April existing home sales, which are a delayed indication of contracts signed a month or two earlier, fell -2.6% MoM in April, to the lowest level in almost four years. March's decline was reduced marginally from -8.4% to -7.9% in this month's revisions. Existing homes make up 85% of the total number of homes for sale in the U.S. at any given time.
Single family existing home sales fell -2.4% MoM, and condo sales fell -3.8% MoM. Regionally, the Northeast saw the largest drop in existing home sales, -8.8% MoM. The declines of the past two months have now fully offset the surprising leap of 15% in February in the Northeast. The other three regions saw declines between -.7% and -1.7% MoM.
At the current sales rate, the supply of homes leaped a month to 8.4 months, and to the highest level since 1992. For condos only, the supply jumped to 9.5 months.
Median prices for single family homes fell -.9% YoY while condo prices actually rose 1% YoY. By region, the Midwest saw a +1.9% YoY increase in prices, while the other three regions saw declines ranging from -.3%YoY in the South to -2.1% YoY in the West.
Compared to a year ago, total sales are down -8.2% YoY. The West has seen the substantial decline, falling -15.3% YoY. The other three regions have seen more modest decreases, running from -5.5% YoY in the Northeast to -6.9% YoY in the Midwest.
Based on yesterday's strong new home data, it appears that homeowners need to cut prices further to draw buyers.
Friday, May 25, 2007
Thursday, May 24, 2007
Unbelievable New Home Sales Growth? Largest Decline in New Home Prices on Record!
New home sales surprisingly rose +16.2% MoM in April (consensus +.2%). The largest monthly increase in 14 years. This gain was only slightly dented to by a revision lower in the March data to a decline of -1.4% MoM from an originally reported increase of +2.6%. New home sales are still down 11% YoY, and account for about 15% of the total home sales market. It appears that the tighter lending standards did not impede consumers from taking advantage of lower home prices and increased incentives by builders.
Purchases grew in three of the four regions, with the South leading the charge at +28%, followed by an +8.5% gain in the West and +3.8% in the Northeast. The Midwest weakened further, declining by 4%.
The median price (half of homes sell for more, half sell for less) of a new home dropped a substantial 11%MoM to $229,100 from $257,000 in March. This is the largest drop ever recorded. While all price categories saw increases in sales, the 150-300k categories saw the largest percentage increases of 24%MoM. In contrast, homes over $750k only grew 5% MoM. The mix of regions is also likely to have had an impact on the median price. The South tends to have the least expensive home construction costs, and the South saw the largest increase in sales.
The monthly supply of homes for sale fell to 6.5 months, at the current sales pace, versus 8.1 months in March. Most analysts still believe there is a glut of homes, but the absolute number of homes for sale is now down -4.7% YoY which compares to still growing supply as recently as February. The time it takes to sell a new home has now risen to 6 months from as little as 3.7 months last fall.
Many street analysts are questioning the believability of the improvement this month in new home sales growth. The new home data is susceptible to large revisions. The steep drop in home prices is not a good sign for the wealth of existing home owners, or the profits of the builders. Similar strength is not expected in tomorrow's existing home sales data.
Purchases grew in three of the four regions, with the South leading the charge at +28%, followed by an +8.5% gain in the West and +3.8% in the Northeast. The Midwest weakened further, declining by 4%.
The median price (half of homes sell for more, half sell for less) of a new home dropped a substantial 11%MoM to $229,100 from $257,000 in March. This is the largest drop ever recorded. While all price categories saw increases in sales, the 150-300k categories saw the largest percentage increases of 24%MoM. In contrast, homes over $750k only grew 5% MoM. The mix of regions is also likely to have had an impact on the median price. The South tends to have the least expensive home construction costs, and the South saw the largest increase in sales.
The monthly supply of homes for sale fell to 6.5 months, at the current sales pace, versus 8.1 months in March. Most analysts still believe there is a glut of homes, but the absolute number of homes for sale is now down -4.7% YoY which compares to still growing supply as recently as February. The time it takes to sell a new home has now risen to 6 months from as little as 3.7 months last fall.
Many street analysts are questioning the believability of the improvement this month in new home sales growth. The new home data is susceptible to large revisions. The steep drop in home prices is not a good sign for the wealth of existing home owners, or the profits of the builders. Similar strength is not expected in tomorrow's existing home sales data.
Durable Goods Demand Continues to Improve
Durable Goods orders rose for the third month in a row, indicating manufacturing activity is rebounding after the recent period of inventory reduction. In April, durable goods orders rose +.6% MoM (consensus +1%), and March's very strong figure was revised even higher to +5% MoM from +4.3% originally. When the volatile transportation orders are excluded, orders rose a much stronger than expected +1.5% MoM (consensus +.6%). The last time orders for durable goods, products meant to last for many years, rose three months in a row was in 2005. Durable goods orders have now risen in five of the last six months.
Many people like to watch capital goods excluding defense and aircraft as a good indicator of business investment demand. Orders of this group rose +1.2% MoM in April, on some give back from the unusually strong +4.4% MoM gain in March. Shipments for this "core capex" categery are used for computing GDP, and they rose +.7% MoM in April versus +1.5% MoM in March. Unfilled "core" capital goods orders rose +1.3% MoM.
Orders for commercial aircraft fell 11% MoM as Boeing reported they received 136 new orders last month. Boeing's order back log is at record levels. Unfilled orders for manufactured durable goods have risen for 23 of the past 24 months, and are also at a record high.
Durable goods inventories rose +.5% MoM, a continuation of a 14 month trend higher. But, at the current sales pace, the supply fell to 1.47 months, which is the lowest for this year. There are signs that the inventory adjustment in the auto sector may be completed.
New orders for defense goods rose +.8% MoM. Ex-defense new orders rose +.6% MoM, down from a +5.2% MoM gain in March.
On an annual basis, new orders are up +4.7% YoY, with non-defense capital goods rising +11% YoY. Defense has fallen -5.8% YoY. Transportation, due to aircraft, not autos, has risen +12.4% YoY, with non-defense aircraft up a huge +53.3% YoY. Other areas of strength include electrical equipment +10.1% YoY and primary metals +11.3% YoY. Shipments have risen 4% YoY. Inventories have grown +7.1% YoY and unfilled orders have risen +19.8% YoY.
Today's data is an encouraging sign that manufacturing demand will improve from the current modest levels, but is not indicating a robust recovery, but a moderate improvement. 2nd quarter GDP should also be enhanced by this data.
*********************
Initial claims rose more than expected to +311k (consensus 305k) in a rebound from the prior two weeks unusually low levels. Overall, initial claims remain low, with the four week trend running at 303k. Continuing claims rose more than expected.
