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

The Required Disclosures

The information presented in this blog and its individual articles is provided for informational use only and should not be considered investment advice or an offer for a particular security. The contents reflect the views and opinions of the individual writer as of the date the article was written and do not necessarily represent the views of the individual writer on the current date. They also do not in any way, shape, or form represent the views of the Firm Never-To-Be-Named. Any such views are subject to change at any time based upon market or other conditions and The Great Redoubt and its individual writers disclaim any responsibility to update such views. These views should not be relied on as investment advice, and because investment decisions for any security are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any contributor to The Great Redoubt. Neither The Great Redoubt nor any individual author can be held responsible for any direct or incidental loss incurred by applying any of the information offered. Please consult your tax or financial advisor for additional information concerning your specific situation.

Friday, March 11, 2011

Guns N' Roses Vet Forms Advisor for Rockers

Not so much an important market news item, as an amusing one.  Duff McKagan is still asking if you've got the money, honey, because he's got your disease.

View this article on our website: Guns N' Roses Vet Forms Advisor for Rockers

Here's the article:

Guns N' Roses Vet Forms Advisor for Rockers

Former Guns N’ Roses bass player Duff McKagan is launching a wealth management business that will cater to musicians. So reports Fortune.

The firm, Meridian Rock, will be managed by McKagan and Andy Bottomsley, a U.K. investor. McKagan says he plans to educate musicians frankly about their finances instead of lie to them or become another “yes man” in their entourage.

McKagan, 47, began incubating the plan when he was sidelined with a ruptured pancreas in 1994. It was then the rocker realized he was a “30-year-old millionaire” who didn’t have a clue about his fiscal health. He tells Fortune he feared reaching age 60 and finding himself a charity case, despite making millions of dollars in his 20s.

He started his financial education at Santa Monica Community College, before moving to Seattle and taking classes at a local community college. He was eventually accepted into Seattle University's Albers School of Business, and started actively participating in the management of his own portfolio.

The budding academic, however, took a break in his last year of business school to tour with Velvet Revolver, the group that included GnR's guitarist Slash and Stone Temple Pilots singer Scott Weiland.

McKagan never did take it to the end of the line and return for that last semester. But word was getting around that he knew a thing or two about managing money, and musician friends started to turn to him for advice, Fortune reports.

However, McKagan, who wrote a regular finance column for Playboy called “Duffonomics,” never claimed to be a financial planner. Fellow rockers simply found him easier to talk money with than the “suits.” McKagan says his understanding of the music business is what will set Meridian apart from other players in the jungle.

McKagan met former banker Bottomsley about 18 months ago. Bottomsley was running an early stage venture firm, Imprimatur Capital, which numbers Tudor Investment among its investors. They’re now interviewing money managers in both Europe and the U.S.

McKagan tells Fortune that Meridian’s advisors will deal directly with the talent, offering advice with a little patience and guidance in terms that are both clear and understandable.

By Kathleen Laverty
  To read the Fortune article cited in this story, click here

Retail Sales

We've had hints about this subject for several weeks now, mostly from the Redbook Reports and the ICSC-Goldman Reports.  This, however, is the burly big brother of these reports.  Retail Sales looks at changes in total receipts at stores that sell durable and nondurable goods, and all stores sell one or both of those categories of goods.
January 2011 had disappointing results for retail sales.  Overall sales were up only 0.3%, and were still only up 0.3% ex-auto.  For February, the Econoday-surveyed analysts are feeling extremely optimistic, looking for a 1.0% increase in sales (and a 0.7% ex-auto increase).  Turning to the US Census Bureau for the actual report, we see a happy degree of accuracy in the prediction.  Overall retail sales increased 1.0% for February and, if you deduct auto sales from the figures, they were still up 0.7%.
Too bad there's an earthquake and tsunami in Japan that's pointing out the folly of men and preventing traders from getting excited about this chunk of good news.

Thursday, March 10, 2011

Regional and State Employment and Unemployment (Monthly) News Release

The latest Regional and State Employment and Unemployment news release (http://www.bls.gov/news.release/pdf/laus.pdf) was issued today by the Bureau of Labor Statistics. Highlights are below.

