We had the pleasure of discussing recent economic developments and the Federal Reserve’s policies with ICAP’s chief economist Louis Crandall. He views the Fed on hold most likely until Q3 2010. Not until the August 2010 meeting does he see more than 50% chance of a change in the target rate. While the first increase may only be 25bps, he believes the Fed means business when they say policy accomodation may need to be removed fast, and sees possibly a second move between 50 and 100 basis points. He also thinks it is unlikely that the Fed will be using reverse repo heavily this year, and will keep the Fed effective low until year-end.
Beyond these policy observations however, one comment struck me in particular. According to him the Fed is watching very carefully risk appetite. Their removal of policy accomodation, whether it is low rates or liquidity facilities, will be driven just as much by a pick up in market risk appetite as by traditional economic indicators such as production and employment. It makes sense to think the Fed is watching the effect on risk appetite and potential asset inflation of the liquidity it is pumping in the system given that it is a just about universal worry that has triggered a lot of animosity towards the US’s monetary policy. However what is interesting is to think right now the Fed views risk appetite as subdued. Is it really?
CapEx is still weak, but so is demand, so one can’t really expect companies to plan for big expansion plans, especially given that the consumer and many coporations are considered over-levered already. But not just focusing on fundamentals, let’s look at the markets: Commodity inventories are huge but prices have recovered massively, China’s stock market doubled from the lows even when their capacity utilization is 60%, the Chinese stock market on July 28 traded more volume on the A-Share exchange in terms of notional than exchanges in New York, London, and Tokyo… COMBINED, US equities price in 4% established growth to come, Turkey’s CDS is at all time lows when the country shares a border with Iran, Brazil’s Bovespa is only 16% off its highs, up almost 4 folds from 2000 highs, and with a president that has not graduated from high school… Is that risk…
If this most recent report by Bloomberg has any credibility to it, Michele Caruso Cabrera’s daily work commute is about to expand to a size 36DD.
Comcast Corp. doesn’t have an agreement to buy NBC Universal Inc., spokeswoman D’Arcy Rudnay said.
In an e-mail, Rudnay declined to comment on a Web site report that Comcast is in discussions with majority owner General Electric Co. on NBC Universal and bankers for both sides met this week.
“While we don’t comment on M&A rumors, the report that Comcast has a deal to purchase NBC Universal is inaccurate,” Rudnay said.
While on any other occasion we would say this kind of non-denial denial is the closest admission of the truth possible, in this case we side with the undecideds. After all, who would be stupid enough to want to buy CNBC….That $35 billion price tag on NBC, that probably consists of $36 billion for everything else and the balance for CNBC.
uhm, yeah, that’s pretty much all the commentary we have on this one.
The FDIC is struggling mightily to stay solvent. Given that there are bank failures every Friday, it’s no easy feat for the FDIC to stay ahead of the game.
The Federal Deposit Insurance Corp.’s plan to rebuild its reserves may cost Bank of America Corp. and three of the largest U.S. banks more than $10 billion.
Bank of America, the biggest U.S. lender by deposits, may owe $3.5 billion under an FDIC proposal that banks prepay three years of premiums, based on the lowest assessment rate multiplied by the bank’s $900 billion in June 30 U.S. deposits.
“This seems like a very hefty amount,” said Tim Yeager, a finance professor at the University of Arkansas and former economist at the Federal Reserve Bank of St. Louis. “The FDIC’s projections of future losses are pretty severe, and they are trying everything they can to avoid tapping the Treasury.”
U.S. bank premiums range from 12 cents per $100 in deposits for the safest lenders to 45 cents for banks the U.S. considers risky, said Chris Cole, senior regulatory counsel for the Independent Community Bankers of America. The FDIC yesterday proposed asking banks to pay premiums for the fourth quarter and next three years on Dec. 30. The fees will raise $45 billion.
Based on the current assessment and each bank’s deposits, Wells Fargo & Co.’s fee may be $3.2 billion based on its $814 billion in deposits, JPMorgan Chase & Co. may pay $2.4 billion and Citigroup Inc. $1.2 billion. The estimates exclude the FDIC’s plan to boost the assessment rate by 3 cents per $100 in deposits in 2011 or the agency’s assumption that bank deposits will increase by 5 percent annually.
Although that is a realistically correct headline (Please see You Know The Banking System Is Unsound When…. for a justification), I did overlook things FDIC did to temporarily stay in the game.
