years, which will only compound everyone's concerns about the US budget deficit (particularly internationally, given the increasing concerns about sovereign debt). The other bill was the ratification of the nuclear arms control treaty with Russia[1], which requires both signatories to reduce their deployed long-range strategic nuclear missiles to no more than 1550, with no more than 700 deployed missile launchers. Peace in our time![2]
New York is in the news. Specifically, behold the new face of fear for Wall Street:
This is Eric Schneiderman, the New York Attorney General-elect. He has just named his deputies - I mean, his legal staff - and is getting ready to take over the civil fraud lawsuit against Ernst & Young.
Apple has dropped the WikiLeaks App[3], on the grounds that it violated Apple's developer guidelines. Apple does not appear particularly concerned about retaliation from Anonymous.
Oh, and last week saw the largest aggregate withdrawals from bond funds in more than two years ($8.62 billion, up from $1.66 billion for the week ending 12/8). Some analysts speculate that most of withdrawals were by instructional investors looking for better yields by directly buying bonds, although concern about interest rates drove some of it.
[1] Just check me on something. This is 2010, right?
[2] Pay no attention to the billions of dollars that will be spent to modernize the nukes that remain.
[3] Protecting banks that make money through the art of wrongful foreclosure? Yeah, there's an app for that.

POMO Days Are Here Again!

The sun is shining clear again!
We'll sing a song of cheer again!
POMO days are here again!
It's another outright coupon purchase today, looking for securities with a maturity/call date range of 2/15/2021 to 11/15/2027 (i.e. 11 to 17 years). $13,055 billion in assets were submitted to the program, and $2,070 million were purchased. Given the general laws of supply and demand[1], this would have driven prices down, so yields should be up. For these maturity ranges, anyway.
[1] A large supply drives prices down. A scarce supply drives prices up.

Existing Home Sales Are Not Good Enough

Not all that long ago, I wrote "The next big domestic economic measure due out today is existing home sales for November 2010. If you recall, October's sales were a depressing 4.43 million units (down 2.2% from September's 4.53 million units and missing expectations). Expectations are a little tamer (but still optimistic), with a consensus estimate for 4.75 million sales. The actual numbers aren't due out until 10 AM EST, though, so we have no idea (yet) how realistic that is."
Well, we now have an idea of how realistic that is. Not very. We came in at 4.68 million existing home sales in November. That's good - it's a 5.6% increase from October - but, since it missed expectations it will probably disappoint the Street.

A Day Full Of GDP Is Like A Day Full Of Sunshine

And today? Today has plenty of sunshine.
Great Britain reported it's final Q3 2010 GDP results about 4 hours ago. The first revision had put them at 0.8% growth for the quarter (with 2.8% growth from Q3 2009 to Q3 2010). Going into the day, analysts were expecting no change to the final revision. The final results, while not bad, did not quite live up to that expectation. Growth for the quarter was revised down to 0.7%, while year over year growth was revised downward to 2.7%. Mildly disappointing, but not (on its own, anyway) a source of soul-crushing despair.
US GDP is up next. The first revision put us at 2.5% growth for Q3 2010, with the price index[1] up 2.3%. The Street is feeling quite optimistic this morning, and is looking for the final revision to put us at 3.0% growth for Q3 with no change to the price index. Our results are slightly sunnier than Great Britain's, with the final revision of Q3 GDP revised upwards 2.6% and the price index revised downwards to 2.1%. Most of the GDP increase is credited to a "sharp deceleration in imports and an acceleration in private inventory investment".
The funny thing here? These results seem to have pushed the futures down. Go figure.
The next big domestic economic measure due out today is existing home sales for November 2010. If you recall, October's sales were a depressing 4.43 million units (down 2.2% from September's 4.53 million units and missing expectations). Expectations are a little tamer (but still optimistic), with a consensus estimate for 4.75 million sales. The actual numbers aren't due out until 10 AM EST, though, so we have no idea (yet) how realistic that is.
In the news, South Korea is continuing their largest peacetime military exercise ever. Mostly as a way of making President Lee Myung-bak look tough after what was commonly perceived as a "weak"[2] response to the shelling of Yeonpyeong Island. There has been no specific response to this from North Korea, to the shock of everyone and the disappointment of connoisseurs of fine crazy.
There was a three hour strike in Greece against the 2011 austerity measures about to be implemented by their parliament. So far, the strikers have managed not to murder anyone.
Speaking of the PIIGS, China[3] is coming to their rescue. They have struck a deal with Portugal to buy 4-5 billion euros of Portuguese sovereign debt. At least, that's what has been reported in the Jornal de Negocios. The euro is up in ecstatic jubilation on the news.
Closer to home, the Financial Report of the United States is out (you can choose to read either the 12 page Citizen's Guide or the 268 page full report), and it shows that the budget deficit has increased by 65.9% from FY 2009 to FY 2010 (in 2009 it was "only" a $1,253.7 billion deficit for the year, while in 2010 the deficit has increased to $2,080.3 billion).
And, wrapping up the GDP day, New Zealand's GDP is due out at 4:45 PM EST.
[1] Yet another measure of inflation.
[2] "Weak", because the word "sissy" rarely makes its way into Reuters. Although that's pretty much how the South Korean people looked at his response.
[3] Still not wanting to replace the United States as the sole superpower of the world - just ask them - and still tired of being treated like they're solely responsible for holding North Korea's leash.