In January 24 states reported over-the-month unemployment rate decreases, 10 had increases, and 16 and the District of Columbia had no change. Nonfarm payroll employment increased in 35 states and the district, and decreased in 15 states.

News releases archives: http://www.bls.gov/schedule/archives/all_nr.htm
To subscribe or unsubscribe to BLS news releases please visit http://www.bls.gov/bls/list.htm
For help, email news_service@bls.gov

Report: Pimco Sells off All US Government Holdings

Report: Pimco Sells off All US Government Holdings
NEW YORK March 9, 2011 (AP)
The world's largest bond investor has sold off all his fund's U.S. government-related holdings, according to a published report.
The move by Bill Gross, founder of the Pacific Life Investment Management Co., was reported in The Wall Street Journal Wednesday. A Pimco representative did not return calls for comment.
The Pimco Total Return Fund, the world's largest mutual fund, held no government-related debt by the end of February, according to an unidentified person at Pimco quoted by the Journal. In January, U.S. government holdings had accounted for 12 percent of the fund.
Treasury prices nevertheless rose Wednesday after the government saw strong bidding at an auction of debt.
The Treasury sold $21 billion in 10-year notes at a yield of 3.49 percent. Investors placed bids worth 3.32 the amount up for sale, better than the 3.08 average over the last year. The strong demand comes even as Gross and other money managers have sold Treasurys in recent months.
Investors like Gross believe that bond values could drop once the Federal Reserve ends its $600 billion bond buying program in June. The Fed is expected to discuss the program, which was intended to spur economic recovery, at its next meeting.
Gross has also expressed other concerns about the bond market.
At a meeting of Pimco's investment committee in January, the assembled money managers agreed that nervous investors would likely ditch Treasurys en masse as the U.S. government gets closer to the debt ceiling.
"The Treasury market will sell off as this gets more press and with more invective," Gross said in an interview with The Associated Press soon after that meeting. "Investors like us, we sell now."
Bond investors are creditors. In buying a Treasury note, investors are lending the government money in exchange for a promise to return it later with interest. So bond investors closely follow the ability of the government to repay debt.
U.S. government bonds and the dollar underpin the global financial system. The Treasury yield is used as a benchmark for all borrowing, and is a point of comparison for debt around the world.
Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

Jobless Claims

This is, of course, the weekly report examining how many people claimed unemployment insurance for the first time that week (and then also looking at how many people are continuing to claim benefits for the week).  This is an important report for the simple fact that it provides a week-by-week examination of job losses, which gives substantial clues about the overall employment situation in the US.  Also, since consumer spending is between 1/3 and 1/2 of GDP, it is a hopefully promising sign if new claims are low and continuing claims decline[1].
Now, for the week ending 2/26, we saw 368,000 new jobless claims.  The Econoday-surveyed analysts are looking for a small increase, to 385,000 for the week ending 3/5.  The actual figures come from the US Department of Labor, where the current press release shows disappointing results.  The new jobless claims figure for the week ending 2/26 was revised upwards to 371,000, and the figures for 3/5 show 397,000 initial claims (missing expectations).  Looking at unadjusted numbers, 406,096 people filed first time unemployment insurance claims (up 52,147 from the preceding week).
There is a two week delay in looking at the state program insured unemployment level.  For 2/26 the level was a seasonally-adjusted 3,771,000 (down 20,000 from the previous week).  However, looking at the unadjusted number of continuing claims, we have a level of 4,442,438 (which is the number of people actually on the UI rolls, and is up 97,576 from the previous week).  As of 2/19, the number of people claiming benefits in all programs (not just state programs) was 8,772,818.
[1]  I say hopefully, because this report does not examine the cause of a decline in continuing claims.  There are two ways to no longer be making continuing claims on unemployment insurance;  either find work (meaning you no longer need unemployment insurance) or run out of benefits (meaning you are no longer qualified to receive unemployment insurance).  So, while a decline in continuing claims could mean that people are getting back to work, it could also mean that people have been out of work for 99 weeks or longer.

