Today's Tidbits

Financial Sector Has Grown and Changed Dramatically Over Last 25 Years
From The Financial Times: “Much of the institutional scenery of two decades ago - distinct national business elites, stable managerial control over companies and long-term relationships with financial institutions - is disappearing into economic history. We have, instead the triumph of the global over the local, of the speculator over the manager and of the financier over the producer. We are witnessing the transformation of mid-20th century managerial capitalism into global financial capitalism. Above all, the financial sector, which was placed in chains after the Depression of the 1930s, is once again unbound… finance has exploded. According to the McKinsey Global Institute, the ratio of global financial assets to annual world output has soared from 109 per cent in 1980 to 316 per cent in 2005… the ratio of financial assets to gross domestic product there jumped from 180 per cent in 1995 to 303 per cent in 2005. Over the same period it grew from … from 303 per cent to 405 per cent in the US…. In 1980, bank deposits made up 42 per cent of all financial securities. By 2005, this had fallen to 27 per cent. The capital markets increasingly perform the intermediation functions of the banking system… by the end of 2006 the outstanding value of interest rate swaps, currency swaps and interest rate options had reached $286,000bn (about six times global gross product), up from a mere $3,450bn in 1990… The number of hedge funds is estimated to have grown from a mere 610 in 1990 to 9,575 in the first quarter of 2007, with a value of about $1,600bn under management. Hedge funds perform the classic functions of speculators and arbitrageurs… The sum of the international financial assets and liabilities owned (and owed) by residents of high-income countries jumped from 50 per cent of aggregate GDP in 1970 to 100 per cent in the mid-1980s and about 330 per cent in 2004… Between 1994 and 2005, for example, the liabilities of UK households jumped from 108 per cent of GDP to 159 per cent. In the US, they soared from 92 per cent to 135 per cent.”

MISC

From Dow Jones: [Treasury prices rose steadily during the day causing yields to fall 6-7bp across the curve] “The dollar has slipped” [-.15 to 82.56 for the dollar index. Equities are closing with small gains and just below record highs. Crude oil set a new 9.5 month high before closing slightly lower.]From Bank of America: “Tax withholdings, released late yesterday, showed year-over-year change in 13-week moving average fell to 4.6%, the weakest in almost two years; June 15th corporate taxes were down 0.2%, a dramatic slowdown from recent quarters.”

From UBS: “California's unemployment rate highest since Oct. '05: The BLS will release the May Regional and State Employment Report later today. Stone & McCarthy (SMR) noted that California released their own data early (last Friday) and it showed an uptick in the Calif. unemployment rate to 5.2% from 5.1%. The rise in unemployment apparently came despite an uptick in May farm employment-- suggesting that rising foreclosures may be stressing payrolls in California according to SMR. California accounts for some 13% of national payroll employment and GDP according to SMR…”
From Goldman Sachs: “Prices of key crops such as wheat, soybeans, and corn are up 40% to 60% over the past year… The rise in food prices is large enough to be meaningful in measures of headline inflation at the consumer level. Relative to trend consumer food inflation of 2½% annually over the previous decade, the recent acceleration of food inflation to 3.9% year-over-year has added roughly 0.2 percentage points to year-over-year headline CPI. Furthermore, the sharp increases in crop prices (particularly wheat) over the last several weeks have not yet made their way to store shelves…consumer food prices normally rise less than one-tenth as much as the prices of the commodities that go into their production. Under these circumstances, food prices are unlikely to add more than a few tenths of a percentage point to headline CPI inflation at their peak.”
From Bloomberg: “German investor confidence unexpectedly fell in June as borrowing costs climbed, suggesting economic growth may have reached a plateau… Manufacturing orders in Germany declined for the first time in three months in April, led by lower demand for intermediate goods such as car parts. Industrial production unexpectedly dropped 2.3 percent.”
From Citi: “S&P homebuilding index: Following the 10 fold rally from 2000-2005 this index has broken rising trend line support and the 55 and 200 week moving averages. In addition the 55-week moving average has crossed below the 200 week moving average. It is now sitting on the neckline of a potential head and shoulders top at around 703. A weekly close below here would suggest extended losses of as much as 50% from here.”

From HSBC: “…there is a reasonably good correlation between this index [NAHB] and residential construction as measured in GDP. It is suggesting -20% annualized for residential construction.”

From Dow Jones: “Continued pricing pressure on televisions and strong sales growth in lower-margin notebook computers and gaming equipment contributed to Best Buy Co.’s surprise 18% drop in first-quarter net income….The nation’s largest consumer lectronics-specific retailer…”

From Dow Jones: “About 22% of all homes sold last year were to single women, according to the National Association of Realtors.”

From Northern Trust: “Adjusted by the CPI, the year-over-year change in U.S. total bank credit (loans and investments) hit a recent peak of about 9% in October 2006. As of May, that year-over-change had slowed to about 4.8%. As mortgage defaults continue to rise and regulators issue new more restrictive mortgage lending “guidelines,” bank credit growth is likely to slow still more.”