Many people like to watch capital goods excluding defense and aircraft as a good indicator of business investment demand. Orders of this group rose +1.2% MoM in April, on some give back from the unusually strong +4.4% MoM gain in March. Shipments for this "core capex" categery are used for computing GDP, and they rose +.7% MoM in April versus +1.5% MoM in March. Unfilled "core" capital goods orders rose +1.3% MoM.
Orders for commercial aircraft fell 11% MoM as Boeing reported they received 136 new orders last month. Boeing's order back log is at record levels. Unfilled orders for manufactured durable goods have risen for 23 of the past 24 months, and are also at a record high.
Durable goods inventories rose +.5% MoM, a continuation of a 14 month trend higher. But, at the current sales pace, the supply fell to 1.47 months, which is the lowest for this year. There are signs that the inventory adjustment in the auto sector may be completed.
New orders for defense goods rose +.8% MoM. Ex-defense new orders rose +.6% MoM, down from a +5.2% MoM gain in March.
On an annual basis, new orders are up +4.7% YoY, with non-defense capital goods rising +11% YoY. Defense has fallen -5.8% YoY. Transportation, due to aircraft, not autos, has risen +12.4% YoY, with non-defense aircraft up a huge +53.3% YoY. Other areas of strength include electrical equipment +10.1% YoY and primary metals +11.3% YoY. Shipments have risen 4% YoY. Inventories have grown +7.1% YoY and unfilled orders have risen +19.8% YoY.
Today's data is an encouraging sign that manufacturing demand will improve from the current modest levels, but is not indicating a robust recovery, but a moderate improvement. 2nd quarter GDP should also be enhanced by this data.
*********************
Initial claims rose more than expected to +311k (consensus 305k) in a rebound from the prior two weeks unusually low levels. Overall, initial claims remain low, with the four week trend running at 303k. Continuing claims rose more than expected.
Wednesday, May 23, 2007
Today's Tidbits
From Dow Jones: [The dollar weakened slightly] “…sticking within narrow ranges. Lacking significant U.S. data, investors focused on the closing statements from U.S. and Chinese officials at the bilateral Strategic Economic Dialogue in Washington, but little emerged that hadn’t been heard before…Crude oil futures shrugged off a bigger than expected increase in both U.S. refinery use and gasoline stockpiles, rising slightly as gasoline inventories remain well below historical averages at the start of the peak summer driving season.”
From Bloomberg: “Treasury 10-year note yields rose to the highest level since January as traders reduced the odds of an interest rate cut by the Federal Reserve this year. The 10-year note's yield was higher than that of the two- year security for the first time in three weeks” [2y yield 4.83% (unch), 10y yield 4.85% (+2bp)]
From AP: “Stocks wilted Wednesday as comments from former Federal Reserve Chairman Alan Greenspan and worries about upcoming economic data deflated a rally fed by takeover news.”
From Bloomberg: “Former Federal Reserve Chairman Alan Greenspan said Chinese stocks may suffer a ``dramatic contraction'' after climbing to a record, Reuters reported. The benchmark CSI 300 Index, which tracks yuan-denominated A shares listed on China's two exchanges, has jumped about 90 percent so far this year after more than doubling in 2006, adding to concerns among regulators and investors that a bubble may be forming. `It's clearly unsustainable,'' Greenspan was quoted by Reuters …``There is going to be a dramatic contraction at some point.''”
From The Financial Times: “The S&P has done nothing, in dollar terms, for seven years. In terms of gold, it is down 57 percent; in terms of euros, it is down 28 percent. Since the last high [in 2000], the MSCI emerging markets index has gained 95.6 percent.”
From The New York Times: “…the average hedge fund did worse last year, after fees, than the S&P.”
From Bloomberg: “The average number of days missed each year due to injury or illness among all U.S. workers is seven, according to the latest data from the Labor Department …A Mercer Human Resource Consulting survey of 611 companies with 100 or more employees published last year found that the median number of sick days offered is seven.”
From Bank of America: “As 30-year mortgage rates are hovering near their 9-month highs, there are some questions about convexity hedging needs of servicing rights portfolios if rates were to continue to backup. As per our models, the duration of servicing rights portfolios extends by close to $35-$40 billion 10-year Treasury equivalents for a 25 bps move in rates. We expect to see a significant level of convexity
hedging activity from servicers if rates continue to backup because: 1) Servicers are retaining higher than usual servicing spread on their books over the past several months; 2) As the market traded in a very narrow range over the past 9 months, servicers haven't been hedging extension and shortening in their portfolios actively which exacerbates their hedging needs when rates actually move out of their recent range; and, 3) Discount prepayment speeds of some recent vintages will slow down further due to the double whammy of weak housing market and higher mortgage rates.”
From RBSGC: “FNMA's portfolio ended April at $710.6B, down by 6.8% YTD and -3.7% in April.”
From The Wall Street Journal: “Outfitting a home with solar panels usually costs between $35,000 and $40,000, according the Department of Energy. There are rebates and credits to offset that cost, though producing energy from solar panels still costs at least twice as much as using fossil fuels…Housing starts that meet prescribed [green/ energy] efficiency standards accounted for $1.8 billion, or 0.3% of total starts in 2005…”
From Dow Jones: “Iran continues to defy U.N. Security Council demands to scrap its uranium enrichment program and has instead expanded its activities, the International Atomic Energy Agency said Wednesday, in a finding that sets the stage for new council
sanctions.”
From Dow Jones: “In 2006… the industrial use of silver accounted for more than 50% of fabrication demand for the first time ever… Global industrial use of silver rose 6% during 2006 to a record 430 million ounces…The industrial demand for silver increased for fifth straight year, even though the average silver price soared 58% to
$11.55 an ounce…”
From MarketWatch: “Sixty percent of consumers told ICSC and UBS Securities that they were cutting back on discretionary spending as a result of rising gas prices, the most since October 2005. Restaurants are the first place most people cut back…”
From The Financial Times: “This year’s crop of candidates for the Chartered Financial Analyst exam will mark a dramatic reversal from earlier decades, when candidates from Wall Street dominated the test for what is considered a core qualification for work in the securities industry. Asia will this year field 52,900 students for the exam, against 45,400 from the US, with the fastest growth coming from India and China, which fielded few CFA candidates a decade ago. Both countries are now fielding more candidates than either Canada or the UK. The Asian tilt indicates the degree to which a new generation of professionals in the region is now embracing the core principles of Western-style finance and market investment theory. This could have profound implications for the way that capital markets skills are now being dispersed throughout the world – not least because it is occurring just as developing regions, such as Asia, are now becoming increasingly cash rich.”
