January 14, 2008 TIDBITS
Money Markets Show
Signs of Improvement
From Lehman: “3mo libor sets down over 20 bps to
4.055…FF-3ml basis continues to come in as we get further away from calendar
year-end.”
From Merrill Lynch: “The logjam in the money market has been
unclogged to some extent with Libor coming down from its December highs – but
nothing is back to normal and in other parts of the credit market, spreads are
widening sharply. In fact, in the high-yield segment, the average interest rate
has broken above 10% for the first time since April/03 and spreads have blown
out to 668 bps from 308 bps in mid- 2007 (and the widest they have been since
June 2003).”
From CITI: “Last week, the Fed reported
an increase ($5bn) in the stock of outstanding US ABCP to $779bn. Spreads on CP
in both the US and Europe continue to drop. All of which suggests that a degree
of normalcy is returning to the CP markets as investors who had previously sat
on the sidelines in the run-up to year-end slowly return to the market. “
From HSBC: “The inter-bank crisis appears to be easing,
albeit still a long way from normal. Three-month LIBOR has persistently
declined over the past five weeks from 5.15% on 5 December to 4.06% now. In
other words, 3-month LIBOR is now below the spot Fed funds rate for the first
time since the 2001-2003 easing cycle.
Although this is a psychological advance for the Fed, the more relevant
inter-bank spread is between 3-month LIBOR and the expected Fed funds rate over
the next three months. On this basis, the news is also helpful. The spread has come in from a peak of 106bp
on December 4 to 46bp now. This is higher than the spread pre-August 2007, when
it was averaging about 10bp, but at least things are moving in the right
direction. The hope is that as
inter-bank lending fears decline, other spreads related more closely to the
consumer, and hence the real economy, will also improve. That is not the case
so far. The spread between the 30-year jumbo fixed mortgage rate and the
30-year fixed conventional mortgage rate has remained near the highs. Having
improved in September and October, the spread is about as high today as it was
during the worst of the crisis in late August. This suggests that as the
financial crunch heals, a broader credit crunch is out of the bag.”
From Cumberland
Advisors: “our
conclusion is that the Fed has dropped the annual financing cost to global
users of US dollar denominated credit by 1% on $150 trillion in just a few
weeks. If the Fed cuts 50 basis points AND if they drop the
Discount Window rate by 50 basis points AND if the LIBOR follows, then, we will
witness LIBOR with a 3-handle and the effect on $150 trillion of debt cost will
respond accordingly. The Fed’s impact on
LIBOR is a seminal event and is potentially powerful and enormously
stimulative. It should not be underestimated. This outcome is cause for optimism. It
contradicts the present rampant and extreme pessimism in the markets. To
this writer, it suggests that any recession we MAY experience will be shorter
lived and not too deep.”
Consumer Spending
Slowing
From The New York
Times: “Strong evidence is emerging
that consumer spending, a bulwark against recession over the last year even as
energy prices surged and the housing market sputtered, has begun to slow
sharply at every level of the American economy, from the working class to the
wealthy… American Express said that starting in early December the growth in
the rate of spending by its 52 million cardholders, a generally affluent group
of consumers, fell 3 percentage points, from 13 percent to 10 percent, the
first slowdown since the 2001 recession… Even in tough economic times Americans
rarely reduce their consumption, preferring instead to slow the growth in their
spending. Since 1980, they have cut spending in only five quarters — a total of
15 months — most of them in the depths of a recession. The 2001 recession
passed without a cutback in consumer spending.
Only once before, in 1980, did consumer spending fall during a
presidential election year… Official statistics do not yet show that consumer
spending has dropped, but they do suggest that in late 2007, it slowed in areas
like automobiles, furniture, building materials and health care… Perhaps the
strongest barometer over the last 30 days is the performance of the country’s
big chain stores. December turned out to be a blood bath for retailers at every
rung on the economic ladder, with sales for the month growing at the slowest
rate in seven years. Sales at stores
open at least a year, a crucial yardstick in retailing, plunged by 11 percent
at Kohl’s and 7.9 percent at Macy’s, compared with last year… store sales fell
4 percent at Nordstrom, the high-end department store… the number of overdue
payments on American Express cards is surging, the company said — and this
among well-heeled cardholders… “We are seeing a correlation with housing
prices,” said Michael O’Neill, a spokesman for American Express. “The falloff
in spending is everywhere in the country, but it is greatest in those areas
like south Florida and California, where home prices have fallen the
most.” The big exception is gasoline.