Prepaid fees is yet another attempt to keep the game going. How much longer this can last is anyone’s guess. Those prepaid fees are going to hurt bank earnings 100%
I’m very concerned about our readership of late. In the wake of recent publicity I want to call your attention to a few figures that I believe might spell doom for Zero Hedge. Doom. Pure and simple.
I know what you are thinking, but I want you to forget for a minute that crap about the statistical illegitimacy of wielding a single commenter (or even an anecdotal few) against Zero Hedge as a measure of a population that numbers over 100,000 readers. That falls right into the “fact trap” as I call it. Facts trap us. They limit us to a particular demographic and make us slaves to topics we cannot control any more than we can control the facts. Our anemic growth since January is proof of that. What is important in today’s media is anecdotal data. It is richer, deeper, (once we add our fluffy prose) and fits better in prime-time print with glossy pages. One well-told story about a fringe commenter is significantly more penetrating than a regression of our entire audience. Further, it commands the interest of a wider range of readers (particularly those uncomfortable with numbers or charts). We are losing the publicity battle in the mainstream press here. True, efforts to assail our content and long missives (often error plagued) targeting some of Zero Hedge’s messengers have yielded little fruit, but this new approach, attacking our readers, is frightening and dangerous. You see, apparently “day traders” make up the majority of Zero Hedge’s audience.
True, it is not completely clear what “day trader” means in this context (it is possible this refers to individuals who manage their own portfolios rather than dump their assets into long-only 401k funds like smart, patriotic investors are supposed to) but I have reason to believe that they are generally considered “losers” and otherwise unsuitable degenerates. This appears to be connected to the dot-com crash. I really have no solid data to back this up, but, you see, data makes no difference. This is the insidious nature of this attack and we must respond quickly. I have, therefore, undertaken an anecdotal analysis of our audience to pinpoint other weak points and pools that may contain high concentrations of short-sellers, precious metal devotees, former index fund investors, “retail investors” (I have used 5 definitions of this term to be expansive) gypsies, jews,…
With each passing day the number of people that think the bottom is in, earnings will keep improving, and even a correction is unthinkable keeps rising. Here are a pair of interesting headlines moments apart on Bloomberg.
U.S. Stocks Climb to Extend Biggest Quarterly Rally Since 1998
U.S. stocks rose, extending the market’s biggest quarterly rally in a decade, as the government said the economy shrank less than estimated in April through June and earnings at Nike Inc. beat estimates. Oil and metals gained as the dollar slumped, while Treasuries retreated.
“A lot of people would be looking for a pullback, but we’re going to see improving fundamentals in the base economy, and with that higher earnings,” said William Dwyer, chief investment officer at MTB Investment Advisors, which manages $13 billion in Baltimore.
Today’s gains came after the U.S. Commerce Department said the world’s largest economy shrank at a 0.7 percent annual rate from April through June, less than the previous estimate of 1 percent and the median economist projection of 1.2 percent. Gross domestic product contracted at a 6.4 percent pace in the first three months of 2009.
The performance of the U.S. economy is probably more sluggish than reflected in stock markets, risking a correction in equities, Nobel Prize-winning economist Michael Spence said.
U.S. stock-market investors have “over processed” the stabilization of growth in the world’s largest economy, Spence said in an interview in Kuala Lumpur yesterday. The U.S. economy isn’t likely to experience a “double-dip” slowdown even as that remains a risk, said the professor emeritus of management in the Graduate School of Business at Stanford University.
I would be curious as to what William Dwyer, chief investment officer at MTB Investment Advisors was saying in 2008. Regardless, the idea that stock can keep rising forever even as the fundamentals of the economy are horrible, and the only game in town is government spending is rather remarkable.
As for the double-dip, I think one is coming. The not so robust alternative is flatline stagnation and extremely slow growth for 5 years or more.
Just moments after the above headline appeared, we saw this:
We would like to direct Your attention to this letter written some months ago by that one person who comes closest to being called Your “supervisor.” Indeed, we are well aware that You, Mighty Majesty, are not accountable to anyone, on heaven, hell, purgatory or earth. Nonetheless, we assume You got this particular memo.
My Administration is committed to creating an unprecedented level of openness in Government. We will work together to ensure the public trust and establish a system of transparency, public participation, and collaboration. Openness will strengthen our democracy and promote efficiency and effectiveness in Government.