From The Financial Times: “The popularity of early retirement appears to be waning as more people opt to work on into their 70s. HSBC, the UK-based banking group, on Tuesday released a report entitled the “Future of Retirement”, that was the result of questioning 21,000 people in 21 countries, the largest study of its kind. The bank found that 11 per cent of people in their 70s and a third of those in their 60s are still in some kind of paid employment. The figure is even higher in some places like the US, where 19 per cent of those in their 70s are still working… The study found that only 12 per cent of people in their 40s and 50s expect to take early retirement. This compares with 16 per cent of those in their 60s and 70s questioned in the report who had actually taken early retirement. Only in Germany, South Korea and Hong Kong did a higher proportion of people expect to retire earlier than had been the case in the past.”
From Bloomberg: “Treasury 10-year note yields rose to the highest level since January as traders reduced the odds of an interest rate cut by the Federal Reserve this year. The 10-year note's yield was higher than that of the two- year security for the first time in three weeks” [2y yield 4.83% (unch), 10y yield 4.85% (+2bp)]
From AP: “Stocks wilted Wednesday as comments from former Federal Reserve Chairman Alan Greenspan and worries about upcoming economic data deflated a rally fed by takeover news.”
From Bloomberg: “Former Federal Reserve Chairman Alan Greenspan said Chinese stocks may suffer a ``dramatic contraction'' after climbing to a record, Reuters reported. The benchmark CSI 300 Index, which tracks yuan-denominated A shares listed on China's two exchanges, has jumped about 90 percent so far this year after more than doubling in 2006, adding to concerns among regulators and investors that a bubble may be forming. `It's clearly unsustainable,'' Greenspan was quoted by Reuters …``There is going to be a dramatic contraction at some point.''”
From The Financial Times: “The S&P has done nothing, in dollar terms, for seven years. In terms of gold, it is down 57 percent; in terms of euros, it is down 28 percent. Since the last high [in 2000], the MSCI emerging markets index has gained 95.6 percent.”
From The New York Times: “…the average hedge fund did worse last year, after fees, than the S&P.”
From Bloomberg: “The average number of days missed each year due to injury or illness among all U.S. workers is seven, according to the latest data from the Labor Department …A Mercer Human Resource Consulting survey of 611 companies with 100 or more employees published last year found that the median number of sick days offered is seven.”
From Bank of America: “As 30-year mortgage rates are hovering near their 9-month highs, there are some questions about convexity hedging needs of servicing rights portfolios if rates were to continue to backup. As per our models, the duration of servicing rights portfolios extends by close to $35-$40 billion 10-year Treasury equivalents for a 25 bps move in rates. We expect to see a significant level of convexity
hedging activity from servicers if rates continue to backup because: 1) Servicers are retaining higher than usual servicing spread on their books over the past several months; 2) As the market traded in a very narrow range over the past 9 months, servicers haven't been hedging extension and shortening in their portfolios actively which exacerbates their hedging needs when rates actually move out of their recent range; and, 3) Discount prepayment speeds of some recent vintages will slow down further due to the double whammy of weak housing market and higher mortgage rates.”
From RBSGC: “FNMA's portfolio ended April at $710.6B, down by 6.8% YTD and -3.7% in April.”
From The Wall Street Journal: “Outfitting a home with solar panels usually costs between $35,000 and $40,000, according the Department of Energy. There are rebates and credits to offset that cost, though producing energy from solar panels still costs at least twice as much as using fossil fuels…Housing starts that meet prescribed [green/ energy] efficiency standards accounted for $1.8 billion, or 0.3% of total starts in 2005…”
From Dow Jones: “Iran continues to defy U.N. Security Council demands to scrap its uranium enrichment program and has instead expanded its activities, the International Atomic Energy Agency said Wednesday, in a finding that sets the stage for new council
sanctions.”
From Dow Jones: “In 2006… the industrial use of silver accounted for more than 50% of fabrication demand for the first time ever… Global industrial use of silver rose 6% during 2006 to a record 430 million ounces…The industrial demand for silver increased for fifth straight year, even though the average silver price soared 58% to
$11.55 an ounce…”
From MarketWatch: “Sixty percent of consumers told ICSC and UBS Securities that they were cutting back on discretionary spending as a result of rising gas prices, the most since October 2005. Restaurants are the first place most people cut back…”
From The Financial Times: “This year’s crop of candidates for the Chartered Financial Analyst exam will mark a dramatic reversal from earlier decades, when candidates from Wall Street dominated the test for what is considered a core qualification for work in the securities industry. Asia will this year field 52,900 students for the exam, against 45,400 from the US, with the fastest growth coming from India and China, which fielded few CFA candidates a decade ago. Both countries are now fielding more candidates than either Canada or the UK. The Asian tilt indicates the degree to which a new generation of professionals in the region is now embracing the core principles of Western-style finance and market investment theory. This could have profound implications for the way that capital markets skills are now being dispersed throughout the world – not least because it is occurring just as developing regions, such as Asia, are now becoming increasingly cash rich.”
From The Financial Times: “The popularity of early retirement appears to be waning as more people opt to work on into their 70s. HSBC, the UK-based banking group, on Tuesday released a report entitled the “Future of Retirement”, that was the result of questioning 21,000 people in 21 countries, the largest study of its kind. The bank found that 11 per cent of people in their 70s and a third of those in their 60s are still in some kind of paid employment. The figure is even higher in some places like the US, where 19 per cent of those in their 70s are still working… The study found that only 12 per cent of people in their 40s and 50s expect to take early retirement. This compares with 16 per cent of those in their 60s and 70s questioned in the report who had actually taken early retirement. Only in Germany, South Korea and Hong Kong did a higher proportion of people expect to retire earlier than had been the case in the past.”