American Express and the Consumer Federation of America say that consumers are
buying just as many gallons as ever, but paying more for them, and that has
forced cutbacks in other purchases… There are some bright spots now in consumer
spending. Sales of sports gear and electronic gadgets — particularly G.P.S.
navigation devices and flat-panel television sets — have risen over the last
three months.”
From FTN: “Consumer spending accounts for 70% of the
economy. The only reason so many economists have not yet forecast a recession
in 2008, including those at the Fed, is the strength of consumer spending in
late 2007, especially in November when retail sales and consumption rose more
than 1%. If fourth quarter sales turn out to be weaker, look for the recession
forecast to gain a lot more support.”
Economic Legend Blames
Fed for Credit Bubble Creation and Fallout
From The Telegraph: “As rebukes go in the close-knit world of
central banking, few hurt as much as the scathing indictment of US Federal
Reserve policy by Professor Anna Schwartz.
The high priestess of US monetarism -- a revered figure at the Fed --
says the central bank is itself the chief cause of the credit bubble and now
seems stunned as the consequences of its own actions engulf the financial
system. "The new group at the Fed
is not equal to the problem that faces it," she says, daring to utter a
thought that fellow critics mostly utter sotto voce. "They need to speak frankly to the
market and acknowledge how bad the problems are, and acknowledge their own
failures in letting this happen. This is what is needed to restore
confidence," she told The Sunday Telegraph. "There never would have been a sub-prime
mortgage crisis if the Fed had been alert. This is something Alan Greenspan
must answer for," she says… Her fame comes from a joint opus with Nobel
laureate Milton Friedman: "A Monetary History of the United States."
It revolutionised thinking on the causes of the Great Depression when published
in 1965. The book blamed the Fed for causing the slump. The bank failed to use
its full bag of tricks to stop the implosion of the money stock, and turned a
bust into calamity by raising rates… Schwartz warns against facile comparisons
between today's world and the gold standard era. "This is nothing like the
Depression. I don't really believe the economy as a whole is going to fall
apart… More than 4,000 US banks -- a fifth -- collapsed in the 1930s. There was
no deposit insurance. Real economic output fell by a third, prices by a
quarter, and unemployment reached a third. Real income fell by 11 per cent, 9
per cent, 18 per cent, and 3 per cent in the years to 1933. According to Schwartz the original sin of the
Bernanke-Greenspan Fed was to hold rates at 1 per cent from 2003 to June 2004,
long after the dotcom bubble was over. "It is clear that monetary policy
was too accommodative. Rates of 1 per cent were bound to encourage all kinds of
risky behaviour," Schwartz says. She
is scornful of Greenspan's campaign to clear his name by blaming the bubble on
an Asian savings glut, which purportedly created stimulus beyond the control of
the Fed by driving down global bond rates. "This attempt to exculpate himself
is not convincing. The Fed failed to confront something that was evident. It
can't be blamed on global events," she says. That mistake is behind us now. The lesson of
the 1930s is that swift action is needed once the credit system starts to
implode: when banks hoard money, refusing to pass on funds. The Fed must tear
up the rulebook. Yet it has been hesitant for three months, relying on
lubricants -- not shock therapy. "Liquidity
doesn't do anything in this situation. It cannot deal with the underlying fear
that lots of firms are going bankrupt," Schwartz says… Bernanke did indeed
switch tack on Thursday. "We stand ready to take substantive additional
action as needed," he says, warning of a "fragile situation…Bernanke
insists that the Fed has leant the lesson from the catastrophic errors of the
1930s. At the late Milton Friedman's 90th birthday party, he apologised for the
sins of his institutional forefathers. "Yes, we did it. We're very sorry.
