3 THINGS I THINK I THINK – BUTTERFLIES AND RAINBOWS DON’T RUIN YOUR DAY
by ilene - March 31st, 2010 1:05 pm
3 THINGS I THINK I THINK – BUTTERFLIES AND RAINBOWS DON’T RUIN YOUR DAY
Courtesy The Pragmatic Capitalist
1) Milton Friedman famously opined that the Euro would not survive its first major financial crisis. I just can’t help but wonder if Friedman was correct about the Euro being “flawed”. As we see the debt crisis in Europe unfolding it’s been interesting to see just how unified Europe actually is. Germany has effectively given Greece a nice big middle finger in what can only be described as a frustrating situation for all countries involved. Thousands of years of bad blood are suddenly trying to be papered over by “currency unity” and the first time the you-know-what hits the fan it looks like everyone is fending for their own….As it should be. After all, this is not the United States. These are not unified states. They never have been and they never will be.
Interestingly, what is occurring in Greece is what occurs to a nation that is revenue constrained under a convertible or commodity linked currency system. In times of peril, you can’t properly defend (or spend) for your own people. You have to
2) A big part of me is beginning to wonder if we’re entering one of…
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DiggJanuary Fannie Mae Delinquency Rate Climbs To New Record At 5.52%, 14 bps Higher Than December, Double From Year Ago
by Zero Hedge - March 31st, 2010 12:45 pm
Courtesy of Tyler Durden
Fannie Mae reported its January total serious delinquency rate for single-family houses: the rate hit a new record of 5.54%, a jump from the December’s 5.38%, and double the 2.77% in January 2009. All in all a perfect time for the Fed to be moving away from the mortgage market, pardon, to no longer being the mortgage market. The one saving grace for the Fed, was that new issuance keeps declining: $43.9 billion in MBS was issued in February, 7% less than the $47.6 billion in January. Yet $44 billion is not zero, and we anticipate ongoing new issuance which will need to find private buyers now that taxpayers are out of the picture. And even as Fannie’s total book of business grew at a 1% annualized pace to $3,229,645 MM, the actual guaranteed MBS and mortgage loans declined at 0.9% to $2,882,552.
Incidentally, it’s worth nothing here that the Chief Fixed Income Strategist of MS Smith Barney Kevin Flanagan told Market News earlier that investors should reduce exposure to MBS, which he said are expensive even without considering that the Fed is no longer buying MBS. Flanagan said that “for those investors looking to buy agency MBS anyway, they are
better off avoiding the political uncertainty surrounding the future of Fannie Mae and Freddie Mac by sticking to the front end of the curve — under the two-year area.” Well, judging by the weak 4 week and 56 Day CMB auctions, this is certainly not happening at the ultra-short end of the curve.
While Flanagan recommends staying within the 2- to 5-year sector for Treasuries and even high yield, not only would he overweight investment grade corporates but he’d also go out the curve. Not too much, however, as Flanagan says he would not go beyond the 8-year sector.
Overall, he said, the biggest risk in fixed income markets right now is interest rate risk, closely followed by sovereign risk.
Flanagan noted that “U.S. fundamentals are not too supportive, given the unsustainable fiscal deficits, higher debt burdens, record coupon supply this year and the economic recovery.”
Going back to MBS:
“By any metric that you use when looking at MBS valuation they’re expensive,” Flanagan said.
And that’s also without considering the Federal Reserve
…
Drill, Bama, Drill.
by ilene - March 31st, 2010 12:32 pm
Drill, Bama, Drill.
Courtesy of Joshua M Brown, The Reformed Broker
From the New York Times, a quick look at the geography involved in President Obama’s long-overdue offshore oil and gas drilling plan. A bold move from a Democratic president. Props from the Center on this one, Barack.