Tuesday, May 22, 2007
Today's Tidbits
Quality of Labor Market Data Remains Questionable
From Bloomberg: “Some key labor market figures simply aren't adding up these days, leaving Federal Reserve officials in doubt about what's happening in critical parts of the economy. In some cases, the participation of illegal immigrants in the workforce may be roiling the data. With the economy operating at or close to full employment, so-called unauthorized workers have become an important source of new hires for many businesses. Foreign-born workers -- an unknown proportion of whom were in the country illegally -- accounted for 45 percent of all employment growth last year, according to the Bureau of Labor Statistics. The question is how unauthorized workers and their employers respond to the household and business establishment surveys on which the highly important employment, unemployment and payroll job figures are based. It may be that those responses have been changing over time. Housing-industry employment is at the top of the list of the data discrepancies. Housing starts have plummeted and the number of units under construction has fallen 15 percent in the year ended in April. However, the BLS's monthly survey of business establishments showed 3.3 million people still at work on residences last month, only a 4 percent drop from a year ago…According to Ray Stone of Stone & McCarthy Research Associates, one possible explanation is that thousands of unauthorized workers employed by very small subcontractors have lost their jobs. In some cases, the workers may be been paid ``off the books,'' so their departure may not be reported. And it may be that such businesses are underrepresented in the sample of companies reporting payrolls each month, Stone said. If so, then payroll employment may have been higher than it appeared to be before the housing slump began. Another puzzling piece of payroll data emerged earlier this year when the BLS released its annual benchmark adjustment for March 2006. The adjustment, which is based on quarterly federal unemployment insurance payments by employers, was an unusually large one, adding 752,000 more workers to payrolls as of that month. A significant portion of the adjustment came in three states, California, Texas and Louisiana, with the second-largest impact in construction. The first two states have a high proportion of foreign-born workers, many of whom are employed in construction. Stone published an analysis last year suggesting that unauthorized workers who may not have been reported on payrolls earlier were put there as a result of a ``slew of actual and prospective legislation that increased penalties on employers that knowingly hired illegal immigrants.'' That is, the prospect of penalties caused employers to seek documentation for workers, some of whom probably had fake papers. Now, however, there are new questions about the accuracy of the payroll data. First of all, the BLS routinely adds a substantial number of workers to its monthly payroll figures to make up for the fact that in a dynamic economy, as new companies start up and old ones close their doors, the sample of businesses providing payroll data routinely undercounts the number of workers. This ``birth/death'' model doesn't take into account cyclical fluctuations in the economy, and on May 18, Stone told his clients that as a result, payrolls may have been growing more slowly than reported since the benchmark adjustment. Stone noted that on May 16, the BLS released its Business Employment Dynamics -- or BED -- report for the third quarter of 2006. The report provides data for changes in payroll employment using the unemployment insurance filings from businesses and sorts it according to whether the businesses are new or expanding, or contracting or closing. In other words, it tracks the information the ``birth/death'' model is supposed to provide in a more timely fashion. ``The new data revealed a seasonally adjusted third-quarter private payroll gain of only 19,000, in sharp contrast to the BLS' published monthly payroll increase of 498,000 for the quarter,'' Stone said. For the 2006 second and third quarters together, the BED data show a payroll increase of 485,000, compared to 808,000 for the regular payroll figures. For the six months, that's the difference between monthly payroll gains of 80,000 versus 135,000, Stone said. Many economists and more than a few Fed officials have been puzzled why various labor market measures seem to have been so little affected by the downshift in economic growth to about a 2 percent annual rate or less in the middle of last year. The BED report hints that maybe the payroll data at least will show just such an impact in the next benchmark revision. And then there is the 4.5 percent unemployment rate. Why has it remained so low? Well, suppose many unauthorized workers -- those are the illegal immigrants -- don't show up in the household survey on which those monthly figures are based. Yet when they have a job they are, in reality, part of the workforce. And when they lose a job, they don't get counted as unemployed. They just aren't part of the workforce anymore. There's another piece of evidence that that has been happening. Remittances from Mexican workers in the U.S. to their families at home have dropped significantly in recent months.”
Benefits of Encouraging Potential
From Newsweek: [After a test when the instructor]”praised the kids' performance, she didn't praise them all the same way. She praised some for their natural talent (What a great score! You're so smart!), while others were praised for their effort (What a great score! You must have worked very hard!). This may seem like a subtle difference, but to the developing mind the two messages are night and day. The former conveys the belief that people's abilities and traits are fixed, written in concrete, while the latter underscores the potential for growth and the value of old-fashioned effort. The results were immediate and unambiguous: the kids who were told they were smart immediately became cautious, shying away from any further testing that might expose weaknesses. The kids who were praised for their effort, by contrast, became hungry for new challenges. What's more, when the kids were subsequently required to solve very difficult problems, on which they all did poorly, the "smart kids" took the failure as a blow to their self-worth; where they had been smart, they were now dumb, irrevocably. The effortful kids just dug in more… the kids who were taught about human potential were much more highly motivated as math students than their classmates who did not get the neuroscience lessons. What's more, those with a newly acquired belief in effort and growth had better grades than those who were still stuck in the belief that temperament and ability are fixed. They believed that they could flex their intellectual muscles, so they did, and the effort showed up in their achievements.”
MISC
From Dow Jones: “After a relatively tame morning hovering around unchanged, Treasurys have pushed decisively into the red Tuesday afternoon amid a slew of new corporate bond issuance. [10y Treasury yield +4.5bp]… The dollar was modestly stronger, near multiweek highs Tuesday afternoon against the yen and the euro in a range-bound, data-light session. The market was driven mostly by prodollar
sentiment amid reduced expectations of Fed rate cuts in 2007 due to improved U.S. economic data…. Crude oil futures extended losses…”
From AP: “Wall Street traded mostly flat Tuesday, as the latest round of takeover activity offered some support to stocks but wasn’t enough of a catalyst to push the market higher.”
From The Los Angeles Times: “Bearish bets on the direction of stock prices hit a record on the New York Stock Exchange this month, even as the market has continued to streak higher… Short sellers borrow stock, usually from a brokerage's inventory, and sell the shares in the open market. The goal is to repay the loaned stock with shares bought later at a lower price…The NYSE composite stock index has surged 10% since mid-March, yet the number of shorted shares has risen nearly 12% in the period.”
From Bloomberg: “Treasuries fell, pushing the benchmark 10-year note's yield to a three-month high, as traders speculated the U.S. economy is gathering momentum.”
From Suntrust: “Talk is still centering around the absence of Asian buying at higher yields, the fact that China has parked a lot of money in T-bills recently…”
From Dow Jones: “Richmond Fed president Jeffrey Lacker, the central bank’s toughest inflation fighter, … said the moderation in inflation in recent months was nothing more than noisy data… “I don’t think the moderation we’ve seen [in inflation] is statistically significant,”…”
From Lombard Street Management: “China is now exporting manufactured goods inflation rather than deflation…Actually, China had already overheated by 2004, but the global inflationary impact came solely through China’s voracious appetite for commodities and the spike in global oil/commodity prices. The authorities capped domestic energy prices and the excess of demand over supply had to be worked out through energy shortages. The US economy was the first to feel the initial impact of China’s overheating.”
From Dow Jones: “Economic activity contracted again in the Federal Reserve Bank of Richmond district in May. The bank reported that its manufacturing index for the current month was -10, from -11 the month before.”
From the Economist: “The global economy is at its least volatile since the 1960s…”
From Barclays: “…the Mexican national oil company PEMEX released yesterday its crude oil and NGLs production figures for April. The data shows that output remains on a downwards trend, with total liquids production having fallen by 5.5% Y/Y in April and 5.6% for the year to date. The fast decline in Mexican oil production was also highlighted by the EIA in its latest edition of the International Energy Outlook released yesterday, where it revised its forecast for Mexican oil production in 2015 down by 1.2 mb/d to 3 mb/d.”