We won't do it again."”
From The Wall Street Journal: “U.S. Federal Reserve Chairman Ben Bernanke,
facing
criticism
that the central bank has sent confusing messages about interest rates in
recent months, has decided to speak more forcefully and more often… reflects a
new strategy of having the central bank's top leaders discuss the economic
outlook in public more often, so that markets won't depend on remarks by
lower-ranked policy makers who may not represent Fed thinking. Thus, either Mr.
Bernanke or Mr. Kohn will likely address the outlook in public at least once
between meetings of the FOMC.”
Bank of America
Gambles in Buying Countrywide
From Economist: “Countrywide,
battered by an over-reliance on fickle wholesale funding and by fast-rising
delinquencies (in good-quality mortgages as well as subprime ones) had been
forced several times to deny that it was about to go bust. Banking is about
confidence, and the markets did not believe its claims to have ample liquidity.
Wall Street firms were increasingly worried that Countrywide would default on
the huge pile of derivatives contracts it had struck with them in an effort to
hedge its mortgage exposures. Regulators, too, were nervous: the liabilities of
Countrywide’s bank had ballooned as it offered depositors high rates to keep
itself funded. This raised the uncomfortable prospect of big payouts by the
Federal Deposit Insurance Corporation, should Countrywide have had to file for
bankrupcty. Regulators probably helped to smooth the deal’s passage. It carries big risks for BofA. It is buying a
mortgage book that continues to deteriorate. Countrywide also faces a welter of
lawsuits over its marketing of subprime loans. That said, the price looks
potentially alluring—a mere eighth of Countrywide’s value a few months ago. Mr
Lewis has long said that he likes the mortgage business, in which BofA trails
its peers, but he feels that the mortgage companies themselves have been valued
too highly. No one knows if that is still true of Countrywide, but there may be
no better time to find out. And BofA, which has had teams poring over
Countrywide’s books, probably knows its value better than any other outsider. BofA perhaps felt compelled to intervene to
protect its earlier investment. And it is better placed to act than others. It
has been far less damaged by the mortgage mess than its arch-rival, Citigroup
(though it has booked sizeable investment-banking losses). Having trailed for
years, BofA is now worth $34 billion more than Citi. If the Countrywide deal
pays off, it will be the undisputed leader in mortgages, as well as in credit
cards (thanks to its purchase of MBNA three years ago) and overall retail
banking (it is the only bank close to the 10% regulatory ceiling on nationwide
deposits). Countrywide’s attractions
have been all but forgotten amid the über-pessimism over housing. It has 9m
mortgage customers, to whom BofA will be itching to sell other financial
products (though cross-selling is not easy). Its mortgage platform has
unparalleled technology. The key will be to combine its loan-origination clout
with BofA’s strength in distribution to investors. In short, Countrywide has
plenty of franchise value… Even in the short term, it will be attractive for
careful lenders, since profit margins have widened as credit has dried up. BofA
is promising caution. It will ringfence Countrywide’s non-performing loans,
handing them to a special workout team. And it will stop making subprime loans
altogether. Not that Countrywide is doing much of that anyway: it lent a mere
$6m to subprime borrowers in December, down from $3.7 billion in the same month
of 2006. The risks of this deal should
not be underplayed. But BofA will see advantages beyond a potential lift to its
mortgage business. The deal neatly lets it breach the 10% deposit ceiling
because, under an arcane law, a bank can do so if it is through a takeover of
another bank with a thrift charter (which Countrywide has). And the takeover
will let it curry favour with regulators and politicians who want to see the
markets stabilise.”
Shrinking U.S. Trade Deficit Requires Reducing U.S.