Government should be transparent. Transparency promotes accountability and provides information for citizens about what their Government is doing. Information maintained by the Federal Government is a national asset. My Administration will take appropriate action, consistent with law and policy, to disclose information rapidly in forms that the public can readily find and use. Executive departments and agencies should harness new technologies to put information about their operations and decisions online and readily available to the public. Executive departments and agencies should also solicit public feedback to identify information of greatest use to the public.
Government should be participatory. Public engagement enhances the Government’s effectiveness and improves the quality of its decisions. Knowledge is widely dispersed in society, and public officials benefit from having access to that dispersed knowledge. Executive departments and agencies should offer Americans increased opportunities to participate in policymaking and to provide their Government with the benefits of their collective expertise and information. Executive departments and agencies should also solicit public input on how we can increase and improve opportunities for public participation in Government.
…
I direct the Chief Technology Officer, in coordination with the Director of the Office of Management and Budget (OMB) and the Administrator of General Services, to coordinate the development by appropriate executive departments and agencies, within 120 days, of recommendations for an Open Government Directive, to be issued by the Director of OMB, that instructs executive departments and agencies to take specific actions implementing the principles set forth in this memorandum. The independent agencies should comply with the Open Government Directive.
As some of you may know, I always end my summer in the mountains, giving me time to reflect on the bank’s challenges and our strategies to meet them. I have always returned to the company in the fall energized and ready to get to work with all of you to meet those challenges and pursue our goals.
This year, though, has been different. This year, I returned with a strong belief that the major strategic challenges of my tenure as CEO have been met. We have built leading market positions in every major product category in our industry. We have come through the worst economic downturn in 80 years with all the tools, assets and talent we need to succeed and win. We have taken the most important steps to reduce and remove the need for government support of our company.
The next great set of challenges for our company – executing across our businesses to achieve our potential, and imagining how our company must continue to evolve to meet the changing demands of the global marketplace – are for our next chief executive officer, and for our Executive Management Team, which I know is capable of rising to any challenge. I now have a strong sense that the work that has consumed me for the past eight years is largely finished, and that it is time for a new leader to take on new challenges with all of you.
For these reasons, I informed the board today of my intention to retire at the end of the year.I am comfortable with this decision, not only personally, but also as someone who is greatly invested in Bank of America. Our board of directors and our senior management include more talent, and more diversity of talent, than at any time in this company’s history. They begin the next chapter in our company’s history with a franchise unique in the world: a bank with primacy in U.S. retail and commercial banking, global wealth management and corporate and investment banking.
I have spent a lot of time this year meeting with our customers, investors and associates around the country and around the world. They understand what we have built and what we can offer them, and their excitement about the future of this bank is contagious.
P.T. Barnum would blush at the market activity today. The powers that be have given new meaning to manipulation and end-of-month/quarter window dressing.
Volume was heavier with early selling and subsequent short squeeze. The former was the result of “real” crummy economic data while the latter was attributed to comments from Fed Vice-chairman Kohn which was quite loosely interpreted as positive. Then, late in the day, the former maestro Alan Greenspan threw some cold water bulls way.
1) Wow! Risk reversals can be such a bitch! It was like someone flipped a switch at precisely 3:30 p.m. in New York, and suddenly the rally was over. The sell recommendations from market timers poured out like confetti at a New York ticker tape parade. The pundits, talking heads, and faux financial reporters offered many possible explanations. Was it the disappointing housing data, a waffling Fed statement, end Q3 profit taking, or the autumnal equinox? Perhaps it was the Business Week cover the saying the market would continue going up. The harsh reality is that the market fell simply because of its own sheer weight. PE multiples of 20 in the face of flat revenue growth, tightfisted banks, a catatonic consumer, imploding commercial real estate market, an approaching tsunami of new home foreclosures, and a whole raft of government stimulus programs about to expire, is not exactly a springboard for even high prices. What is fascinating is how all global risk assets fell in unison, from gold, to stocks, to private debt, to currencies, as I have long predicted. The only place to hide is cash. The market may take another run at the highs before year end. But the burden of proof has shifted from the bears to the bulls.