From Dow Jones: “In 2005, 94% of the 1.7 billion barrels of oil equivalent that Exxon added to its reserve base came from its natural gas reserves in Qatar. “
From JP Morgan: “While seasonal hurricane forecasts are notoriously inaccurate, the runup to the 2007 hurricane season has been marked by amazing consistency throughout the meteorological community — each of the noted forecasters are expecting above normal activity.”
From CNN: “In January, more than 60 percent of all mortgage loans were made to prime customers with FICO scores of 650 or more.”
From RBSGC: “LIBOR OASs remain near the widest levels of 2007 [for mortgages] but with production expected to continue to be heavy (ARMs to fixed refinancing) and yields still not high enough to entice investors…”
From The Wall Street Journal: “Last year, about 29% of car buyers who traded in a vehicle to buy a new one owed more on their car loans than their cars were worth, compared with 20% five years earlier. The problem has become more vexing as consumers increasingly view life's expenses, from mobile-phone and cable-television bills to car payments and mortgages, in terms of monthly payments rather than total cost. Researchers say few car buyers, for example, know the actual full cost of their vehicles or stop to consider how much more expensive it is to take on a longer-term loan. Extending the average car loan to five years from three years costs the buyer more than $2,000 in interest…”
From USA Today: “China produces 75% of the world's garlic… About 40% to 45% of the apple juice consumed in the USA comes from China… China is the No. 1 apple producer in the world and the leading apple juice exporter. "They grow about 47% of all the apples on the planet. We (U.S. farms) grow about 11%,"… China is also the world's largest producer of honey … Almost 19% of the honey consumed in the USA comes from China.”
From Bloomberg: “Some key labor market figures simply aren't adding up these days, leaving Federal Reserve officials in doubt about what's happening in critical parts of the economy. In some cases, the participation of illegal immigrants in the workforce may be roiling the data. With the economy operating at or close to full employment, so-called unauthorized workers have become an important source of new hires for many businesses. Foreign-born workers -- an unknown proportion of whom were in the country illegally -- accounted for 45 percent of all employment growth last year, according to the Bureau of Labor Statistics. The question is how unauthorized workers and their employers respond to the household and business establishment surveys on which the highly important employment, unemployment and payroll job figures are based. It may be that those responses have been changing over time. Housing-industry employment is at the top of the list of the data discrepancies. Housing starts have plummeted and the number of units under construction has fallen 15 percent in the year ended in April. However, the BLS's monthly survey of business establishments showed 3.3 million people still at work on residences last month, only a 4 percent drop from a year ago…According to Ray Stone of Stone & McCarthy Research Associates, one possible explanation is that thousands of unauthorized workers employed by very small subcontractors have lost their jobs. In some cases, the workers may be been paid ``off the books,'' so their departure may not be reported. And it may be that such businesses are underrepresented in the sample of companies reporting payrolls each month, Stone said. If so, then payroll employment may have been higher than it appeared to be before the housing slump began. Another puzzling piece of payroll data emerged earlier this year when the BLS released its annual benchmark adjustment for March 2006. The adjustment, which is based on quarterly federal unemployment insurance payments by employers, was an unusually large one, adding 752,000 more workers to payrolls as of that month. A significant portion of the adjustment came in three states, California, Texas and Louisiana, with the second-largest impact in construction. The first two states have a high proportion of foreign-born workers, many of whom are employed in construction. Stone published an analysis last year suggesting that unauthorized workers who may not have been reported on payrolls earlier were put there as a result of a ``slew of actual and prospective legislation that increased penalties on employers that knowingly hired illegal immigrants.'' That is, the prospect of penalties caused employers to seek documentation for workers, some of whom probably had fake papers. Now, however, there are new questions about the accuracy of the payroll data. First of all, the BLS routinely adds a substantial number of workers to its monthly payroll figures to make up for the fact that in a dynamic economy, as new companies start up and old ones close their doors, the sample of businesses providing payroll data routinely undercounts the number of workers. This ``birth/death'' model doesn't take into account cyclical fluctuations in the economy, and on May 18, Stone told his clients that as a result, payrolls may have been growing more slowly than reported since the benchmark adjustment. Stone noted that on May 16, the BLS released its Business Employment Dynamics -- or BED -- report for the third quarter of 2006. The report provides data for changes in payroll employment using the unemployment insurance filings from businesses and sorts it according to whether the businesses are new or expanding, or contracting or closing. In other words, it tracks the information the ``birth/death'' model is supposed to provide in a more timely fashion. ``The new data revealed a seasonally adjusted third-quarter private payroll gain of only 19,000, in sharp contrast to the BLS' published monthly payroll increase of 498,000 for the quarter,'' Stone said. For the 2006 second and third quarters together, the BED data show a payroll increase of 485,000, compared to 808,000 for the regular payroll figures. For the six months, that's the difference between monthly payroll gains of 80,000 versus 135,000, Stone said. Many economists and more than a few Fed officials have been puzzled why various labor market measures seem to have been so little affected by the downshift in economic growth to about a 2 percent annual rate or less in the middle of last year. The BED report hints that maybe the payroll data at least will show just such an impact in the next benchmark revision. And then there is the 4.5 percent unemployment rate. Why has it remained so low? Well, suppose many unauthorized workers -- those are the illegal immigrants -- don't show up in the household survey on which those monthly figures are based. Yet when they have a job they are, in reality, part of the workforce. And when they lose a job, they don't get counted as unemployed. They just aren't part of the workforce anymore. There's another piece of evidence that that has been happening. Remittances from Mexican workers in the U.S. to their families at home have dropped significantly in recent months.”
Benefits of Encouraging Potential
From Newsweek: [After a test when the instructor]”praised the kids' performance, she didn't praise them all the same way. She praised some for their natural talent (What a great score! You're so smart!), while others were praised for their effort (What a great score! You must have worked very hard!). This may seem like a subtle difference, but to the developing mind the two messages are night and day. The former conveys the belief that people's abilities and traits are fixed, written in concrete, while the latter underscores the potential for growth and the value of old-fashioned effort. The results were immediate and unambiguous: the kids who were told they were smart immediately became cautious, shying away from any further testing that might expose weaknesses. The kids who were praised for their effort, by contrast, became hungry for new challenges. What's more, when the kids were subsequently required to solve very difficult problems, on which they all did poorly, the "smart kids" took the failure as a blow to their self-worth; where they had been smart, they were now dumb, irrevocably. The effortful kids just dug in more… the kids who were taught about human potential were much more highly motivated as math students than their classmates who did not get the neuroscience lessons. What's more, those with a newly acquired belief in effort and growth had better grades than those who were still stuck in the belief that temperament and ability are fixed. They believed that they could flex their intellectual muscles, so they did, and the effort showed up in their achievements.”