International Trade

This report, looking at the US trade surplus (or, more likely, deficit), is one of the more important economic reports from the perspective of the market.  It relates directly to GDP, which is a measure of the value of all goods and services produced within the United States.  If we have a surplus (or a shrinking deficit), that indicates increased international demand for US-produced goods, which points towards a growing GDP.  On the other hand, if we have an increasing deficit, that is a harbinger of ill tidings for GDP.
For December 2010 (and yes, there is a two month lag on this data), the US had a $40.6 billion trade deficit.  For January, the Econoday-surveyed analysts are expecting that trade gap to widen a bit to a $41.0 billion deficit.  For the actual results, we turn to the joint US Census Bureau/US Bureau of Economic Analysis press release, which shows that we missed analyst expectations by a substantial amount.  Instead of the expected $41.0 billion goods and services deficit that was expected, the deficit widened to $46.3 billion.  Total imports of goods and services came in at $214.1 billion for January, while total imports came in at $167.7 billion.  The good news here is that January exports did increase by $4.4 billion (indicating increased international demand).

Wednesday, March 9, 2011

Oil Futures Are Up On Libya, Disappointing OPEC Statements

One of the delegates to the informal OPEC consultations about oil output, speaking anonymously, has stated that OPEC is not likely to increase production.  "There have been consultations and we don't see a need to meet at the moment."  This is in line with statements made by Mohammad Ali Khatibi, the current OPEC governor, who has said "There is no shortage in the market."  Based on figures in the article, he may by right;  Libya normally pumps around 1.6 million barrels per day, but two-thirds of that production has been shut down (a loss of about1.06 billion barrels per day).  The article notes that Saudi Arabia has increased its own output to 9 million barrels per day, which is almost 1 million barrels per day above its OPEC target.
Nevertheless, the statements are disappointing commodities traders.  The Brent crude oil futures were up $1.31/barrel to $114.37 as of 8:40 AM EST on the statements, as well as on the Libyan attack on rebels in Zawiyah (which holds one of the largest refineries in Libya).
Speaking of Iran, the International Atomic Energy Agency issued a joint statement that "the door remains open" for development of nuclear power, as long as they cooperate  with the IAEA and do not attempt to pursue a nuclear weapons program.

MBA Weekly Applications Survey

The Mortgage Bankers Association has released its Weekly Application Survey, which is a look at the rate of change in applications for mortgages for both initial purchases and refinances.  In and of itself, this is not a huge market mover.  It can give some indications about the direction of New Home Sales and Existing Home Sales, as well as some indications about the health of lending agencies, so it is watched by people with an interest in real estate or the financial sector.
The results of the survey for the week ending 2/25 were not great.  The Market Composite Index showed a 6.5% decline, the Purchase Index showed a 6.1% decline, and the Refinance Index showed a 6.5% decline.
Turning to the MBA press release for the week ending 3/4, things have substantially improved.  The Market Composite Index has increased 15.5%, while the Purchase Index increased 12.5% and the Refinance Index increased 17.2%.  Refinance applications represented 65.5% of total mortgage applications for the week (an increase from the previous week's 64.9%), while adjustable-rate mortgages represented 6.0% of total mortgage applications for the week (an increase from the previous week's 5.5%).  The average interest rate for 30-year fixed-rate mortgages also increased from last week's 4.84% to this week's 4.93% (which is consistent with the increased demand for mortgages).

Tuesday, March 8, 2011


The final bit of economic data for the morning is the Redbook, a weekly measure of sales at chain stores, discounters, and department stores conducted by Johnson Redbook Service.  Although the methodology is different, it tracks similar sorts of information to the ICSC-Goldman report.  Also, much like the ICSC-Goldman report, it is not considered a major market mover and is not available directly from the source without a paid subscription.
Econoday is reporting that year-over-year sales have slipped from a 3.0% year-over-year increase the week ending 2/25 to a 2.0% year-over-year increase for the week ending 3/5.

Morgan Stanley May Shed "Smith Barney" Name

If you don't subscribe to FundFire and would like a free trial, click here

View this article on our website: Morgan Stanley May Shed 'Smith Barney' Name

Morgan Stanley May Shed 'Smith Barney' Name

Morgan Stanley is considering dropping the name “Smith Barney” from the marquee of its giant retail brokerage, people familiar with the matter tell Dow Jones Newswires.

