Monthly Archives: March 2009

2009-03-04 USER

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It all still looks very, very weak. But so low that even small improvements will show high % gains.

MBA Mortgage Applications (Feb 27)

Survey n/a
Actual -12.6%
Prior -15.1%
Revised n/a

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MBA Purchasing Applications (Feb 27)

Survey n/a
Actual 236.40
Prior 250.50
Revised n/a

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MBA Refinancing Applications (Feb 27)

Survey n/a
Actual 3063.40
Prior 3618.00
Revised n/a

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Challenger Job Cuts YoY (Feb)

Survey n/a
Actual 158.49%
Prior 222.40%
Revised n/a

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Challenger Job Cuts TABLE 1 (Feb)

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Challenger Job Cuts TABLE 2 (Feb)

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Challenger Job Cuts TABLE 3 (Feb)

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Challenger Job Cuts TABLE 4 (Feb)

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ADP Employment Change (Feb)

Survey -630K
Actual -697K
Prior -522K
Revised -614K

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ADP ALLX (Feb)

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RPX Composite 28dy Index (Dec)

Survey n/a
Actual 193.05
Prior 199.39
Revised n/a

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RPX Composite 28dy YoY (Dec)

Survey n/a
Actual -21.43%
Prior -21.59%
Revised n/a

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ISM Non Manufacturing Composite (Feb)

Survey 41.0
Actual 41.6
Prior 42.9
Revised 42.9


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NY Fed To Begin $200 Billion TALF March 17

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Yes, which is interesting as the banks are the Fed’s ‘designated agents’ for lending.

Seems they could figure out how to continue to use them for that purpose, rather than set up a form of an in house shadow infrastructure to do the same thing.

They are in this way over their heads.

>   
>   The Fed’s now trying to bypass the banks and lend directly to the market via third party >   mediums.
>   

>   
>   On Tue, Mar 3 at 11:30 AM, Mauer wrote:
>   
>   This language below was in the last version of TALF also but it sends a big message.
>   
>   ”Can a newly formed investment fund borrow from the TALF?”
>   ”Yes, so long as it satisfies all the eligible borrower requirements set forth above.”
>   
>   By the way, in Shiller’s new book, Animal Spirits he specifically talks about TALF and says >   that it is a very important part of the recovery program.
>   

Sad but true, though I would say fiscal balance can always do the trick.

And the Fed has failed to utilize its member banks for that public purpose.

>   
>   He seems to think that it is incrementally more important than other programs if you think
>   about how much space he devotes to discussing it.
>   
>   I read part of Koo’s book last night.
>   
>   He really gives fiscal policy a big push. Says that Romer, Friedman and Terin are off base
>   because they don’t give fiscal policy enough credit.
>   

Agreed!

>   
>   His charts as to the level of recovery and the tax revenues that the fiscal stimulus created
>   are very important.
>   
>   He should have been consulted by the administration.
>   
>   He is a big fan of FDR’s stimulus and obviously doesn’t think much of those that caused
>   FDR to cut deficit to zero in 1937.
>   
>   He charts indicate that the economy was well on road to recovery before start of war
>   although you need to give lend lease credit for some of that.
>   
>   But that goes back to the fiscal stimulus again as opposed to monetary.
>   

Yes, exactly.

>   
>   ”Problem here is that most of the borrowing demand – but not all- is likely to be distress
>   debt demand as few households are likely to remain convinced they can maintain a deficit
>   spending profile in this type of macro environment.”
>   
>   ”the Fed’s now trying to bypass the banks and lend directly to the market via third party
>   mediums.”
>   

The fed could set up a program for the banks to deal with that with appropriate fed guarantees and ‘profit caps’.

>   
>   On Tue, Mar 3, 2009 at 11:28 AM, Scott wrote:
>   
>   Like just having the Treasury buy conforming mortgages at 4%.
>   
>   Yes, WAY over their heads.
>   

Exactly!

There are all kinds of creative ways to use the banking system to bring down rates and/or increase funding if that’s what they want to do.

>   
>   On Tue, Mar 3, 2009 at 11:58 AM, Pat wrote:
>   
>   So how does the FED get liquidity to investors if the banks and banking regulations require
>   them not to lend given the current state of their balance sheets and capital.???
>   

Change the regulations.

Use Fed guarantees that put the Fed in the same risk position they are currently in anyway.

>   
>   How do you use the current infrastructure without removing the regulatory constraints?
>   

You alter the regulations which are always a work in progress.

>   
>   Simply put the banks don’t have the balance sheet available to lend at the levels they used
>   to.
>   

With Fed guarantees they don’t need balance sheet any more than the Fed does.

>   
>   We have seen estimates on repo balance sheet that has left the street or really just
>   evaporated in excess of $3 trillion. The correlation between market cap (see below) and
>   balance sheet is very high. So when 3+ trillion goes away from repo those securities
>   bought using repo financing get sold/bought for cash (de-levered / liquidated).
>   

Right. Repo only intermediates.