MISC
From Dow Jones: “After a relatively tame morning hovering around unchanged, Treasurys have pushed decisively into the red Tuesday afternoon amid a slew of new corporate bond issuance. [10y Treasury yield +4.5bp]… The dollar was modestly stronger, near multiweek highs Tuesday afternoon against the yen and the euro in a range-bound, data-light session. The market was driven mostly by prodollar
sentiment amid reduced expectations of Fed rate cuts in 2007 due to improved U.S. economic data…. Crude oil futures extended losses…”
From AP: “Wall Street traded mostly flat Tuesday, as the latest round of takeover activity offered some support to stocks but wasn’t enough of a catalyst to push the market higher.”
From The Los Angeles Times: “Bearish bets on the direction of stock prices hit a record on the New York Stock Exchange this month, even as the market has continued to streak higher… Short sellers borrow stock, usually from a brokerage's inventory, and sell the shares in the open market. The goal is to repay the loaned stock with shares bought later at a lower price…The NYSE composite stock index has surged 10% since mid-March, yet the number of shorted shares has risen nearly 12% in the period.”
From Bloomberg: “Treasuries fell, pushing the benchmark 10-year note's yield to a three-month high, as traders speculated the U.S. economy is gathering momentum.”
From Suntrust: “Talk is still centering around the absence of Asian buying at higher yields, the fact that China has parked a lot of money in T-bills recently…”
From Dow Jones: “Richmond Fed president Jeffrey Lacker, the central bank’s toughest inflation fighter, … said the moderation in inflation in recent months was nothing more than noisy data… “I don’t think the moderation we’ve seen [in inflation] is statistically significant,”…”
From Lombard Street Management: “China is now exporting manufactured goods inflation rather than deflation…Actually, China had already overheated by 2004, but the global inflationary impact came solely through China’s voracious appetite for commodities and the spike in global oil/commodity prices. The authorities capped domestic energy prices and the excess of demand over supply had to be worked out through energy shortages. The US economy was the first to feel the initial impact of China’s overheating.”
From Dow Jones: “Economic activity contracted again in the Federal Reserve Bank of Richmond district in May. The bank reported that its manufacturing index for the current month was -10, from -11 the month before.”
From the Economist: “The global economy is at its least volatile since the 1960s…”
From Barclays: “…the Mexican national oil company PEMEX released yesterday its crude oil and NGLs production figures for April. The data shows that output remains on a downwards trend, with total liquids production having fallen by 5.5% Y/Y in April and 5.6% for the year to date. The fast decline in Mexican oil production was also highlighted by the EIA in its latest edition of the International Energy Outlook released yesterday, where it revised its forecast for Mexican oil production in 2015 down by 1.2 mb/d to 3 mb/d.”
From Dow Jones: “In 2005, 94% of the 1.7 billion barrels of oil equivalent that Exxon added to its reserve base came from its natural gas reserves in Qatar. “
From JP Morgan: “While seasonal hurricane forecasts are notoriously inaccurate, the runup to the 2007 hurricane season has been marked by amazing consistency throughout the meteorological community — each of the noted forecasters are expecting above normal activity.”
From CNN: “In January, more than 60 percent of all mortgage loans were made to prime customers with FICO scores of 650 or more.”
From RBSGC: “LIBOR OASs remain near the widest levels of 2007 [for mortgages] but with production expected to continue to be heavy (ARMs to fixed refinancing) and yields still not high enough to entice investors…”
From The Wall Street Journal: “Last year, about 29% of car buyers who traded in a vehicle to buy a new one owed more on their car loans than their cars were worth, compared with 20% five years earlier. The problem has become more vexing as consumers increasingly view life's expenses, from mobile-phone and cable-television bills to car payments and mortgages, in terms of monthly payments rather than total cost. Researchers say few car buyers, for example, know the actual full cost of their vehicles or stop to consider how much more expensive it is to take on a longer-term loan. Extending the average car loan to five years from three years costs the buyer more than $2,000 in interest…”
From USA Today: “China produces 75% of the world's garlic… About 40% to 45% of the apple juice consumed in the USA comes from China… China is the No. 1 apple producer in the world and the leading apple juice exporter. "They grow about 47% of all the apples on the planet. We (U.S. farms) grow about 11%,"… China is also the world's largest producer of honey … Almost 19% of the honey consumed in the USA comes from China.”
Monday, May 21, 2007
Today's Tidbits
Derivatives Demand Flourishing
From Bloomberg: “The global derivatives market grew at the fastest pace in at least nine years during 2006 as the amount of contracts based on bonds more than doubled to $29 trillion, the Bank for International Settlements said today. Derivatives covering bonds and loans rose by $15 trillion last year, the Basel, Switzerland-based bank said on its Web site. The total amount of over-the-counter contracts whose value is derived from price changes of bonds, currencies, commodities and stocks, or events like interest rates or the weather rose 39.5 percent to $415 trillion, the biggest jump since the BIS began compiling the data…The actual money at risk through credit derivatives increased 93 percent to $470 billion last year, the BIS said. The amount at stake in the entire derivatives market is $9.7 trillion, according to the BIS…Interest-rate swaps remain the biggest part of the derivatives market, growing 15 percent to $292 trillion, compared with 38-percent growth the previous year…Growth in the overall derivatives market outpaced the previous record increase of 39.2 percent in 2003. Foreign-exchange derivatives rose 28 percent to $40.2 billion in 2006. Contracts based on commodities such as gold and oil expanded by 27.7 percent to $6.9 trillion.”
S&P 500 Sets New Record High Closing Level
From AP: “Wall Street reached another milestone during a muted session Monday, when the Standard & Poor's 500 index briefly passed its record close of 1,527.46 for the first time in more than seven years. The S&P 500, considered by market professionals the best indicator of stock performance, surpassed the mark shortly after noon following a fresh spate of takeover deals. The broad market index has lagged the Dow Jones industrial average in recovering from the prolonged stock slump earlier this decade… It is still well below its all-time trading high of 1,552.87 set on March 24, 2000, the day the index reached its record close… After 24 record closes for the Dow this year, the S&P has finally caught up.”[Note – The S&P 500 closed at 1525.1]
Changing Leadership in Equity Markets
From Merrill Lynch: “History suggests that large caps have a tendency to outperform small caps when the market narrows. Over the past six years, when market breadth has been historically broad, small caps have outperformed large caps. As market leadership has narrowed over the past twelve months, the performance between small and large has started to change. For the 12-month period ending April 30th, the S&P 500 has DOUBLED the performance of the Russell 2000! Investors need to increasingly monitor market breadth because the evidence continues to grow that the profits cycle might continue to slow. Equity markets have historically become increasingly "Darwinistic" when profits cycles decelerate and survival of the fittest determines stock market performance. Not only does this argue in favor or large caps, but it also argues in favor of growth. Historically, growth indices consisted primarily of high quality, stable earnings growth companies. During the technology bubble this changed and most growth indices consisted of low quality, cyclical growth stocks. When the market peaked in 2000, approximately 50% of the S&P/Citigroup growth index and 58% of the S&P/Citigroup value index were considered high quality. Today the statistics are starkly different. 61% of the S&P/Citigroup growth index is now considered high quality, but only 50% of the S&P/Citigroup value index is considered high quality. As the market has worked off the excesses of the technology bubble, growth indices have gradually returned to their original state. This most recent update shows that growth has become higher quality and more stable than in the recent past.”