Consumption
From John Mauldin: “…the trade deficit is not going to come down
until the US starts to save more and spend less. In 1992, consumer spending was
a little over 65% of GDP. It is now closer to 72%. Savings are down from 8% in
that time, to barely above zero. If US consumers simply saved 5%, as we did 10
years ago, the trade deficit would come down by a lot… Another $15 a barrel
could add as much as $50 billion to the annual trade deficit. That means oil alone will soon be more than
60% of our trade deficit, if oil stays above $90 a barrel. Hard to cut the deficit with a lower dollar
if we keep buying expensive oil… You reduce the trade
deficit by spending less and exporting more.
However, we would have to grow
exports by 90% to balance the trade deficit. Exports are up by 12% over a year
ago, and most categories are up, but it is simply not realistic to think we can
grow our way out of the trade deficit. The
heavy lifting on reducing the deficit is going to be by a reduction in spending.
And that is only going to happen when people realize they have not saved enough
for retirement and their homes are not a piggy bank that can be cashed out for
retirement. And reduced consumer spending will not happen on just imports. It
will be across the board and a drag on the economy.”
From Business Week: “U.S.
policymakers are mollycoddling American consumers. Of particular concern is the
Bush administration's mortgage-freeze plan. By unilaterally shifting the
financial pain to lenders, many of whom live overseas and don't vote in U.S.
elections, politicians are making it clear that American consumers will not be
allowed to suffer the ill effects of excessive indebtedness. Damaging as the plan may be, it is nothing
compared with what some presidential candidates and members of Congress are
cooking up. As the housing crisis gets political, we can expect ideas such as a
perpetual freeze on foreclosures, automatic loan reductions and enormous tax
breaks financed by increased deficit spending. Delinquencies on auto loans are
reaching record highs. What's next, a moratorium on car payments? In an
election year, anything is possible.
With the U.S. economy finally stalling under its gargantuan debt burden,
the rallying cries for Fed rate cuts have been deafening. Although
"Helicopter" Ben Bernanke has done his part by cutting rates 100
basis points and devising new ways to shower the country in cash, his efforts
have not been enough for ravenous bankers and politicians. Their zeal to keep
the housing bubble from deflating, and the economy from tipping into recession,
should make it clear to foreign investors that the United States will continue
to rely on dollar depreciation as a blunt instrument to fight all its economic
battles. As a result, America will remain a financial black hole in the coming
year. These are real risks that will not
go unnoticed by a world already saturated with depreciating
U.S.-dollar-denominated debt. Given that access to foreign savings is vital to
America's economic survival, we should think twice before biting the hands that
feed us.”
Goldman Sachs Reduces
GDP Estimates for Asia Due to Slowing US Economy
From Goldman Sachs: “Our US Economics Team has revised down their
growth forecasts to show a mild recession this year, with GDP falling at an
annualized one percentage point in 2Q and 3Q. As a result, we have cut our 2008
GDP growth forecast for Asia ex Japan to 8.3% from 8.6% before and compared to
a consensus of 8.7%. In 2009, we now look for growth of 8.5% compared to 8.6%
previously. Overall, these forecast reductions are meaningful but not
disastrous-the impact on currencies is in general likely to be contained,
although equity markets could be in for more volatility. China: More headwinds
from trade-trimming our growth forecast to 10% for 2008 Given the significant
contribution to growth from net exports, a meaningful slowdown in global
demand, triggered by a US recession, would surely have a notable impact on
China’s growth and corporate profitability. Therefore, we are lowering our
already below-consensus 2008 growth forecast for China still further to 10%
from 10.3%, with most of the additional weakness coming from slower export
growth. Can India ride out the US recession storm? We are revising down our GDP
growth forecast to 7.8% from 8% for FY09 due to a larger slowdown in external
demand. We estimate that export growth will halve in FY09 to 9.8% from 18.6%
due to the global slowdown as well as INR appreciation. However, the Indian
economy remains largely on course due to structural strength. We expect the RBI
to ease monetary policy in FY09 and for the INR to appreciate further against
the USD in 2008. Taiwan: Navigating through the political landscape, amid
weaker external demand In light of the downgrade to our GDP forecasts for the
US and Asia, we are also revising our 2008 and 2009 GDP growth forecasts for
Taiwan to 3.8% and 4.6% respectively, from our previous forecasts of 4.2% and
4.8% respectively. Our new forecasts put us below consensus… Our 2008 growth
forecast for Japan was already below the market consensus, but we are lowering
it still further to +1.0% from +1.2%. We are raising our 2008 CPI inflation
forecast to +0.5% from +0.3% because CPI inflation is currently being fueled by
surging crude oil prices. Excluding food and energy, however, and we expect CPI
to remain low for the time being. A US recession and aggressive monetary easing
by the Fed are likely to place major constraints on BOJ monetary policy. We are
now forecasting that the BOJ will forego rate hikes entirely in 2008 and resume
tightening in April-June 2009. The greatest challenge for the Japanese economy
is a sustained recovery in private consumption. Innumerable obstacles stand in
the way, most notably a decline in real purchasing power against a backdrop of
stagnant wages and continued price increases on daily necessities.”