2) The spectacular debut of the IPO for A123 Systems (AONE), a maker of high powered, quick recharging lithium ion phosphate batteries using advanced nanophoshate technology, put a great shining spotlight on a sector I have been harping about all year (search my data base for “Butch Cassidy” by clicking here ). The initial price talk was at $8, the IPO came out at $13.50, and the first day of trading took it up to a meteoric 43% to $19.20 on the first day! I had a flashback to the dot.com boom. Where are the gold flecks on the sushi, my free IPO hat,…
It is sad that modern capital markets have gotten to a point when neither fundamental nor technical analysis matters. The only question is how many dollars with the Federal Reserve print tomorrow and how higher will that push stocks. For those deluded amongst you who still believe 10,000x EV/EBITDA is marginally to quite-marginally rich, and don’t feel like chasing trends and passing the hot potato to the latest Down syndrome afflicted E-Trade client, here are some observations on arguably the most overbought (by a metric mile) sector, REITs, courtesy of masters of the (metric) universe, Goldman Sachs.
In short: at some point in the near to very far future, REITs are going to get pounded. Why? Cause the 85 Broads said so:
The GS REIT Team view: Focus on names best positioned to “capitalize from the crisis”
Cautious coverage view: we expect relative underperformance versus the broader S&P 500 Index as CRE trends lag the economy by 12-18 months.
Our total return forecast: flat to down 15% (which equates to a price-only decline of 20%-25%)
Primary concerns: valuation still unfavorable, deteriorating growth trends, challenging funding market (over $75 mn still tough to do)
CRE values declining: cap rates to increase 300-500 bp from the lows, or a price decline of 30%-40% from peak levels
And some highlights of why Goldman believes REITs could be in for a protracted period of pain.
Not like any of that matters. The more troubled a sector is, the more likely it is that the government will shortly bail it out, of course. As such, it makes a lot of sense to be imprudent and follow Jim Cramer’s advice: “if it has not filed for bankruptcy yet, it can only go higher.” Vaya con dios.
Improvement in first time unemployment claims is slowing. Actual, not seasonally manipulated data, including an adjustment for the usual weekly upward revision, shows that the year to year rate of change is on the cusp of a possible upside breakout, which would be good news for stock market bears if it happens.
Initial Unemployment Claims Chart- Click to enlarge
Here’s why it’s mind blowing. I’ve plotted it below on an inverse scale with the S&P 500 overlaid.
Unemployemt Claims and Stock Prices - Click to enlarge
Major US Markets including (NYSEARCA:DIA), (NYSEARCA:SPY), (NASDAQ:QQQ), and (NYSEARCA:IWM) dropped over 3% each on Italian bond fears and an increased worry that Europe will not be able to bail out its 4th largest economy. Furthermore, the iShares MCSI Italy Fund (NYSEARCA:EWI) wiped out over 9% today, further illustrating the dire situation in Italy and the European Union: ...
The second economic disappointment of the day comes from the Dallas Fed, which dropped from -2.0 to -11.4 on expectations of -9.0- this was the 4th consecutive negative print month. The report was, in a word, horrible, with just 2 of the 15 constituent indices posting an increase, and the bulk solidly in the red, led by Unfilled and New Orders which dropped 16.8 and 11.2, respectively: not good for economic growth. On the employment side there was nothing good either, with both employment and hours worked declining by -...
Bloomberg reports that Diana Containerships (NASDAQ: DCIX) files to offer stock up to $172.5M. Diana Containerships says that Diana shipping will also buy $20M of stock.
Top 5 RisersStockRatingAnalysisVLOSTRONGBUYAn increasingly positive growth rate of past earnings, along with improving expectations for long term growth, make Valero a good prospect for high returns.KROSTRONGBUYKronos Worldwide has been gaining recognition from analysts as a good canditate for achieving higher than expected earnings along with higher overall projected valuation.SFIBUYiStar is one of the top candidates projected to achieve both higher than previously projected earnings in the short run and a higher earnings growth rate in the long run.AMATSTRONGBUYApplied Materials has been...
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February is now past, and the Biotech Porfolio is loaded with winners and a miss (PLX). MRK is down a bit, but I expect that trade to recover, and one could be more agressive and double down on it, or play another round at the Jan13 $30 options for roughly the same price. Below is the summary, and note the grey boxes are ones that did not fill. I am still a fan of BMRN, and like DEPO as well. Now let's look at a few others.
Table 1. PSW Biotech Plays Since January 2011
 
Our newest play is Momenta Pharmaceuticals (MNTA), who is pursuing a three-part business model which includes complex generic equivalents in partnership with the Sandoz division of Novartis, proprietary compounds, and follow-on- biologics (FOB). It seems that this company is tied up in competition/litigation wit...
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(