From Bank of America: “Recent market action continues to support our view that large-cap US stocks are likely to extend their move to “catch-up” relative to small caps this year. The Russell 2000 index of small-cap stocks outperformed the S&P 500 by over 64% in the 6 years ended April 30, 2006. In the year since, the S&P 500 has reclaimed 7.4% of the deficit; we see another 7% to 10% as possible in 2007.”
Rising Natural Gas Costs Push Plastic Production to Middle East
From Bloomberg: “Saudi Basic Industries Corp., the world's biggest chemical company by market value, agreed to buy General Electric Co.'s plastics unit…Sabic has doubled sales since 2002, helped by its ready access to the world's biggest reserves of oil, used as a raw material for plastics and petrochemicals. GE, by contrast, put its plastics unit up for sale in January after the soaring cost of crude cut into earnings….Sabic's advantage will stem from its access to abundant sources of feedstock from state-owned Saudi Aramco, the world's biggest oil company. The chemical maker exploits the natural gas released during oil extraction and once burned at the wellhead to achieve costs lower than at U.S. and European competitors….[Sabic] has grown to become the largest public company in the Middle East…The government owns about 70 percent of shares, with the rest restricted to investors in Saudi Arabia and the five other states of the Gulf Cooperation council.”
MISC
From Dow Jones: [Treasury yields closed 1-2bp lower] “The dollar climbed against the yen and euro overnight, after a rebound in Asian equity markets, and the greenback held on to those gains during a New York session devoid of data… New York crude oil futures jumped to a three-week high Monday, rising above $66 a barrel amid continued concerns about dwindling U.S. gasoline stockpiles before the onset of peak summer demand.”
From CNN: “Gasoline prices soared to levels never seen before as even the inflation-adjusted price for a gallon of unleaded topped the 1981 record spike in price that had stood for 26 years.”
From HSBC: “Eurozone GDP growth surprised to the upside last year, and so did fiscal balances. For the Eurozone as a whole, the budget deficit narrowed to 1.6% of GDP, the best reading since 2000. Out of the big four EMU economies, the improvement in Germany was the strongest, in line with the pronounced pick-up in GDP growth, which more than doubled.”
From Goldman Sachs: “We have cut our [U.S.] federal deficit estimate for fiscal year (FY) 2007 to $165 billion (1.2% of GDP)…”
From The Financial Times: “Kuwait on Sunday removed its currency peg to the US dollar, throwing plans for a Gulf currency union by 2010 into doubt and raising the prospect that other oil-producing states might abandon long-held dollar pegs… revert to a basket of currencies to prevent the sliding dollar increasing the cost of imports, which has stoked inflation to more than 4 per cent, double the historic average… The dollar is expected to make up about 75-80 per cent of the new basket, reducing the third largest Arab oil exporter's exposure to the weakening dollar… other GCC states - Saudi Arabia, the United Arab Emirates, Bahrain, Qatar and Oman - are studying the move as an option to mitigate dollar weakness.”
From Barclays: “USD/CAD [Canadian dollar] has fallen this morning to levels last seen in the late 1970s…with commodity prices rallying once more…” [Note- this means the US dollar is weak and the Canadian dollar is strong.]
From Reuters: “The U.S. Securities and Exchange Commission is being briefed monthly by the Central Intelligence Agency about terrorists and other criminals active in global stock markets, Barron's said in its latest edition…less-developed securities markets have reported stock trading by terrorists to raise money. Criminals now intentionally disperse operations across different countries to avoid detection, Barron's said. For instance, residents of Hong Kong, Malaysia, Estonia and Latvia have hacked into U.S. online brokerage accounts and used the proceeds to bid up the price of their own stocks. The SEC recently asked the CIA for higher security clearances that would provide its commissioners even more highly classified information than they are now receiving in their regular intelligence briefings, the publication said.”
From RBSGC: “In general, the worst case historically for servicers is a massive yield curve inverting rally. This increases actual and projected prepayment speeds, hurting the value of servicing on the books. However, when interest rates rise, although prepayments are expected to slow down, the value of the longer duration hedges (including receiver swaps) decline at the same time as market participants need to re-hedge their books.”
From Deutsche Bank: “The Fed H.8 data showed a noticeable pickup in whole loan buying by US banks. Whole loan holdings in the 3 weeks ending May 9th increased by $25 bn. MBS holdings were roughly unchanged.”
From The Chicago Tribune: “About 10 percent of big pension funds now have stakes in hedge funds, the Casey Quirk consulting firm estimates, and that's expected to hit 18 percent in the next few years.”
From Barclays: “…we find the bulk of the deceleration [in owners’ equivalent rent] has been driven by the New York City metro area, where demand for rental properties appears to be easing as the housing market has picked up.”
From Bloomberg: “The global derivatives market grew at the fastest pace in at least nine years during 2006 as the amount of contracts based on bonds more than doubled to $29 trillion, the Bank for International Settlements said today. Derivatives covering bonds and loans rose by $15 trillion last year, the Basel, Switzerland-based bank said on its Web site. The total amount of over-the-counter contracts whose value is derived from price changes of bonds, currencies, commodities and stocks, or events like interest rates or the weather rose 39.5 percent to $415 trillion, the biggest jump since the BIS began compiling the data…The actual money at risk through credit derivatives increased 93 percent to $470 billion last year, the BIS said. The amount at stake in the entire derivatives market is $9.7 trillion, according to the BIS…Interest-rate swaps remain the biggest part of the derivatives market, growing 15 percent to $292 trillion, compared with 38-percent growth the previous year…Growth in the overall derivatives market outpaced the previous record increase of 39.2 percent in 2003. Foreign-exchange derivatives rose 28 percent to $40.2 billion in 2006. Contracts based on commodities such as gold and oil expanded by 27.7 percent to $6.9 trillion.”
