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HomeKnocked Out of the Final Four
Posted by Larry Doyle on April 3rd, 2009 8:40 PM |
Cartoon by Chip Bok
Talk May Be Cheap But It’s Expensive!!
Posted by Larry Doyle on April 3rd, 2009 5:59 PM |
Who says money does not talk…and I guess, by the same token talk may be cheap but it’s expensive.
The WSJ reports, Summers Received Over $5 Million From D.E. Shaw.
Right in line with my March 9th piece, How Wall Street Bought Washington.
LD
Afternoon Market Update April 3rd
Posted by Larry Doyle on April 3rd, 2009 4:01 PM |
On the heels of the G-20 and the April Unemployment Report, there are some interesting crosscurrents playing out in the market. The price action strikes me as inconsistent. Given some of these inconsistencies, I believe the price action actually reflects the squaring of positions of many short term traders who are being tested.
Equities: despite an Unemployment Report that is in line with expectations, this report was weaker than expectations. That weakness is reflected in the revisions to January’s report and the decline in the hourly workweek. Despite the ongoing economic weakness, stocks are slightly higher on the day and are closing out the 4th strong week in a row.
Bonds: typically economic weakness would indicate a decline in interest rates and a move higher in bonds. Market activity is reflecting the exact opposite. 10 year U.S. government bonds are significantly lower in price with the rate on these bonds back up to 2.90%, which is higher by 12 basis points on the day. (more…)
32 Bid/84 Ask
Posted by Larry Doyle on April 3rd, 2009 11:14 AM |
Will banks sell toxic assets? This question is being asked ad nauseum. Investors have indicated a willingness to purchase at the right price. That price has moved up somewhat given the assistance of government financing (read this as taxpayer financing) and government assumption of losses (read this as taxpayer assumption of losses). Bank executives have indicated a willingness to sell, “at the right price.” Ken Lewis, CEO of Bank of America, made that assertion again this morning.
What’s the right price? Well, a Bloomberg survey of investors and banks provided indicated levels of interest as to what the right price for certain of these toxic assets might be. Investors are willing to pay 32 cents on the dollar. Banks are willing to sell at 84 cents on the dollar. In Wall street parlance, between those levels one can drive many Mack trucks!!
Aside from the disparity in perceived value, banks now are further incentivized not to sell given the reprieve they received just yesterday in the relaxation of the mark to market. (more…)
April Unemployment Report: UPDATE!!
Posted by Larry Doyle on April 3rd, 2009 7:26 AM |
Before this morning’s numbers were released, I published:
The widely anticipated April Unemployment Report will be released at 8:30 am EST. Concerns over this report have increased over the last two days given a report from ADP on Wednesday which forecast an increasing rate of decline in employment. Additionally, Weekly Jobless Claims increased yesterday.
Over and above the actual report, the Bureau of Labor has consistently revised prior months’ numbers worse than initially reported. Aside from the headline print, a thorough analysis needs to focus on these revisions. I will report back shortly after 8:30pm with the actual numbers!!
Last month’s numbers and expectations for this report are as follows:
**note: I have now included the actual numbers which were reported at 8:30 a.m.:
Unemployment Rate
March 8.1%
expected 8.5%
April Report 8.5%
The UnderEmployment Rate is 15.6% as reported by Bloomberg! This rate incorporates unemployed (not working, but looking for work), underemployed (working part-time, but would prefer full-time), and unemployed, having given up looking for work. These last two groups are not included in the reported 8.5% unemployment rate.
Non-farm Payroll
March Report 651k
April expected 658k
April Report 663K
January Revision from 655k to 741k
Avg Hourly Earnings
March Report +.2%
April expected +.2%
April Report +.2
Avg Hourly Workweek
March Report 33.3 hours
April expected 33.3 hours
April Report 33.2 hours
Analysts hit the numbers, as they came in as expected. Wow! Are the analysts that good or are these numbers being “managed” or “massaged” so as not to overly upset the markets? Well, we did have a significant revision to January’s report. Let’s dig deeper!!
Call me paranoid, but when a January Non-Farm Payroll number is revised from a loss of 655k jobs to 741k and no revision is provided for February, I immediately ask why.
The fact that the average hourly workweek actually declined by .1 from 33.3 hours to 33.2 hours is very meaningful. With job losses increasing, and the remaining workers actually working fewer hours, this is an indication of declining flow of orders.
No improvement in average hourly earnings, so no expectation of improvement in consumer spending.
Market reaction: bonds slightly lower. Stocks initially popped higher but are now selling off slightly.
The WSJ reports: Recession Job Losses Top 5 Million
Aside from these numbers, in regard to the G-20, the big winner seems to be the International Monetary Fund. It is reported that the IMF will receive $1 trillion to allocate to emerging economies and developing countries. It was not widely reported that some of those funds had already been committed to the IMF, so it is not “new” money. The old double counting trick!!