Source:
Obama To Open Offshore Areas To Drilling (NYT)
RANsquawk 31st March US Afternoon Briefing – Stocks, Bonds, FX etc.
by Zero Hedge - March 31st, 2010 12:15 pm
Courtesy of RANSquawk Video
Short End Weakness Continues – Weakest 56-Day Cash Management Bill Auction Follows Lousy 4-Week Bill Auction
by Zero Hedge - March 31st, 2010 12:13 pm
Courtesy of Tyler Durden
The Treasury just closed its 6th consecutive 56-Day $25 Billion auction, and the result, to those who followed yesterday’s weakest 4-week auction since August, should not be a surprise. The Bid-To-Cover was the weakest 56-Day SFP CMB auction and the weakest SFP turn out since August 3, 2009. Additional the High Rate of 0.16% was the highest, and compares to yesterday’s 4 Week bill High of 0.15%. The Treasury curve is now getting aggressively spooked on the short end. All this is occurring as the UST has realized its folly of trying to duration shift the curve to longer maturities: yesterday we auctioned off an 18-Day CMB, and tomorrow will see the first 10-Day CMB: this is the shortest CMB since September 2008 when we saw a 7-Day Bill, and the exception of a 4-Day CMB issued on December 10, 2009. As for who the biggest participants were – no surprise: dealers accounted for 81.2% of the auction take down. That’s another $20 billion worth of stock buying dry powder costing PDs just 0.16% to gun the market for the next 56 days.
All Electric Cars Are a Fraud
by Zero Hedge - March 31st, 2010 11:44 am
Courtesy of madhedgefundtrader
John Petersen is an attorney specializing in venture capital investments in the alternative energy space with Fefer, Petersen & Cie in Berne, Switzerland. He argues that the entire electric car movement is a complete fraud orchestrated by a few big car companies pandering to growing numbers of “green” consumers.
Batteries are expensive, and do a poor job of replacing a gas tank. For example, the $100,000 all-electric Tesla roadster uses 6,000 model 18650 cell phone type batteries, which is akin to using “6,000 hamsters to pull a stage coach.”
Deutsche Bank says that there are enough new factories on the drawing board to build batteries generating 36 million Kwh by 2015. These will be used to power vehicles like the $44,300 Nissan Leaf, which launches in December, and will be powered by several hundred larger, soda can sized batteries.
But even if the world’s total battery output is devoted solely to vehicles like the Leaf, fuel savings would amount to only 600 million gallons of gasoline a year, worth only $1.8 billion, about five hours worth of global oil production. If these batteries were devoted to hybrid vehicles like the Prius, the energy savings would amount to 3.8 billion gallons worth, a much more substantial $11.4 billion.
The low hanging fruit for investors in the fuel efficiency race can be found by pushing forward existing, simpler, and cheaper technologies. A great example is the “stop-start” integrated starter/alternator. Cars burn about 10% of their fuel idling at traffic lights while driving in cities. “Stop-start” turns the engine off, and then restarts it when the light turns green.
European car manufacturers are rushing forward with this fuel saver, which costs about $600 per vehicle, to meet stringent CO2 standards. The system requires more advanced batteries which can handle dozens of engine starts a day, instead of a handful. The Department of Energy recently handed $34 million to Xide Technology (XIDE) to develop just such a product using a lead-carbon formula. Global auto parts supplier Johnson Controls (JCI) is also involved in the space.
The play here is that far more versatile batteries can command much higher prices, possibly $150, compared to the average $57 for traditional car batteries. Those taking a look at XIDE will find a $429 million market cap selling at $5.57/share versus $20 a year ago. In the…
Intraday World FX Heatmaps
by Zero Hedge - March 31st, 2010 11:39 am
Courtesy of Tyler Durden
With the quarter end here, and for somecountries, fiscal, coupled with FX being the primary determinant in capital flows due to yet again spiking implied asset correlations, here is a snapshot of world FX heatmaps to see where the money is coming from and where it is going.
First, a heatmap from the USD perspective – just an intermediary in the JPY/AUD->USD->EUR flow:
Next, heatmapping the EUR:
And last, the JPY:
In short, that EUR close over 1.35 looks prety much definitive, and we eagerly await to see Goldman’s response to the stop breach. On the other hand the carry trade surging, which means we are likely about to see equities pop.
The Latest Red Flag – The Market’s Rate Of Melting Up
by Zero Hedge - March 31st, 2010 11:21 am
Courtesy of Tyler Durden
Some more first derivative perspectives, this time focusing on the market’s rate of change, via Financial Armageddon’s Michael Panzner.
Based on data going back 90 years, whenever the 12-month rate of change (ROC) in the Dow Jones Industrials Average has exceeded 40 percent, it has generally signaled trouble ahead.
In three cases, a 12-month ROC above that level has only marked a short-term pause, after which the market traded higher.
