About that recovery you ordered
by ilene - July 31st, 2010 4:01 pm
About that recovery you ordered
Courtesy of James D. Hamilton at Econbrowser
"We have met the enemy and he is us," Pogo used to say. Well, we’ve also now met the recovery, and he is ugly.
The Bureau of Economic Analysis reported today that U.S. real GDP grew at an annual rate of 2.4% during the second quarter. The latest GDP numbers bring our Econbrowser Recession Indicator Index for 2010:Q1 down to 5.4%. This index is based on a very simple pattern-recognition algorithm for characterizing economic recessions. It is not a prediction of where the economy is headed, but rather a backward-looking assessment of where the economy stood as of the first quarter, using today’s 2010:Q2 data release to help inform that assessment.
University of Oregon Professor Jeremy Piger maintains a related index which has been at or below 1% for each month so far of 2010, while the most recent value calculated by U.C. Riverside Professor Marcelle Chauvet‘s algorithm is 7.8%. All three approaches agree that the economy remains in a growth phase that began in the third quarter of last year. A subsequent economic downturn would be described as the beginning of a new recession rather than a continuation of the previous recession.
*The plotted value for each date is based solely on information as it would have been publicly available and reported as of one quarter after the indicated date, with 2010:Q1 the last date shown on the graph. Shaded regions (with the exception of 2007:Q4-2009:Q2) represent dates of NBER recessions, which were not used in any way in constructing the index, and which were sometimes not reported until two years after the date. The most recent recession is shown on the graph as ending in 2009:Q2 as implied by the index; as of this writing the NBER has not yet assigned an end date for this recession.
But a pretty recovery it’s not. The economy has grown by 3.2% in real terms over the last year, about the average annual historical growth rate since World War II. But since recessions are characterized by below-average growth, expansions should typically exhibit above-average growth, and particularly in the first year of an expansion we often see very strong growth as a result of the positive contribution…
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DiggAre We There Yet?
by ilene - July 31st, 2010 3:22 pm
Are We There Yet?
Courtesy of John Mauldin at Thoughts from the Frontline
"… [this economic condition] has been brought about by policies which the majority of economists recommended and even urged governments to pursue. We have indeed at the moment little cause for pride: as a profession we have made a mess of things."
- Friedrich August von Hayek, Nobel Speech 2010 1974
Those of us who have taken young children on long road trips to somewhere they wanted to go are familiar with the plaintive question "Are We There Yet?" As a nation and indeed the developed world, it is not unreasonable to be asking "Are We There Yet?" about the road to recovery. The NBER, those self-appointed economists who are the official keepers of the score sheet of recessions and recoveries, have yet to tell us we are out of recession. Yet the
Are We There Yet?
The economy of the US grew at a weaker than expected 2.4% in the second quarter, but the first quarter was revised back up to 3.7% on the strength of stronger-than-projected inventory rebuilding. But the recession years were revised downward rather significantly for this late in the cycle. We find now that the recession was worse than we thought, taking the economy down a total of 4.1% during the recession. As of today, we are not quite back to where we started, still down 1%. That means it is quite possible that we could finish the year and still not be "there yet." (To see a 1% rise in GDP we would need to see a 2% annualized rise for the rest of the year. We’ll look at that possibility in a few paragraphs.)
Let’s look at a few charts courtesy of the Dismal Scientist, at www.economy.com. First, recent GDP numbers:
If this were…
David Tice Says Double-Dip Recession ‘In the Cards’ for U.S.
by ilene - July 31st, 2010 3:07 pm
David Tice Says Double-Dip Recession ‘In the Cards’ for U.S.
Courtesy of Edward Harrison at Credit Writedowns
David Tice, chief portfolio strategist for bear markets at Federated Investors Inc, talks about the outlook for the U.S. economy. He sees a double dip coming and argues against stimulus to prevent it, saying policy makers shouldn’t act as “Good Time Charlie” preventing the deleveraging of U.S. households.