S&P 500 Sets New Record High Closing Level
From AP: “Wall Street reached another milestone during a muted session Monday, when the Standard & Poor's 500 index briefly passed its record close of 1,527.46 for the first time in more than seven years. The S&P 500, considered by market professionals the best indicator of stock performance, surpassed the mark shortly after noon following a fresh spate of takeover deals. The broad market index has lagged the Dow Jones industrial average in recovering from the prolonged stock slump earlier this decade… It is still well below its all-time trading high of 1,552.87 set on March 24, 2000, the day the index reached its record close… After 24 record closes for the Dow this year, the S&P has finally caught up.”[Note – The S&P 500 closed at 1525.1]
Changing Leadership in Equity Markets
From Merrill Lynch: “History suggests that large caps have a tendency to outperform small caps when the market narrows. Over the past six years, when market breadth has been historically broad, small caps have outperformed large caps. As market leadership has narrowed over the past twelve months, the performance between small and large has started to change. For the 12-month period ending April 30th, the S&P 500 has DOUBLED the performance of the Russell 2000! Investors need to increasingly monitor market breadth because the evidence continues to grow that the profits cycle might continue to slow. Equity markets have historically become increasingly "Darwinistic" when profits cycles decelerate and survival of the fittest determines stock market performance. Not only does this argue in favor or large caps, but it also argues in favor of growth. Historically, growth indices consisted primarily of high quality, stable earnings growth companies. During the technology bubble this changed and most growth indices consisted of low quality, cyclical growth stocks. When the market peaked in 2000, approximately 50% of the S&P/Citigroup growth index and 58% of the S&P/Citigroup value index were considered high quality. Today the statistics are starkly different. 61% of the S&P/Citigroup growth index is now considered high quality, but only 50% of the S&P/Citigroup value index is considered high quality. As the market has worked off the excesses of the technology bubble, growth indices have gradually returned to their original state. This most recent update shows that growth has become higher quality and more stable than in the recent past.”
From Bank of America: “Recent market action continues to support our view that large-cap US stocks are likely to extend their move to “catch-up” relative to small caps this year. The Russell 2000 index of small-cap stocks outperformed the S&P 500 by over 64% in the 6 years ended April 30, 2006. In the year since, the S&P 500 has reclaimed 7.4% of the deficit; we see another 7% to 10% as possible in 2007.”
Rising Natural Gas Costs Push Plastic Production to Middle East
From Bloomberg: “Saudi Basic Industries Corp., the world's biggest chemical company by market value, agreed to buy General Electric Co.'s plastics unit…Sabic has doubled sales since 2002, helped by its ready access to the world's biggest reserves of oil, used as a raw material for plastics and petrochemicals. GE, by contrast, put its plastics unit up for sale in January after the soaring cost of crude cut into earnings….Sabic's advantage will stem from its access to abundant sources of feedstock from state-owned Saudi Aramco, the world's biggest oil company. The chemical maker exploits the natural gas released during oil extraction and once burned at the wellhead to achieve costs lower than at U.S. and European competitors….[Sabic] has grown to become the largest public company in the Middle East…The government owns about 70 percent of shares, with the rest restricted to investors in Saudi Arabia and the five other states of the Gulf Cooperation council.”
MISC
From Dow Jones: [Treasury yields closed 1-2bp lower] “The dollar climbed against the yen and euro overnight, after a rebound in Asian equity markets, and the greenback held on to those gains during a New York session devoid of data… New York crude oil futures jumped to a three-week high Monday, rising above $66 a barrel amid continued concerns about dwindling U.S. gasoline stockpiles before the onset of peak summer demand.”
From CNN: “Gasoline prices soared to levels never seen before as even the inflation-adjusted price for a gallon of unleaded topped the 1981 record spike in price that had stood for 26 years.”
From HSBC: “Eurozone GDP growth surprised to the upside last year, and so did fiscal balances. For the Eurozone as a whole, the budget deficit narrowed to 1.6% of GDP, the best reading since 2000. Out of the big four EMU economies, the improvement in Germany was the strongest, in line with the pronounced pick-up in GDP growth, which more than doubled.”
From Goldman Sachs: “We have cut our [U.S.] federal deficit estimate for fiscal year (FY) 2007 to $165 billion (1.2% of GDP)…”
From The Financial Times: “Kuwait on Sunday removed its currency peg to the US dollar, throwing plans for a Gulf currency union by 2010 into doubt and raising the prospect that other oil-producing states might abandon long-held dollar pegs… revert to a basket of currencies to prevent the sliding dollar increasing the cost of imports, which has stoked inflation to more than 4 per cent, double the historic average… The dollar is expected to make up about 75-80 per cent of the new basket, reducing the third largest Arab oil exporter's exposure to the weakening dollar… other GCC states - Saudi Arabia, the United Arab Emirates, Bahrain, Qatar and Oman - are studying the move as an option to mitigate dollar weakness.”
From Barclays: “USD/CAD [Canadian dollar] has fallen this morning to levels last seen in the late 1970s…with commodity prices rallying once more…” [Note- this means the US dollar is weak and the Canadian dollar is strong.]
From Reuters: “The U.S. Securities and Exchange Commission is being briefed monthly by the Central Intelligence Agency about terrorists and other criminals active in global stock markets, Barron's said in its latest edition…less-developed securities markets have reported stock trading by terrorists to raise money. Criminals now intentionally disperse operations across different countries to avoid detection, Barron's said. For instance, residents of Hong Kong, Malaysia, Estonia and Latvia have hacked into U.S. online brokerage accounts and used the proceeds to bid up the price of their own stocks. The SEC recently asked the CIA for higher security clearances that would provide its commissioners even more highly classified information than they are now receiving in their regular intelligence briefings, the publication said.”
From RBSGC: “In general, the worst case historically for servicers is a massive yield curve inverting rally. This increases actual and projected prepayment speeds, hurting the value of servicing on the books. However, when interest rates rise, although prepayments are expected to slow down, the value of the longer duration hedges (including receiver swaps) decline at the same time as market participants need to re-hedge their books.”
From Deutsche Bank: “The Fed H.8 data showed a noticeable pickup in whole loan buying by US banks. Whole loan holdings in the 3 weeks ending May 9th increased by $25 bn. MBS holdings were roughly unchanged.”
From The Chicago Tribune: “About 10 percent of big pension funds now have stakes in hedge funds, the Casey Quirk consulting firm estimates, and that's expected to hit 18 percent in the next few years.”
From Barclays: “…we find the bulk of the deceleration [in owners’ equivalent rent] has been driven by the New York City metro area, where demand for rental properties appears to be easing as the housing market has picked up.”
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