Diary of a Financier

Top Newsstuffs (July 23-29)

In Bookshelf on Sun 29 Jul 2012 at 05:41

Between the Wall Street Journal’s Jon Hilsenrath tweeting news of proximate Fed intervention and ECB chief Mario Draghi pledging a bazooka (“believe me”), the market’s deus ex machina arrived to provide support right where my charts expected.  A 2%+ rally into the weekend (after 1.5% on Thursday) now has the world waiting for central bank follow-through next week.

I blew out the last of my risk-off holdings, namely the US Dollar Index.  I added to almost all of my positions, especially the beta singlenames and of course my twin ETFs: Large Cap Growth (IWF) & Small Caps (IWM).

Here are my prime picks from a busy week in news:

~~~~

The Ballooning Cyprus Fiasco | Wolf Richter
Cyprus negotiating €13b bailout from Troika (€9b for banks + €4b for government), likely to dispatch in October, but they’re bankrupt now. Funding shortfall could be worse because Cyprian law says impaired bank loans don’t have to be written-down if secured.

Rail Traffic Weekly: No New Developments | Association of American Railroads (AAR)
Carloads -2.6% and Intermodal +3.6 (y/y cumulative ytd volume); -1.9% and +6.2 respectively (vs. this week last year).
7 of 20 carload groups posted gains: Petroleum products +50.1%, Food +13.8, Coke +10.6; Iron/Steel scrap -24.2%, Grain -16.9, Waste scrap -12.3.

Nine Financiers: A Cautionary Tale | The Reformed Broker
Ironic legend of America’s 9 most powerful men, who met at Chicago’s Edgewater Beach Hotel to celebrate their wealth in 1923. Within 25 years, all were ruined, including Jesse Livermore (suicide).

Eminent Domain: A Plan to Resolve the Real Estate Hangover | Matt Taibbi (Rolling Stone)
Mortgage Resolution Partners (MRP) is leading a plan for towns to seize underwater mortgages from banks (at FMV) by eminent domain, then help borrowers restructure. [Makes just as much–if not more–sense for dilapidated REO.]

The Truth about the Size of the US Government, in Historical Context | Business Insider
Guide to public sector employment & federal deficit (tax revenue, discretionary spending & entitlements). “It took us 30 years to get into this mess” [and it will take time to get out of it too].

Government Will Revise Growth Lower: GDP Revisions (2008-11) | Michelle Meyer (Bank of America)
Expects 2009 & 2010 GDP growth to be revised lower; 2011 revised higher given positive revision to nonfarm payrolls and drop in unemployment rate. Reflects “sharper contraction and weaker recovery.”

Spain’s Yield Curve Inverts | ZeroHedge
Spanish sovereign bond 5s10s invert; 2s10s dropping fast; basis trade (arb between cash spreads & CDS spreads) is also at record wides, as traders shun CDS in expectation of PSI (a la Greece).

Market Capitalization as a Percentage of GDP | The Big Picture
NYSE + NASDAQ combine market caps falling fast toward 100% of GDP, down from 180% high in 2000, 144% in 2007. Ratio first crossed 100% in 1996, when Alan Greenspan mentioned “irrational exuberance.”

Alan Blinder: Fed Should Cut Interest on Excess Reserves to Zero | Wall Street Journal
Former Fed VP wants IOER (rate paid banks for their excess reserve deposits at Fed) cut to zero or less to stimulate lending.

The “Baby Bust” Is Sending the Dow down to 3,000 between 2008-2020 | Harry Dent (HS Dent)
“When we see a correction after a major debt & demographic bubble… markets fall 70-80%… We don’t just have $16t in government debt; we have $42t in private debt that is deleveraging, and $66t (or $80tn by different estimates) in unfunded entitlements.” [Dent always gets the story right, but the timing & magnitude of effect wrong.]

US Federal Spending by President (FY1982-2013) | Brown Brothers Harriman
Critics want to attribute fiscal 2009’s 17.9% increase in government spending to Obama, but FY09 began four months before Obama took office. He inherited FY09 from Bush. Obama’s first budget (FY10) saw spending -1.8%, followed by +4.3% FY11 & +0.7% FY12, with FY13 budget calling for -1.3%.
Even with the inheritance from Bush, Obama’s first term boasts the slowest annualized growth in spending (+1.4%) since Dwight Eisenhower in the wake of the Korean War (1950s).

Swiss National Bank’s Euro Peg End-Game | Bruce Krasting
In past 3 months, SNB has purchased a whopping €250b EUR. Breaking their 1.20 EURCHF peg would immediately send the pair to parity, costing the Swiss CHF40b in losses (15% of GDP). They will institute capital controls before unpegging though, to limit the influx of capital from EMU.

Step by Step Eurocrisis Analogue: Ruble Crisis & Russian Default | NJB Deflator
PIIGS crisis is analogous to Russia/Southeast Asian crises that spread to Latin America in 1998, which suggest Greece will fully default on August 20, triggering contagion.

The IMF Prepared to Pull the Plug on Greek Aid | Der Spiegel
The IMF rumored to await the initiation of ESM in September, when they’ll shun another €10-50b in Greek loans to focus on ring-fencing Spain & Italy.

Ireland’s National Asset Management Agency Bulldozes Ghost Estate in Life After Real Estate Bubble | Businessweek
NAMA demolishing 1850 unfinished housing developments, which are a safety concern. ~15% of Irish homes (294k) are vacant after prices have dropped 64%.

Gun Control & Multiple Equilibria | EconoSpeak
Supply/demand balance for guns exhibits a multiple equilibria phenomenon: e.g. Japan has a low, “good equilibrium,” whereas US a “bad equilibrium.” US cannot revert to “good” again, partially because of the protection provided by outdated 2nd Amendment (“right to bear firearms”).

Aquifer Found in Africa | BBC
Africa’s most arid sub-Saharan nation, Nambia has discovered a vast water supply that can serve the country’s north for 400 years.

–Romeo

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