14.7 Million (19%) Of US Mortgages Have $770 Billion In Underwater Equity, $2.4 Trillion In Total Debt Impaired
by Zero Hedge - July 31st, 2010 12:56 pm
Courtesy of Tyler Durden
An excel spreadsheet released from a recent briefing by Mark Zandi and Robert Shiller is making the rounds within the blogosphere. It provides a useful compilation of the underwater equity statistics in the country. In a nutshell here are the observations:
- 19%, or 14.748 million of the 77.570 million US households, are in negative equity
- 30.6% of the 48.243 million of homeowners with first mortgages are in negative equity
- 21.8% of the 67.578 million in owner-occupied single family homes are in negative equity
- 4.133 million of the 14.748 million of underwater homeowners are underwater by 50%+, meaning the owe more than 50% more than their homes are worth
- Of the 50%+ underwater category, the worst states are California (672K), Florida (423K), and Texas (344K)
- Total Negative Equity in the US is currently estimated at $771.1 billion
- California mortgages have $234 billion in negative equity, Florida mortgages have $79 billion in negative equity, Texas mortgages have $48 billion in negative equity
- California mortgages have $234 billion in negative equity, Florida mortgages have $79 billion in negative equity, Texas mortgages have $48 billion in negative equity
- $2.4 trillion in total mortgage debt is impaired due to negative equity
How Mark Zandi, who prepared this spreadsheet according to the meta data, could look at this data and come up with his recent paper in collaboration with Blinder, claiming that the recession is over, is simply beyond rationalization.
Some of the key data in chart format:
Total and relative mortgages in negative equity:
Underwater mortgages as a % of all owner occupied households:
Total negative equity by state:
Underwater homeowners as a % of owner occupied households: 50%+ and Total
Those who wish to obtain the source Mark Zandi excel should write to the usual place.
Ron Paul Goes After The SEC’s FOIA Exclusivity, Introduces SEC Transparency Act
by Zero Hedge - July 31st, 2010 11:21 am
Courtesy of Tyler Durden
Just because being the most corrupt organization in the world was not enough, the SEC decided, courtesy of Donk (aka Frankendodd), that it is beyond accountability to anyone, even the constitution, after it was recently made public that the world’s most incompetent and bribed regulators will continue watching kiddie porn, instead of regulatoring, only do so in complete opacity from now on, as in the future the SEC would be exempt from FOIA responses. And with retail investors saying “no more” to trading stocks in a rigged casino that shares the same level of integrity as its regulator, and is programmed to generate profits for the house and the computers on 99.9% of trades (except of course for those newsletter and subscription peddlers who catch every single inflection point ever, and can predict what the market will do not only tomorrow but a week, a month and a year from now) the market will soon be a ghost town. Recent attempts by Senator Kaufman to bring some honesty to stocks have so far been met with failure as the Sisyphean task is far too great for any one individual. Which is why we are glad to learn that Ron Paul has joined those few who still hold the long-forgotten dream that the market should be fair and impartial for all (and yes, that means eliminating discount window access for the chosen few Bank Holding Company hedge funds out there) and has introduced the SEC Transparency Act of 2010 (HR 5970), a bill designed to force greater transparency in the Securities and Exchange Commission. Little by little, every single “intervention” by the world’s two most corrupt politicians is being overturned: first the rating agency accountability provision which nearly destroyed the shadow market with a complete lockup of all new ABS issuance, and now the SEC’s exclusion from that simple concept known as “checks and balances.” Soon FinReg will finally be exposed for the fraud it has been since its inception – the much touted Obama financial regulatory reform is nothing but a scam designed to allow Wall Street to steel what middle class wealth remains faster, bolder and in ever greater amounts, as the point where the system breaks is now months away, and the Wall Street-DC joint venture is all too aware. As a result all must be done to allow theft to be…
“It’s Not A Market, It’s An HFT ‘Crop Circle’ Crime Scene” – Further Evidence Of Quote Stuffing Manipulation By HFT
