Diary of a Financier

Top Newsstuffs (December 17-23)

In Bookshelf on Sun 23 Dec 2012 at 08:58

Merry Merry…

Infographic: Illustrating & quantifying fiscal cliff sequestration | The Washington Post (WaPo)
Bar charts look at the -3.53% GDP effect of sequestration, including the positive prior contributions from stimulus in 2008-11 (Bush’s tax rebate/cash for clunkers/ARRA/payroll tax holiday) and negative upcoming effects from automatic austerity in 2012-13 (ARRA winds down/payroll tax ends/Bush tax cuts expire/debt ceiling spending cuts). Also quantifies gross tax increases by income quintile.

Primary Dealers’ total Treasury holdings & maturity composition says rising rates aren’t a risk | ZeroHedge
The cries that T-bonds are being dumped & stocks accumulated over inflation fears are unfounded, because Primary Dealers (TBTF banks) are the ultimate “smart money,” and their Treasury holdings are at a record high (~$140B).
[I think this chart actually says nothing: The composition of PD holdings looks to me like their aggregate exposure is mostly on short end of yield curve, with minimal exposure >11y maturity & net short 6-11s.]

Rail traffic weekly: Growth returning to trend with snap back from pent up demand | Association of American Railroads (AAR)
Carloads -3.0% and Intermodal +3.3 (cumulative ytd volume); -3.9% and +8.0 respectively (vs. this week last year).
12 of 20 carload groups posted gains: Petroleum products +50.1%, lumber +22.9 & motor vehicles +13.6; minerals -20.4, coal -13.2 & grain -11.3.
[Intermodal snaps back due to pent up demand from LA port strike.]

Morgan Stanley redeems Paulson & Co investments: Explanation for recent gold liquidation? | ZeroHedge
MS redeemed its entire investment with hedge fund manager John Paulson, whose Advantage Fund is denominated in gold (linked to paper GLD) not USD.
Tyler Durden thinks Paulson’s liquidation is responsible for GC/ divergence from risk assets.
#Conspiracy

Silver to gain 29% in 2013 according to consensus | GoldCore
Bloomberg’s median estimate from 49 analysts projects Silver (SI/) +29% to $40.25 in 2013.
[If everybody’s in, it’s time to get out.]
#Bearish

US 3q12 GDP: Final revision prints 3.1% annualized | Bureau of Economic Analysis (BEA)
Revised up from 2.7% to 3.1%; last time GDP exceeded 3% was 3q11, when components were very similar:
Government (0.75pp) and Inventories (0.73pp) provide almost half the growth; Consumption revised down from 1.42pp to 1.12; Fixed Investment weak at 0.12pp.

Housing starts put residential recovery, investment & GDP into context | Calculated Risk
Housing starts on pace for +25% y/y growth, but at 770k units in 2012 vs. 1.5M historical average, this is the 4th lowest year on record (next to 2009-11).
Demographics & household formation suggest units will double in 2013 before returning to average–all of which is housing investment that meaningfully contributes to GDP.
#Bullish

A top in Eurdollar futures? | Peter Brandt (Factor Trading)
Eurodollar 2016 contract shows ST rising wedge inside a LT top (3-1/2 years), which could force an end to the Fed’s ZIRP. Now implying 1.22% future yield, a drop in ED/ implies higher yields.
[I myself see ED/ continuous contract having broken out of a bull pennant in 7/2012; it’s now showing weekly bull divergence; I do see ST bear divergence & the rising wedge on daily fractal, but I think the topping pattern has longer to go.]
$ED_F $GE_F

Banks see biggest returns since 2003 as employees suffer | Bloomberg
After compensation outpaced revenue growth from 2004-08, traders & investment banker pay is now half of 2007’s (not to mention headcount), due to shareholder/bondholder activism.
[Another warning that this cycle of corporate margin growth–and SPX EPS growth–is ending.]

The high correlation between firearms & homicides | The Global Sociology Blog
The Newtown/Sandyhook school shooting has reignited the gun control debate. The correlation between firearms per capita & gun-related homicides is a robust 0.75, and the US is a global leader in all accounts.
[My core principles are often that of a libertarian, but 2nd Amendment is a grossly outdated right–justified by the political scapegoat “tradition” & baseless beyond the context of the Revolutionary War. See Shirley Jackson’s short story “The Lottery.”]

Housing inventory down 24% year-over-year in mid-December | Calculated Risk
Although NAR & HousingTracker’s data don’t include shadow inventory, the volume of homes for sale is at its lowest level since 2004 & down -24% y/y.
#Bullish

Spain’s bad loans at record high, deteriorate at fastest pace since June | ZeroHedge
Spanish bank loan delinquencies go parabolic to 11.23% for first time in history.

“QE will offset almost all of next year’s government deficit” | JP Morgan
The Fed’s QE has run ~$500B/year, so when JPM removes QE (an “intragovernment” liability) from the federal debt, the deficit fall from 9.3% to 5.8%; then, QE4 increased flow to $1T/year, so the CBO’s projected 6% 2013 deficit falls to zero.

–Romeo

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