>   
>   The levered bid for securities disappears not to return w/o balance sheet support.
>   

Right.

Banks are levered institutions and should all have unlimited unsecured lines with the fed, as i have been suggesting for a very long time.

>   
>   That levered bid was VERY LARGE particularly for MBS. The repo market is a very large
>   CP conduit where money providers earn short term market rates financing portfolio
>   manager’s long term positions and for a spread a broker dealer was the pipeline between
>   the 2 entities. The pipeline is tiny now (see market cap graph below) and cannot meet
>   the liquidity needs of the larger market.

Right.

Banks can fill in the gap with appropriate Fed support.

Not that I would recommend filling all the gaps!

But in any case investors can buy bank CD’s and banks can invest in short term loans vs securities if the Fed so desires.

Problem is the Fed doesn’t know how to get from here to there.


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50% Chance NYC Will Default On Its Debt

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NYC defaulted when I first started in the early 70’s.

Charlie Sanford, my department head at Banker’s Trust, was the one who pulled the plug.

He was at a meeting for a revenue anticipation bond and said in his distinctive voice something like, “Revenue, what revenue? We’re out.”

>   
>   On Tue, Mar 3, 2009 at 10:35 AM, Russell wrote:
>   
>   Gambling man?
>   

50% Chance NYC Will Default on Its Debt in 5 Years

by Joe Weisenthal

Mar 3 (Business Insider)


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More detail on Personal Income gains

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This is relentless and tends to cushion downturns:

Personal Income and Outlays

Mar 2 (BEA) — Personal current transfer receipts increased $66.6 billion in January, compared with an increase of $29.9 billion in December. The January change in current transfer receipts reflected 5.8-percent cost-of-living adjustments to social security benefits and to several other federal transfer payment programs; together, these changes added $41.1 billion to the January increase.

Government wage and salary disbursements increased $12.9 billion in January, compared with an increase of $1.4 billion in December. Pay raises for civilian and military personnel added $9.7 billion to government payrolls in January.


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Deficit up = Savings up

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Shoppers’ New Frugality Hurts Business

by Kelly Evans

Mar 3 (WSJ) — U.S. consumers increased their spending in January, while the savings rate reached its highest level in nearly 14 years amid a deepening recession.

Does that ring a bell?

The last time savings was this high was in 1995 when the deficit was also about 5% of GDP.

And the lows in savings that caused the subsequent collapse were in the late 1990’s when the government was in surplus.

The national income accounting way to say it is:

Government deficit= non government savings of financial assets.

Personal consumption rose 0.6% compared to the month before, the Commerce Department said Monday. In December, spending fell by an unrevised 1.0%, while November spending fell 0.8%.

Personal income increased at a seasonally adjusted rate of 0.4% in January, with December income falling by an unrevised 0.2%.

Incomes were supported by government increases due to CPI adjustments and the like. This is an underlying force that continuously supports nominal incomes at ever higher levels over time.

When savings rates reach desired levels and incomes are growing however modestly, spending resumes.

With more deficit spending/more savings and income on the way there is good reason to believe consumption will at least flatten and likely begin to rise.


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2009-03-03 USER

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ICSC UBS Store Sales WoW (Mar 3)

Survey n/a
Actual -0.6%
Prior 0.6%
Revised n/a

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ICSC UBS Store Sales YoY (Mar 3)

Survey n/a
Actual -0.8%
Prior -0.8%
Revised n/a

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Redbook Store Sales MoM (Mar 3)

Survey n/a
Actual 0.8%
Prior 0.9%
Revised n/a

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Redbook Store Sales MoM (Mar 3)

Survey n/a
Actual -1.9%
Prior -1.5%
Revised n/a

 
Redbook up two weeks in a row?

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ICSC UBS Redbook Comparison TABLE (Mar 3)

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Pending Home Sales MoM (Jan)

Survey -3.5%
Actual -7.7%
Prior 6.3%
Revised 4.8%

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Pending Home Sales YoY (Jan)

Survey n/a
Actual -6.6%
Prior 5.7%
Revised n/a


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Obama budget to force more savings

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Just what we need- one more subtraction from aggregate demand and yet more tax advantaged funds for managers to play with.

Clearly he believes that “we need savings to have funds for investment” and has at best forgotten the implications of the paradox of thrift:

Obama seeks ‘Automatic Pensions’, Labor Enforcement

by Holly Rosenkrantz

Feb 26 (Bloomberg) — The budget “lays the groundwork for future establishment of a system of automatic workplace pensions, to operate alongside Social Security, that is expected to dramatically increase” retirement and personal savings, Obama’s Office of Management and Budget said in its outline, without giving details on the costs.

The plan would force employers that don’t offer retirement plans to enroll employees in a “direct-deposit IRA account,” with the option for workers themselves to opt out. Currently, 75 million working Americans, or about half the workforce, lacks employer-based retirement plans, according to the administration.