by ilene - July 31st, 2010 6:40 am
"It’s Not A Market, It’s An HFT ‘Crop Circle’ Crime Scene" – Further Evidence Of Quote Stuffing Manipulation By HFT
Courtesy of Tyler Durden
Recently we posted a required reading analysis by Nanex in which the market trading analytics firm presented irrefutable evidence of quote stuffing by HFT algorithms in tens of stocks, in which thousands of cancelled quotes would reappear each second with a definitive periodicity and regularity, around the time of the May 6 flash crash. Aside from the fact that it is illegal to indicate a quote without a trade intent, this form of quote stuffing is in fact manipulative when conducted by HFT repeaters in specific "shapes" as it actually moves the NBBO actively higher or lower, in cases pushing the bid/offer range up to 10% higher without even one trade ever having occurred, simply by masking a big block order which other algos interpret as bid interest and pull all offers progressively or step function higher (or vice versa, although we have rarely if ever seen the walking down of a stock over the past 18 months). It is as if the HFT lobby has been given the green light by the powers that be that it is safe to activate merely the bid-size quote stuffing algorithms, and not worry: the fact that the market is so one sided in its quote stuffing patterns is sufficient reason to worry of a concerted effort to push stocks higher, initiated from the very top, and effected by not only the Primary Dealer community but by the end-market "liquidity providers."
Today, courtesy of Nanex we demonstrate that this type of illegal stock manipulation continues rampant to this very day, and the SEC still fails acknowledge that it is precisely the HFT market participants that persist in destabilizing stock prices, which have given up responding to fundamentals and merely move up or down based on quote stuffing interventions by those who plead innocence and claim to only be providing liquidity. Well take a look at the millions in fake, and thus illegal, bids demonstrated below and tell us just how any of this manipulation is "providing liquidity" – the second the patterns break, the algos responsible for the churn pattern disappear, thus eliminating numerous levels of so called bid liquidity below the NBBO: break enough patterns and you have another flash crash…
Weekend Reading – Bargains Abound for the Bold
by Phil - July 31st, 2010 5:31 am
Another crazy week in the markets!
I think I nailed it on Monday when I titled the post "Monday Market Measurement – Just Right?" as we have gone nowhere fast since then. Consolidation is always a matter of perspective and perspective in the markets is generally oriented around your trading time-frame. People are in such a hurry to make money they miss a lot of opportunities to invest. While day-trading is sexy and we do it when we are bored, I do prefer to spend more time fining nice, boring, long-term picks that we can "set and forget" – like our Buy List (last update June 26th, S&P 1,076) and our 9 Fabulous Dow Plays Plus a Chip Shot (last update July 7th, S&P 1,028). We also have our shorter-term, speculative list of trade ideas: Turning $10K to $50K by Jan 21st (last update July 26th, S&P 1,115) and, of course, our daily trade ideas.
It’s always good to go back to these posts, if you are looking for interesting positions, and see which ones are doing well and which ones are not. If you missed, for example, WFR (our "chip shot") on the July 7th post, then perhaps this week’s sell off is an opportunity to get back in. That’s what chat is for and several Members took advantage yesterday to ask if I still liked them and if I had a better trade idea than our 7/7 play. At the time, we liked the stock at $9.68 and the trade was to sell the 2012 $7.50 puts and calls for $5 for a net $4.68/6.09 entry.
WFR is now back to $9.56 after disappointing earnings and the 2012 $7.50 puts and calls are $4.85 so this trade is currently net $4.71, about where it was when we selected it. BUT (and it’s a big but), aside from the fact that this is a 2012 maturity play, our break-even target is only $7.50 since we already sold the $7.50 calls and anything over that line does nothing to improve the end result. So being flat in a position after a month does suck but – the quesition is – how do we feel about WFR’s prospects in January of 2012? The position breaks even way down at $6.09, which is another 36% lower than we are now.