Morgan Stanley Smith Barney recently asked clients to choose from six potential new names for the wirehouse. None of them include “Smith Barney,” the name of the legacy brokerage that became part of Morgan Stanley’s wealth management unit in June 2009 when Citigroup sold its rival a majority stake.

The possible new names include Morgan Stanley Advisors, Morgan Stanley Private Wealth Advisors, Morgan Stanley Global Wealth Advisors, Morgan Stanley Wealth Advisors, Morgan Stanley Wealth Management and Morgan Stanley Global Wealth Management. The “global wealth management” version was the name of the unit prior to the joint venture with Smith Barney.

A Morgan Stanley spokesman declines to comment on a potential name change but says the firm regularly surveys clients about its brand. He tells Dow Jones he “wouldn't read a whole lot into this.”

A spokeswoman for Citigroup declines to comment.

However, many of the joint venture’s financial advisors, as well as outsiders, are said to have expected an eventual rebranding of the brokerage, Dow Jones reports. They say a change would highlight Morgan Stanley’s anticipated move to full ownership of the wealth management business in about three years.

Morgan Stanley bought a controlling stake of 51% in the joint venture in 2009, leaving Citigroup with 49%, in a sale forced by the 2008 financial crisis. In May of 2012, Morgan Stanley retains the option of buying another 14% of the joint venture, to be followed by 15% in 2013 and 20% in 2014.

Morgan Stanley CEO James Gorman said in November that the bank planned to act on its option to purchase the outstanding stake in Smith Barney, Dow Jones repots.

Aite Group research director Alois Pirker says it isn’t unusual for a brokerage to move to simplify its name following a merger or other change in control. However, he doesn’t believe “a year or two” is sufficient to “wipe away that memory.”

Pirker tells Dow Jones that he doesn’t expect a name change alone will cause legacy Smith Barney advisors to head for the exits. But it could stir a “psychological issue” for some, who may see it as the “tip of the iceberg” for more change if they were already thinking about moving to a competitor, Pirker said.

Indeed, a Morgan Stanley Smith Barney advisor working in the southeastern U.S. tells Dow Jones that a number of his Smith Barney legacy colleagues could consider a rebranding of the joint venture as the final blow to their former firm, wiping out hope that its legacy might continue.

By Kathleen Laverty
  To read the Dow Jones Newswires article cited in this story, click here if you have a paid subscription.

ICSC-Goldman Store Sales

We move now to major retail chain store sales, with the International Council of Shopping Centers-Goldman Store Sales report.  This is a look at weekly and year-over-year changes in comparable store sales  at major retail chains only, accounting for about 10% of total retail sales.  Because of the limited scope of the report, this is not in and of itself a major market mover.  At best, it can be considered an indicator of overall economic activity.
Since the ICSC requires a paid subscription to access the report directly, the data is provided second-hand (in this case, from Econoday).  For the week ending 3/5/2011, sales were up 2.3% for the week and 2.6% year-over-year.  The weekly sales are a substantial improvement (2/25 had them down 0.5%), but the year-over-year sales are slightly disappointing after last week's 3.3% increase.

NFIB Small Business Optimism Index

This is the National Federation of Independent Business' Small Business Optimism Index, a survey of NFIB members on topics including employment, capital spending,  inventories, credit conditions, sales, and economic expectations.  This is not considered to be a major market mover, since small businesses are rarely listed companies.  This is not to say that small businesses are unimportant to the economy, however.  According to the US Small Business Administration, small businesses:
  • Represent 99.7% of all employer firms
  • Employ just over half of all private sector employees
  • Pay 44% of total US private payroll
  • Have generated 64% of net new jobs over the past 15 years
  • Create more than half of the nonfarm private gross domestic product (GDP)
So, even though this report may not be directly a major market mover, small businesses have a significant impact on the overall economy of the US.
According to the NFIB, the overall optimism index gained 0.4 in February, rising to 94.5.  15% of respondents reported unfilled job openings (up 2 points from January) - something that could indicate that unemployment will drop[1].    17% (up 5 points from January) of respondents plan to increase employment over the next three months, while only 6% (down 2 points) plan to cut jobs.
[1]  Unfilled job openings can be an indicator that there are more jobs than potential employees.