From JP Morgan: “One surprise from last week’s reports
was the extent of the slowdown in China’s exports in 4Q07, which rose at a mere
2% annual rate, the smallest increase of the expansion by far. The growth of
fixed asset investment also is thought to be slowing. These are substantial
drags on manufacturing output, which is drawing support principally from the
consumer sector. Our team expects that GDP growth eased to about 7.5% last
quarter—near trend, but half the pace of 1H07. The Chinese government has taken
steps to slow export growth, so it is hard to tell how much "signal"
we’re getting from China about global demand.”
From Economist: “Exports are the fulcrum of China's economic
miracle, right? Not really, say some economists. Data issued by Chinese
authorities show that exports amounted to almost 40% of gross domestic product
in 2007. But Jonathan Anderson of Swiss bank UBS reckons that figure falls
below 10% if imported components are stripped out. By that measure, China lags
the U.S., where, in the first nine months of last year, net exports represented
30% of gross domestic product. The dynamo of the Chinese economy, as it turns
out, is investment, much of it in infrastructure and heavy industry, with only
7% directly related to exports.”
From Deutsche Bank: “On Friday, China said its forex reserves
increased to $1.53 tn. This represents only a $95 bn or 6.6% quarterly
increase, which is on par with Q3. Also, the growth rate of exports fell for
the second straight month, likely due to a slower global economy.”
Lehman Reduces Growth
Prospects for Europe
From Lehman: “[European] GDP growth appears to have
retreated considerably in Q4, falling to less than half the 0.8% q-o-q growth
rate seen in Q3: we cut our estimate for Q4 from 0.4% q-o-q (sa) to 0.3% last
week. The main reason for looking for
weaker growth is a loss of momentum in the industrial sector. This is augmented
by a likely decline in retail spending at the aggregate level, only partly
offset by stronger new car registrations.
We expect growth to slow further in Q1, as a slight recovery in
household consumption should be dominated by even more weakness in investment,
in part due to distortions in Germany associated with the expiry of accelerated
depreciation allowances. More fundamentally, we expect investment growth to be
low this year as firms’ access to bank financing becomes scarcer and more
costly owing to the credit crunch and lower expected global growth filters
through.”
From Merrill Lynch: “The World Bank just cut its 2008 world
growth outlook to 3.3% versus 3.6% in 2007 and 3.9% in 2006. And the just-reported OECD leading indicator
fell 0.5 points in November for the sixth time in as many months to its lowest
level since August 2003. So it would
seem as though the US slowdown is beginning to leave its mark, at least through
the industrialized world.”
MISC
From UBS: “…today's WSJ suggests that while
unlikely/remote, an inter-meeting [Fed rate] cut could come if the economic
outlook deteriorates sharply in the coming days.”