We liked the play on WFR BECAUSE it had such a huge cushion. We knew it was going to be volatile and…
Tax Code Goof: BP’s $10B Credit for Gulf Oil Spill Loss
by Zero Hedge - July 31st, 2010 1:46 am
Courtesy of asiablues
This was posted at my blog on Tue. July 27, and I just now got around posting on zh. To those bullies chasing my post all over net: I stand by my opinion, so let it rip!!
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By Dian L. Chu, Economic Forecasts & Opinions
There is no shortage of news from BP on Tuesday:
- The oil major reported its first quarterly loss--$17.15 billion--in eighteen years, and will sell about $30 billion in assets.
- The company also announced that CEO Tony Hayward will step down on Oct. 1 to work at TNK-BP--BP’s joint venture in Russia.
- Bob Dudley, an American BP executive, will succeed Hayward as the new Chief Executive
The more eyebrow-raising news; however, is that BP plans to claim almost $10 billion in U.S. tax credit as a direct result of the Gulf oil spill. Here is how the tax code and math work.
Under the U.S. corporate tax law, companies can take credits up to 35% of their loss. Since BP reported $32.2 billion charge related to the cost of the spill, 35% of that will give you roughly $10 billion in credit. So BP’s claim is pretty much what its spokesman said.
“This is the accounting process, we are going by U.S. laws.”
The intention of the tax code is to encourage investments and to help companies even out profit and loss, along with the associated taxes. Lawmakers just forgot to incorporate a rider clause for public safety and/or environmental damage related expense.
The tax credit, if claimed, could mean $10 billion of the Gulf aftermath costs would come out of taxpayers’ pocket. This could potentially be quite an embarrassment for the Administration as President Obama vowed that BP will “pay every dime owed” for the spill damage.
Of course, BP could conceivably “do the right thing” and drop its tax credit claim to avoid a crashing tsunami of public anger and outrage. However, don’t expect BP to give up on this sizable cost offset that easily, since BP has made considerable concessions such as a voluntary $20 billion oil spill fund, and speculation of U.S. government’s involvement in Hayward’s dismissal and Dudley’s appointment.
As reputation goes, it is hard to imagine the IRS would let this $10 billion slip by. Could revenge of the IRS be in the cards, or as Leona Helmsley famously said “Only the little people pay taxes”?
Dian L. Chu, July 27, 2010
Sabrient Divers – 07/31/2010
by Sabrient - July 31st, 2010 12:00 am
Top 5 Divers |
||||
| Stock | Rating | Analysis | ||
| USG | STRONGSELL | USG has shown a significant decrease in recent earnings health, and analysts are also becoming increasingly skeptical about near-term prospects. | ||
| TXI | SELL | Degradation in recent earnings and declining long term growth prospects are pushing TI lower and lower in our stack. | ||
| UIL | SELL | A double whammy of reduced long-term expectations and recent significant declines in historical earnings result in UIL showing up on our Divers list. | ||
| AMT | STRONGSELL | Projected long-term growth for American Tower is going down, expected value is decreasing, and tough times are ahead. | ||
| STI | STRONGSELL | Expectations for SunTrust are decreasing along with projected valuation. | ||
Sabrient Risers – 07/31/2010
by Sabrient - July 31st, 2010 12:00 am
Top 5 Risers |
||||
| Stock | Rating | Analysis | ||
| AMD | BUY | Projected value continues to rise for AMD while long term increases in earnings growth are also becoming more widely expected. | ||
| ALK | BUY | The projected value for Alaska Air is still rising quickly even though past earnings have already improved significantly. | ||
| RNT | BUY | Aaron Rents has shown a remarkable increase in projected value recently, with the majority of analysts expecting higher than previously expected earnings. | ||
| AA | BUY | The projected value for Alcoa is still rising quickly even though past earnings have already improved significantly. | ||
| AYE | BUY | Many analysts are expecting higher than previously expected long term growth from Allegheny Energy, and its near-term earnings outlook is also improving. | ||
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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
(