Diary of a Financier

Bookshelf Update: Top Newsstuffs (March 18-25)

In Bookshelf on Sun 25 Mar 2012 at 11:26

As spring shone through with greater conviction than at any prior point in this historically mild winter, the bears on Wall Street paradoxically retreated further into hibernation.  The bulls charged ahead, as if the temerity keeping them ambiguous over the past four years shrunk into a distant memory.  Despite <9% of analyst-covered stocks bearing a “Sell” rating, the only unequivocable bullish calls since 2009 have come from the shadows–hedge fund moguls and financiers.

The Street’s sales-force had been too gunshy, too afraid of missing the “Black Swan” again.  Yet, now they’re playing catch-up.  I once worried that too many were coming-around to my thesis regarding the Great See-Saw… now I’m sufficiently comforted by the lack of recognition.

To this week’s newsstuffs…


 This Is As Good As It Gets | New York Times
James Stock of Harvard & Mark Watson of Princeton contend that the key reason for the faltering pace of growth is that the work force is expanding more slowly. Population growth has slowed, and so has the pace at which women are entering the labor market.  These demographics mean that trend growth should be lower than before 2007.  The years before the recession were abnormally good, and while the recession was abnormally bad, reality lies halfway in between. In other words, the present situation is about as good as it gets.

Bank Of America Unveils Plan to Transform Foreclosed Homes into Rentals | Clusterstock
“Mortgage to Lease” pilot program: mortgagees transfer title to BOA; BOA forgives the outstanding mortgage debt; BOA leases the home back for max 3 years up to rental market rate.

A Natural Gas Reality Check | Michael Cembalest
Oil and natural gas are not frictionless substitutes. Oil is primarily used for transportation, whereas natural gas is used mostly by industry and for electricity. As a result, there is no substitution effect to stop the slide in natural gas prices. For shale investors, liquids that can be found in shale plays that are worth a lot more than dry gas: shale oil is obviously valued based on oil prices, and natural gas liquids are valued close to oil prices too.

Three Data Points That Prove Europe Cannot Be Saved | Phoenix Capital Research
Graham Summers is a raging Cassandra, but his points are prescient:
1. Official reported EU Bank leverage is 26:1, but real leverage 100:1 when considering declines in equity values.
2. One quarter of ECB’s €3T balance sheet is PIIGS debt.
3. The ECB is too small to contain the mess- EMU Bank Assets of $46T v. ECB balance sheet ~$4T (1210%).

We’re At The End Of The Commodity Supercycle | Citigroup
In the past decade, China’s GDP grew at an average rate of 10.5%. Investment expanded at an average rate of 13.5% during the period, the main contributor of growth. Hence, “overinvestment” and “stockpiling.”

Why Using P/E Ratios Can Be Misleading | Societe Generale
I always use Earnings Yield instead of PE for two reasons: it accounts for negative earnings, and it’s easier to compare to interest rate/bond yields.

Student Loan Debt Bubble Surpassed $1T MONTHS Ago | Consumer Financial Protection Bureau
CFPB’s Rohit Chopra: “it appears that outstanding student loan debt hit the trillion dollar mark several months ago… It seems that this market is too big to fail.”

Update on Housing’s Shadow Inventory | CoreLogic
1.6mm homes still remain in shadow inventory, a 6-month supply. That’s less than January 2011’s record of 1.8mm units; flat since October.

A Spike in U.S. Oil Production Will Spark “Industrial Revolution” | Citi

Italy Has $211 Billion In Notional Exposure To Derivatives, And Other Trivia | Mark Grant
The Italian Treasury revealed $211 billion [more] in notional exposure to derivatives, which is around eleven percent (11%) of Italy’s total GDP. This new exposure now brings Italy’s actual debt to GDP ratio to a whopping 144.3%.

U.S. exempts 11 states from Iran sanctions | Reuters
This is how America uses her global standing to enforce the will of her empire: 10 EU nations & Japan exempted because of significant reduction in their oil imports from Iran; China, India & South Korea have until June 28 to comply “or their banks and other institutions will be cut off from the US financial system.”

Incredible Shift in Corporate Leverage in the US & China | Richard Bernstein
He’s bullish on domestic equities because US corporations have grown despite deleveraging (debt/equity), while Chinese have experienced the opposite.

Two New Oil Refineries in Development (2011) | freedombytheway
First new US refineries in 35 years. Cites environmental & other bureaucratic regulations as barriers to an otherwise profitable business.

Making 9 Million Jobless Vanish: How The Government Manipulates Unemployment Stats | Daniel Amerman
“[T]rue unemployment rate is 19.9% and rising, and not 8.3% and falling… 74% of the jobless who have been removed from unemployment calculations are in the 16-54 age bracket, with only 26% in the 55 and above bracket.  Yes, the population is aging–but the heart of the workforce participation deception isn’t about the old.”

Wells Fargo Delaying HARP 2.0 Launch: Obama Administration Housing Refinance Program | Firedoglake
WFC refusing to participate in HARP, unless it services the loans it refinances.

The Hungarian Crisis | VoxEU

A Wall St. Firm Advises Greece, With Discretion | DealBook
BlackRock Solutions, an emergency SWAT team that advises sovereign governments in crisis like Greece, Ireland, British Treasury & US Treasury.

Understanding the Australian economy | Delusional Economics
As effects of Aussie stimulus wear off, a private sector deficit has grown unsustainable, which will soon effect government revenues (government surplus will soon erode).




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