"Outright Theft Is Consistent With Our Internal Policies"

Bank of America, which has seized the moral high ground by refusing to process any payments to WikiLeaks because it "may be engaged in activities that are, among other things, inconsistent with our internal policies for processing payments," is being sued for wrongful foreclosure.


In their defense, at least Ms. Ash was actually behind on her mortgage payments. This is not always the case.

Apparently, foreclosing on the homes of people who don't even have a mortgage is consistent with their internal policies for processing payments. It will be interesting to see what else is consistent with their internal policies.

Oh, and to quote WikiLeaks: "We ask that all people who love freedom close out their accounts at Bank of America."

Tuesday, December 21, 2010

Canada Has An Economy Too, Folks

And why should we care? We should care because Canada is the single largest trading partner the United States has. Our total trade[1] with Canada, for October alone, was $45.48 billion[2]. So it strikes me as just slightly important to pay attention to how they're doing.

Canada's CPI for November, and their retail sales figures for October, are out now. In October, Canadian CPI was up 0.7% for the month (and 2.4% for the rolling year). Expectations going in to this morning were an additional 0.3% increase for November (with the rolling year declining to a 2.3% increase). Meanwhile, Canadian Retail Sales were up a revised 0.4% in September (up 3.3% for the rolling year) with expectations for a slightly better October (up 0.5%).

How did our neighbors to the north fare? The CPI was up only 0.2% (2.0% for the rolling year), with 7 of the 8 CPI components increasing in cost[3]. The good news, for certain cynical values of "good", is that the core CPI was absolutely unchanged[4]. Turning to Retail Sales, October saw a 0.8% increase (maintaining the 3.3% rolling year increase).

[1] Defined here as the sum of exports and imports. Why the US Census Bureau doesn't break those out separately, I don' t know.
[2] China, our second largest trading partner, was only $44.12 billion.
[3] The exception was clothing and footware, which were down 3.2%.
[4] The Bank of Canada excludes the following extremely volatile consumer goods from their calculation of the core CPI: fruit, fruit preparations and nuts; vegetables and vegetable preparations; mortgage interest cost; natural gas; heating oil and other fuels; gasoline; inter-city transportation; and tobacco products and smokers' supplies.