LD
Sense on Cents Central Station
Posted by Larry Doyle on April 2nd, 2009 4:24 PM |
***UPDATE: The live event has ended, but you can scroll through the topics we discussed by clicking on the “Replay” icon on the chat window at the end of this post.***
Join me this evening beginning at 8:30 p.m. ET for Sense on Cents Central Station. This endeavor is a few hours of written Q/A and live chat with your resident host, Larry Doyle. I like to utilize the theme of a ride on the rails, so please allow me to expound.
With so many cross currents at play in the markets, economy, and world of global finance, where can one go to develop a framework of understanding, enjoy the company of friends, and make sense of the madness? Welcome to Sense on Cents Central Station. Our ride departs at 8:30 p.m. with an expected return at 10:30 p.m. (I’m hoping this time frame allows our West Coast friends to join in). While we traverse the curves along our track, we can address a wide range of issues, including: the G-20 summit, FASB’s vote to ease mark-to-market, Obama’s economic plans, Secretary Geithner’s outlook, the market performance this week, month, and year to date, developments overseas, the outlook for our financial regulatory structure, issues of personal finance, career planning, or anything else on your mind. (more…)
Putting Perfume on a Pig!!
Posted by Larry Doyle on April 2nd, 2009 9:45 AM |
***Bumped up from original publication time of 7:30AM. The FASB has now just voted its approval of the change in mark-to-market accounting.
It is speculated that the FASB (Federal Accounting Standards Board) will today relax its rule known as the mark-to-market. This rule requires firms under the FASB’s purview to mark their assets to changing market prices on an ongoing basis. The institutions subject to this rule have been lobbying FASB and Congress for a change because the markets for these assets have imploded and in certain cases totally dried up.
What does the FASB plan to do? The FASB is going to cave to the lobbying pressure and will allow institutions to use their own internal models based upon cash flow analysis to price these assets. This change in the mark-to-market will not only allow institutions the flexibility to not mark down certain assets, but simultaneously mark up other assets.
The media only presents the impacted assets as “hard to value” or the dreaded “mortgage-backed securities” or “securitized assets”. In fact, many of these assets are very simple and plain vanilla. Let’s enter the world of the Federal Home Loan Banks.
The FHLB system consists of 12 regional banks and it provides liquidity (capital) for its respective members to operate. The FHLB system invests its own capital, primarily in plain vanilla conventional mortgages (Freddie Mac, Fannie Mae, Ginnie Mae) and Jumbo ARMS (adjustable rate mortgages) and fixed-rate pass-thrus. Certain banks within the FHLB system may have moved slightly off the plain vanilla path to purchase a small percentage of sub-prime assets, but that was much more the exception than the norm. (more…)
Is The Market Overbought?
Posted by Larry Doyle on April 1st, 2009 9:55 PM |
A few weeks ago, I wrote a piece on whether the market was oversold. Allow me to re-introduce a few topics . . .
The market valuation of any asset is determined by three factors:
1. Fundamentals: measures items such as cash flow analysis, cost-benefit analysis, earnings before interest, taxes and depreciation (EBITDA)
2. Technicals: measured by regression of price movements to determine overbought and oversold conditions
3. Psychology: measured by unscientific surveys of market participants
And now the update:
1st quarter earnings are due out over the next few weeks. Most analysts and managers I follow believe these earnings will be lower than expectations and that 4th quarter 2008 earnings will be revised lower. Will companies provide guidance going forward? Many companies have refrained given the economic uncertainty. (more…)
Hancock Tower Cut In Half
Posted by Larry Doyle on April 1st, 2009 2:59 PM |
Many people may not fully appreciate the dynamics of the “shadow banking system.” Credit for consumers, small business, and corporations is still largely a function of bank lending. Many parts of our economy are railing on banks for not providing more credit. The banks do deserve plenty of blame for not allocating more credit and at reasonable rates (primarily consumer credit). That said, the “shadow banking system” (funds generated by securitizing assets) has largely shut down.
The stream of credit from the “shadow banking system” represented approximately 40% of the credit injected into our economy. While plenty of people clearly feel this lack of credit at the individual level, what does it mean at the corporate level?
Let’s review a major real estate transaction. Bloomberg reports, Hancock Tower Sells at About Half Price to Normandy. This tower is a first class office building in a prime Boston location. (more…)
What is Michael Panzner Saying?
Posted by Larry Doyle on March 29th, 2009 6:08 PM |
In anticipation of this evening’s guest on my radio show, let’s see what Michael Panzner has to say:
No doubt a lot has changed over the past few years. But not just in terms of financial markets and the economy. There has also been a seismic shift in attitudes about America and its role in the world. When the going was good, many nations were willing to accomodate U.S. arrogance and heavyhandedness in global affairs, and were happy to follow our lead in various areas. Now that the bubble has burst, however, a lot of people aren’t all that interested in even hearing what we have to say, especially when it comes to economic matters. One result, suggests the New York Times, is that “Obama Will Face a Defiant World on Foreign Visit.”
Michael Panzner is held in very high regard by a wide array of esteemed analysts, economists, and money managers. Read his entire piece, Not Buying What We Are Selling.
LD