But on 11 other occasions, similarly rapid advances have been followed by notable corrections, including the collapses that followed the 1929 and dot-com era peaks, as well as the 1987 crash.
Given those odds, increasingly exuberant bulls might want to have a rethink.
50-50 odds, with GETCO now controlling the market, AND fully capturing the administration by hiring former Fed governor Randy Kroszner? We are better bid all day every day.
Healthcare Reform For (Rich) Dummies… From The Marine Retailers Association Of America
by Zero Hedge - March 31st, 2010 11:11 am
Courtesy of Tyler Durden
If there is anyone whose opinion on healthcare reform matters, it is the MRAA, or the Marine Retailers Association of America. Feel free to venture a guess as to why the people who buy (and sell) yachts are the most critical component to any Obama financial plan. So if you care about how the new health care bill looks like from the perspective of those slightly more privileged, here it is, in simplified, bulletized form, to spare you combing through over 2,000 pages.
A lot has been written and reported on the newly passed health care bill, but there remains many questions about “How the health care bill is going to specifically affect small businesses such as marine retailers?”
MRAA has provided a bullet point summary of the health care bill to help address this question. It has been prepared by the Norman-Spencer Insurance Agency.
However, MRAA also wants to highlight some very specific aspects of the new law in this opening introduction. As you will note, the law goes into effect in several stages over several years. For example, in 2010, there is no real effect on small business, except a tax credit becomes available of up to 35% of the company’s health care cost through 2012 when the insurance exchanges go into effect. This tax credit is for small businesses which already provide health care coverage of employees and begins to phase out when the number of employees reach 25.
In addition, the Medicare tax on wages rises from 1.45% to 2.35% in 2013 and small businesses with fewer than 50 employees are not required to have health insurance for employees. Businesses with greater than 50 employees that do not provide health care coverage must pay a fine up to $3,000 per employee over 30 employees. Government subsidies to small business increase in 2014, for example, businesses with 10 or fewer employees and average annual wages of less than &20,000 receive a tax credit of up to 50% of the employer’s contribution.
Many of the provisions of the health care law are being challenged in courts, state legislatures, and on Capitol Hill in Washington. It is unclear how it will shake out over the next few years, but MRAA will continue to closely watch the developments.
Health insurance law changes: …
When Risk-Return Makes No Sense: How To Deal With An Overvalued Market
by Zero Hedge - March 31st, 2010 10:50 am
Courtesy of Tyler Durden
As SocGen’s Dylan Grice points out, we have gotten to the point where the Shiller PE demonstrates S&P valuations are now back in the highest valuation quintile: in other words the market is now more expensive than during 80% of the time. The risk-return at this point makes little sense, because as Grice points out the 10 year return using this quintile as an entry point is just 1.7%, compared to 11% for the lowest quintile. So what should one do: “Go take a holiday if you can. Avoid the ?boredom trades?.” If those two are not an option, Dylan provides some trade ideas.
But before we get into it, some amusing observations by Dylan on the Fed’s track record of fixing the economy:
It seems central banks botch exit strategies more often than not. In 1994 Greenspan?’s cack-handed removal of the emergency stimulus implemented during the S&L crisis triggered a bond market collapse which severely dented that year?’s equity returns. In 1998, the tardy withdrawal of the emergency stimulus implemented during the Asian crisis created the tech bubble. And in 2004, a similarly delayed withdrawal of the emergency stimulus implemented to combat the tech bust spawned the housing/credit bubble.
Dylan is confident, as are we, that the QE end in less than 24 hour is just a temporary blip in an otherwise determined push to kill the US middle class and especially the savers among it.
Will the botched exit from this emergency stimulus resemble that of the 1994 vintage (bearish for risk) or those of 1998/2004 (bullish)? I suppose central banks might get lucky and smoothly engineer a ?normalisation? without any painful withdrawal symptoms ? but in the real world credit growth remains subdued, as it did in Japan. If the economy doubledips -? and Albert makes a convincing case it will – and fading stimulus leaves the economy in default-deleveraging mode, there won?t be any exit strategy. There will be more QE…
And here we get to the meat of the matter: the market is now way overbought.
If only my crystal ball was clearer … fortunately though, no crystal ball is needed to see that equity markets are expensive. According to Robert Shiller?s latest data,
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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
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