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Mosler Health Care Proposal

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Mosler Health Care Proposal

  1. Government funding for a full time, $8 per hour job that includes full federal health care coverage for the worker and dependents.

    This immediately triggers market forces that will result in all businesses providing health care benefits as a matter of competition.

  2. As a matter of economics and public purpose it is counter productive for health care to be a marginal cost of production.

    No economist will disagree with this. Unless going to work makes one more prone to needing health care, making the cost
    a marginal cost of production distorts the price structure and results in sub optimal outcomes.

    Therefore government should fund at least 90% of health care costs paid for by businesses.

  3. Long term vision subject to revised details:
    • Everyone gets a ‘medical debit card’ with perhaps $5000 in it to be used for qualifying medical expenses (including dental) for the year.
    • Expenses beyond that are covered by catastrophic insurance.
    • At the end of the year, the debit card holder gets a check for the unused balance on the card, up to $4,000, with the $1,000 to be spent on preventative measures not refundable.
    • The next year, the cards are renewed for an additional $5,000.
    • Advantages:
      1. Doctor/patient time doubled as doctor/insurance company time is eliminated.
      2. The doctor must discuss the diagnosis and options regarding drugs, treatments, and costs with the patient rather than an insurance company.
      3. Individuals have a strong incentive to keep costs down.
      4. Doubling the time doctors have available for patients increases capacity and service without increasing real costs.
      5. Total nominal cost of approx. $1.5 trillion ($5,000×300 million people) is about 10% of GDP which is less than being spent today, so even when catastrophic costs are added the numbers are not financially disruptive and can easily be modified.
      6. Eliminates medical costs from businesses, removing price distortions and medical legacy costs.
      7. May obviate the need for Medicare and other current programs.
      8. Eliminates issues regarding receivables and bad debt for hospitals and doctors.
      9. Eliminates the majority of administrative costs for the nation as a whole for the current system.
        Patients can ‘shop’ for medical services and prices as desired.
    • Disadvantages: Those more in need of the rebate at the end of the year may elect to forgo treatment beyond the $1,500 not subject to the rebate.
    • Doctors may be able to more easily convince patients of unneeded treatments and expensive drugs vs insurance companies.


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China to bolster oil reserves

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It’s not a lot but seems private inventories are low and were probably liquidated in the last 6 months.

China to bolster oil reserves

by Sun Xiaohua

Mar 2 (China Daily) — China is accelerating the build-up of its oil reserves to avoid the economic dislocations the country suffered in 2008 from fluctuations in the world oil price.

China’s National Energy Administration (NEA) recently released a plan to build nine large refining bases in coastal areas over the next three years, sources with the China Petroleum and Chemical Industry Association said last week.

The plan involves building three 30-million-ton refinery bases in three cities (Shanghai, Ningbo and Nanjing) in China’s economically dynamic Yangtze Delta and six 20-million-ton bases in other coastal areas from Tianjin in the north to Guangzhou in the south. It will also facilitate major joint-venture refinery projects between Chinese companies and partners from oil-producing countries such as Venezuela,Qatar and Russia.

The refinery scheme is part of China’s plan to bolster its oil inventories. The NEA announced at a national energy conference in early February that China will, in addition to the current four strategic petroleum reserve (SPR) bases, build eight new ones by 2011. The program will increase China’s strategic crude reserve capacity to 44.6 million cu m, or 281 million barrels.

The country will also increase its refined oil reserve to 10 million tons by 2011, a source familiar with the stockpile plan told China Daily in February.

“China’s attentiveness to its oil reserve capacity has grown in tandem with its rising dependence on imported oil,” said Pan Jiahua, an expert with the Chinese petroleum society.

China, the world’s second largest oil consumer, relies on imports for about half of its oil needs. It imported 178.9 million tons of crude oil in 2008, up 9.6 percent from the previous year, according to the National Development and Reform Commission.

But China cannot simply take advantage of attractive prices and store as much oil as it wants because its current reserve capacity is not commensurate with its energy appetite.

Customs statistics shows China’s crude imports in January even fell 7.99 percent year-on-year. A slowing economy bears most of the blame but analysts said the country’s limited capacity also played a role.

Zhao Youshan, head of the petroleum distribution committee of the China General Chamber of Commerce, an industry group, recently submitted a proposal to oil-related government agencies, calling for using tanks controlled by private companies to store more cheap oil.

Zhou said in his proposal that China’s more than 600 private oil companies have 230 million tons worth of storage tanks, almost ten times the capacity of the eight new SPR tanks combined.

China has massive private oil storage facilities, built up by oil companies since China opened its oil markets to private operators in the mid-1990s. But State companies, mainly China National Petroleum Corp (CNPC) and China PetroChemical Corp (Sinopec), basically control oil-importing licenses and hundreds of private oil distributors and refiners are currently sitting on empty tanks.

Zhou said in his report that the industry slump last year has left many private oil companies broke and that some of the survivors are struggling with the high maintenance cost of empty tanks.


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