A party in every can…
Rail traffic weekly: Return to trend after Hurricane Sandy | Association of American Railroads (AAR)
Carloads -3% and Intermodal +3.4 (cumulative ytd volume); -5.5% and +1.9 respectively (vs. this week last year).
12 of 20 carload groups posted gains: Petroleum products +45.5, farm products +24 & motor vehicles +13.6; metallic ores -20.9, coal -15.5 & grain -9.8.
Sweet forgiveness: Debt relief or economic stagnation | Boston Review
Discusses the realities & remedies for a balance sheet recession, namely a less creditor-controlled bankruptcy process with more debt forgiveness.
“Lien stripping” (cramdowns that reduce mortgage liabilities for bankrupt homeowners) would help accelerate household deleveraging, but Congress only allows this for secondary residences. The US has allowed cramdowns in the past: the Bankruptcy Act of 1841 helped an economic rebound & was repealed shortly thereafter; during the Great Depression, FDR chartered the Homeowners Loan Corporation (HOLC), which restructured mortgages at a cost of $3.28B (5% of GNP or $625B today).
As Neil Barofsky (SIGTARP) says, Larry Summers & Tim Geithner blocked creative solutions for loan modifications, helping the Obama administration choose banks (spreading out writedowns) over “undeserving homeowners.”
The decline of Japanese corporations as illustrated by the CDS market | Macronomics
Since June 2012, Japanese CDS spreads have rallied to new highs, materially diverging from the Asia ex-Japan Index, which has dropped to a normal range.
“Mr. Market’s Minsky Moment may be upon us” | Barry Ritholtz (The Big Picture)
“We have had a 100% rally off of the March 2009 lows, driven by many factors. By my reckoning, that should have been a 70% or so move, in light of the 57% collapse that preceded it. As the more organic elements (psychology/valuation/mean reversion) began to fade, the artificial factors of the Fed (QE/ZIRP) kicked in. The 37% or so those helped that drive also now appear to be fading.”
Unsterilized monetization will succeed Operation Twist | FOMC Minutes
Fed says that they’ll begin unsterilized monetization (buying long-end without offsetting short-end roll-off from maturities) in the long-end of Treasury/MBS curve after OT ends 12/31/12. Combine with QE3, this totals $85B/month in outright monetization.
[ZeroHedge notes that SPX faded the announcement, meaning $85B/mo was priced in… scary.]
Odds increase for mortgage modifications post-election | Bruce Krasting
Because he’s defended his mandate to save taxpayers from Fannie Mae/Freddie Mac losses, Ed DeMarco (head of FHFA) will likely lose his job by Obama’s executive order. Expect Obama to announce mass GSE mortgage mods when he appoints a new Treasury Secretary: $100-300B cost for FNM/FRE to writedown losses & restructure underwater agency loans.
Normalization in private sector balance will drive 2013-14 GDP | Jan Hatzius (Goldman Sachs)
As part of the current balance sheet recession, private investment -22% in 2008 (worst drop in postwar era) when households quickly turned to saving. GS expects a normalization in the 5.5% of GDP that’s being diverted to private sector savings; a return to ~2.5% historical average will prompt economic expansion in 2h2013 & 2014–despite the drag of fiscal contraction.
Report sees US as top oil producer, overtaking Saudi Arabia, in 5 Years | NY Times
IEA says the US will overtake Saudi Arabia as the world’s leading oil producer by 2017, becoming a net exporter by 2030. Also, US will surpass Russia in natural gas by 2015.
[Imagine the resonance to the trade deficit, output gap.]
The UK’s public unfunded pension obligations reach 321% of GDP | UK Office of National Statistics
ONS reported a total of £5.01T in UK government pension obligations, of which £4.7T were underfunded liabilities vs. £1.5T GDP (321%). By comparison, US has ~$100T underfunded vs. ~$16T GDP.
The state of the economy in two sentences | Calculated Risk
Bill McBride is sanguine in his economic outlook, expecting a resurgence in residential housing investment & state/local government spending in 2013.
China turns corner on economy as party chooses new leaders | Reuters
China’s new leaders are optimistic, as the 18th Party Congress was anointed last week: “Signs of stabilization in the economy were getting more obvious in October. We are fully confident that we can achieve the economic growth target for this year… above 7.5 percent.”