From Market News International: “The Kuwaiti Investment Authority is expected
to be a major investor in a planned $4 bln capital raising by Merrill Lynch -
FT. Citigroup is putting the final
touches to its second big capital-raising, seeking up to $14 bln
from Chinese, Kuwaiti and public market investors - FT. Citigroup's plans to raise capital by selling
a stake of about $2 billion to China Development Bank could be in jeopardy
because of opposition from China's government.-WSJ”
From Bloomberg: “The dollar fell to within a cent of its
all-time low versus the euro on speculation U.S. interest rates will drop below
those of the 15 nations that share the single European currency for the first
time in three years… Fed funds futures contracts on the Chicago Board of Trade show
58 percent odds the Fed will cut its target rate for
overnight bank loans to 3.75 percent at its Jan. 30 meeting.
The odds have risen from no chance a month ago. The odds of a decrease to 3.5
percent were 42 percent, compared with zero a week ago. The ECB kept its
benchmark rate unchanged at 4 percent last week. The yield spread between German two-year
notes and same- maturity Treasuries was 1.12 percentage points, near the widest
since November 2002.”
From Citi: “We have just moved to the widest 2 year
versus Fed funds inversion in a quarter of a century.”
From BMO: “2-year Treasury rates slid 19 bps to 2.56% last week after Bernanke
flung open the door for aggressive easing. The 2-year rate is the lowest since
the fed funds rate was at 1.75% more than three years ago. The 10-year rate
dipped a lesser 8 bps to 3.79%, trolling four-year lows. With the Fed now in
full reflation mode as it tries to get ahead of recession risks, the 10s-2s
spread of 122 beeps is the steepest in three years.”
From Bear Stearns: “With
the 30-year conventional mortgage rate dipping below 6.0% for the first time
since 2005 there has been an increased focus on the potential for a major
refinancing wave to sweep through the mortgage market. Indeed, at the
current mortgage rate level of 5.90% we find that 37% ($1.81 trillion) of the
conforming mortgage universe is refinanceable. If rates decline another 25 bps
from here exposure increases to 50% ($2.47 trillion). However,
we do not expect today’s refinancing response to match the magnitude or
intensity of prior”
From Bloomberg: “U.S. existing home sales will fall 13 percent
this year before recovering in 2009, according to a forecast by the Mortgage
Bankers Association, the industry's largest trade group… New home sales likely will tumble 15 percent
to 666,000
from 2007, before
rising 6.6 percent in 2009… Mortgage originations for loans to buy homes will
decline 18 percent to $955 billion in 2008, the report said. That's almost
half the $1.5
trillion lent in 2005 as the five-year real estate boom peaked. In 2009,
purchase originations will rise 5 percent to $1 trillion, MBA said. Loan refinancing will fall about 14 percent
to $1 trillion this year…”
From Merrill Lynch: “The precious metals complex is bid following
Friday's "inflationary" DoA crops report that has sent the grains
complex to new highs - that and aggressive market positioning for the Fed have
taken gold up $15/oz so far today to $910/oz.
Interestingly, 10-year TIPS breakevens have come down to 223 bps, so not
everyone is buying into the inflation story.”
From CNBC: “Citigroup
plans to announce a writedown of as much as $24 billion and layoffs that could
total as much as 24,000 due to subprime and credit-related losses, CNBC has
learned. The plans will be unveiled Tuesday by Citigroup's new CEO, Vikram S.
Pandit, after the banking giant reports fourth-quarter earnings. At the same
time, Citigroup could also announce that it is cutting its dividend payment… Citigroup
also intends to raise as much as $15 billion from various foreign and domestic
entities including Saudi Arabial Prince Alwaleed bin Talal, Citigroup's largest
individual shareholder…”
From UBS: “…the break lower in stocks has also been associated
with a rise in volume —lending credence to the notion that the Bull move in
S&P’s is over and that a new Bear phase has begun.”
From Merrill Lynch: “The S&P 500 is off to its worst start
since 1982 (-4.6%) and the Dow is off to its worst start since 1991 (-5.0%) –
and both were recession years: Equities are now off for three weeks in a row in
a losing streak not seen since last August, when the Fed was forced to cut the
discount rate intermeeting and change its growth outlook.