Monday, December 20, 2010

Face Morphology, Budget Fail, and Repo 105

It's a short trading week going into Christmas, and there's plenty of odd little things happening in the news.
Right off the bat, UBS is in the news. Not for $17.2 billion in losses, or for $50 billion in mortgage writedowns, or for rolling over and releasing depositor information to the IRS (this time), or for the possibility that they will crush the Swiss economy. No, this time it's all about their dress code, and it includes highlights such as:
  • "Leave, if possible, your outfit suspended in open air for two days after wearing. The fibers will gain rest and you will prolong the life span of your clothes."
  • "At the neck, the shirt must be of sufficient magnitude to leave a space of at least one finger... The neck shirts must exceed approximately about 1 to 1.5 centimeter above the jacked collar..."
  • "Don't wear the tie if it's not adapted to the morphology of the face."
  • "Hands - do not have false nails and fancy colored nails"
  • "Hair - don't have split ends"
Yes. It's nice to know they're focusing on what's important in this era of rising mistrust of financial institutions.
Despite concerns from Friday, North Korea has not felt "any need to retaliate against every despicable provocation", and did not end up reigniting the shooting part of the as-yet unresolved Korean Conflict. South Korean financial markets remain calm but concerned, but the cost of insuring South Korean sovereign debt is up 10%.
The United States still does not have a budget. The Senate is going to try and pass a temporary funding measure to get the government through to March 4, 2011, when it will be someone else's problem.
Ernst & Young LLC are about get sued by the New York State Attorney General's office over the collapse of Lehman Brothers. Why? Because Ernst & Young apparently advised them to use an accounting technique (Repo 105), which allowed them to hide $50 billion in liabilities. How? It would enter into repurchase agreements in which it would take (say) $100 in short term loans for each $105 in bonds it sold. Now, normal repurchase agreements are treated as collateralized short-term loans for accounting purchases (which is what they are). These "repo 105" repurchase agreements, because they're "sold" at a loss, get to be treated as actual sales on the books. So, they would sell under repo 105 just before the end of the quarter, take the "proceeds" of the "sales" to pay down debt, report that their end of quarter balance sheets looked pretty good, and then borrow money a bunch of money to buy the bonds back. It's not illegal, but the New York AG feels it was distinctly fraudulent.

Sunday, December 19, 2010

The American Myth

So yesterday, the "don't ask don't tell" policy of the United States Armed Forces was repealed. And that set me to thinking.

It's really quite easy to get down on the United States, and the people who live in this nation. You look at current events and it all seems to be big business screwing the little guy for an extra percentage, or one set of corrupt politicians lying their way into electoral victories over another set of corrupt politicians so they can be the ones giving the electorate the finger, or the government grinding away at the rights of the people, or religious fanatics doing everything in their power to remake the world in their narrow and frightening world view, or any one of a thousand things that seems to make the world a sadder and grimmer place to live.

If you have a history degree, or even just an interest in the past that goes beyond the History Channel, it's even worse. Then it's easy to see the United States as the sum total of a legacy of genocide, colonialism, racism, sexism, religious hatred, and corruption. We - the United States - look like monsters viewed through the lens of history or current events.

Or, we can look that way. If all we focus on is the negatives.

The interesting thing is, in my opinion, that what we do really isn't all that different from what every other nation does (or would do, if they had our wealth and power). We get judged more harshly by outsiders, because we're doing it to them, instead of the other way around. And we get judged more harshly by ourselves, when we look at our behavior, because of... well...

Because we have a national mythology, that tells us we are better than that. We have a national mythology that we are a nation of free men and women, descended from people that came to this continent looking for a better life. A life where they could be free to worship and think and live freely, and where they could pass on that freedom to their children, and to their children's children. We have a national mythology that says that we are all equal before the law, that we all have the same opportunities, and that anyone - even the son of a poor immigrant - can be anything they want as long as they are willing to put in the work needed to achieve that goal. We have a national mythology that says we are the land of the free and the home of the brave, that we are great and good and generous, and that we saved the world from evil and made it safe for democracy.

Now the word "myth" comes from the Latin mythos, which comes from the Greek muthos. And what does "mythos" mean? "The complex of beliefs, values, attitudes, etc, characteristic of a specific group or society."

Like all other nations we have our flaws and our failings - and those flaws and failings are magnified a thousand-fold by our wealth, by our power, and by our influence on the world. But those flaws and those failings are not the whole story.

We are a great nation. We are a great nation because we believe our national mythology, because we value freedom and equality, because we want to be great and good and generous. For all of our failings, we keep trying. And look at what we have achieved.

My mother cannot remember a time in which women could not vote.

I cannot remember a time in which minorities could not vote.

My son will grow up in a time in which a black man was the President of the United States, and will - Gods willing - never remember a time in which a man or woman's sexual preference determined whether or not he or she could serve his or her country.

We are a great nation, because we believe our national mythology, because we want to be great and good and generous, and because we try our best to live up to those beliefs.

May we always be a great nation.