Diary of a Financier

Top Newsstuffs (April 30-May 6)

In Bookshelf on Sun 6 May 2012 at 08:06

As I review a lot of my Top Newsstuffs from the past few weeks, I notice a tale of two earnings seasons.  The middle of this 1q2012 earnings season has served as a turnbuckle for sentiment, as macro data and CEO’s optimism have eroded.  (Reflexivity? Direction of causation? I know neither.)  I predicted both this timing and this story back in February.  While representative of bull & bear, this week’s stories are laced together with a theme that reflect this souring sentiment…

The State Of Global Deleveraging: Desynchronised & Heterogeneous | Pictet
Progress of developed countries’ State, Household, Financial & Corporate debt deleveraging.

Rail Traffic Weekly: Remains Sluggish | Association of American Railroads (AAR)
Carloads -4.1% and Intermodal +5.5%. Again, 12 of 20 segments posted gains y/y: Petroleum products +43.1%, Motor Vehicles/Parts +21.1%, Stone/Gravel/Sand +9.3%, Steel +8.1%. Coal -16.6%, Grain -17.2, Iron/Steel Scrap -5.3%, Farm Products (ex Grain) -12.9%.

David Einhorn: The Fed’s Jelly Donut Policy | Huffington Post
Op-ed likening the impotence of Fed ZIRP to the Simpsons & jelly donuts. Fed policy has economy in a coma, but he’s bullish stocks:
“The market is at 14 times earnings and only has to compete with 2% ten-year Treasury notes. Even with the recent rally, equities are cheap enough that they should not need the Fed to push risk-averse savers into stocks or a Bernanke put in order to do well. What gives?
“I believe that stocks are depressed because there is a pervasive feeling that something awful is going to happen. What is this enormous tail-risk? It’s the intersection of reckless fiscal policy with Jelly Donut monetary policy.
Removing the tail risk that Chairman Bernanke will feed us a coma inducing dose of Jelly Donuts would go a long way toward restoring the relationship between P/E multiples and long-term interest rates to the benefit of stocks, at the expense of bonds…
Raising short rates—not to a high level, but to a still low level of 2 or 3%–would be much more conducive to both growth and stability. The household sector balance sheet has a negative duration gap, meaning that it holds proportionately more short-term floating assets like bank deposits and money markets compared to its liabilities, which are disproportionately long-term fixed obligations including mortgages.”

Japan to Buy Korea Bonds as Asian Nations Pledge Cooperation | Bloomberg
Part of a broader $240B Chiang Mai Initiative Multilateralization agreement among Japan, China, South Korea and 10 Southeast Asian nations.

Fusion-io Bidder Seen Winning Wozniak’s Facebook Sales: Real M&A | Bloomberg
Dell & Hewlett Packard (HPQ) likely bidders for FIO.

Pension Reform: Utah Senate Bill 63 Revisited | Deseret News
In 2010, Utah Retirement System closed defined benefit (pension) plan to new employees and gave them option of enrolling in a hybrid pension or a defined contribution (401k) program. Likely saved URS from insolvency (est. 2028). A good model for Social Security?

US Fiscal Quarterly Report (1q2012) | Office of Debt Management & Treasury Borrowing Advisory Committee (TBAC)
Most important report of the quarter. Covers a lot of material, including:
1. Central Banks- investors’ policy anticipation is controlling markets; exit plans are uncertain.
2. Debt issuance- forecast a decline in net systemwide issuance (i.e. continued deleveraging). Significant rolloffs in non-Agency MBS, Agency debt/MBS, CMBS & ABS. Of course, strong Treasury, EM & IG supply with tepid HY.
3. Derivatives- Estimate $700T gross notional outstanding; central clearinghouses would be TBTF. BIS says a 1-in-200 day event could require ~$60B in collateral posting by 14 largest dealers.
4. ETFs- High Yield ETFs own 3% of the systemwide float, beginning “to exert technical forces on the bond market.”

Marginal oil production costs to $100/barrel | Bernstein
Marginal cost for 50 largest oil companies (non-OPEC) to produce a barrel will near $100 in 2012. Bernstein argues this limits price downside since non-OPEC marginal cost sets the world price.

New study: High U.S. debt levels could mean a quarter century of weak growth | Reinhart & Rogoff
“We identify 26 episodes of public debt overhang–where debt to GDP ratios exceed 90% of GDP–since 1800. We find that in 23 of these 26 episodes, individual countries experienced lower growth than the average of other years. Across all 26 episodes, growth is lower by an average of 1.2%.”

Fair Market Value Update | Doug Kass
Updates SPX FMV from 1360 to 1485, citing specific economic “noticeable dissimilarities between late-April 2012 and April 2011.”

Spain in talks over ‘bad bank’ scheme | Financial Times
Luis de Guindos developing plan at haste of IMF and support of PM Mariano Rajoy. Lenders will can park assets only if they’ve set aside sufficient bad loan provisions, independently valued.




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