Tech
has actually surpassed financials on the down escalator – down 9.5% YTD versus
down 5.4%. Meanwhile, health care is up 3.4% and utilities are up 1.7%, so not
only the headline averages but the sector rotation is telling you that
recession risks are alive and well. The fact that the yield curve – 10-year
note yield minus the Fed funds rate – has been negative for 18 months in a row
is a sure sign that the downturn has arrived. If not, it would be the first
time that such a prolonged inversion failed to usher in a transition phase for
the real economy.”
From Merrill Lynch: “Food prices are soaring again on the latest
bullish (not bullish for the buyer) DoA crop report, which sent corn futures to
fresh 12-year highs… we have wheat at an all-time high with stockpiles at their
lowest level since – get this – 1947. Soybean prices are at a 34-year high.
This is an added source of angst for the consumer.”
From RBSGC: “MBS Holdings Increased $9 bn, First Time in
Four Weeks. MBS holdings by US banks increased $9 bn with pass-through holdings
up $6 bn and CMO holdings up $3 bn. MBS holdings were down $41 bn over the last
year (2007). Deposits decreased $17 bn over the past week. Deposits increased
$518 bn over 2007. Commercial and industrial loans increased $4 bn for all
banks over the week. C&I loans increased $243 bn over the last year. Whole
loan holdings were virtually unchanged over the week. Over 2007, whole loan
holdings increased by $214 bn.”
From JP Morgan: “Barring a serious economic downturn, we
expect financial firms’ capital requirements to be digestible. Concerns that
issuance of stocks and bonds could overwhelm the markets in 2008 seem
misplaced. Although many banks and
investment banks in North America and Europe have taken very large write-offs
and face slower revenue growth, we expect internal measures, such as dividend
reduction and suspension of share repurchases, to minimize the need for
securities issuance. We think many banks will shrink their balance sheets, reducing
the need for capital but also hampering credit creation. The insurance
and reinsurance industries are generally strong, and have relatively small
needs for additional capital. Many bond insurers will require additional
capital to cover their losses on collateralized debt obligations, but the sums
involved are small relative to overall financial-sector issuance. To the extent
that financial firms require additional capital, we expect them to favor
preferred and convertible securities over hybrids and common equity.”
From John Mauldin: “The bottom half of taxpayers only pay 3% of
the total income taxes collected, which is 1% less than before the Bush tax
cuts. 44% of the US [adult] population, or 122 million people, pay no income
tax at all. The richest 1% of the
country pay 39% of all taxes ($365,000 income and up), which is 3% more than
before the Bush tax cuts, under the Clinton tax policy. The top 5% ($145,000)
pay 60% of all taxes (up 5% from 1999); and the top 25%, with income over
$62,000, paid 86% of all taxes…Every category is paying more now than under
Clinton, except the bottom 75%.”
[Note – current U.S. population is 303 million, 2006 median
U.S. household income was $48,200, based on U.S. Census data]
From Fidelity: “Over the last 10 years, 72% of the world's
best-performing stocks were based outside the United States. International markets have delivered nearly
twice the returns of domestic markets over the past five years. On average, individual investors allocate only
7% of their portfolios to international investments, while professionally managed
pension plans allocate 17%.”
End-of-Day Market Update
From SunTrust: “Stocks managed a triple-digit gain for a change.
Bond prices are undeterred by equity strength and continue to hug recent highs
on expectations of additional bank write-downs and weak economic news. In
addition, there are a few random hopes out there for an inter-meeting cut from
the FED any day. Event risk increases sharply beginning tomorrow.”
From RBSGC: “Domestic equity prices gained throughout
much of the session, with the DJIA, S&P 500, and NASDAQ all up more than
1%.”
Three
month T-Bill yield rose 6bp to 3.15%.
Two
year T-Note yield rose 1bp to 2.56%
Ten
year T-Note yield fell 0 bp to 3.78%
2/10
Treasury curve flattened 1bp to 122bp
Dow
rose 172 to 12,778
S&P
500 rose 15 to 1416
Dollar
index fell .37 to 75.61
Gold
rose $10.5 to $906 (New all-time record high)
Oil rose $1.50 to $94.16
*All prices as of 4:10pm
