U.S. Stocks at 11 Month High

Bourses in Europe were up over 1% Wednesday, while the US was up just a little less as Goldman Sach’s recommended a punt on industrial companies. Equity markets continue to overcome the “usual” negative seasonality associated with the month of September. In part this likely reflects (the ample liquidity seeking a home with a yield and positioning which I wrote about Wednesday) and the ongoing impetus from the US inventory cycle, which continues to boost the outlook for orders and production and hence overall risk sentiment. But it may also be that that this reflects the boost flowing from very low levels of policy rates around the globe. Indeed in some ways the current environment is analogous to that seen in the middle part of the decade when strong global liquidity also boosted risk sentiment. It is worth noting though that the over the past decade or so the September weakness has, on average, come in the second half of the month, so it is a critical couple of weeks coming up.

Thus far Thursday data wise we’ve had the US trade deficit which widened to -$32.0bn (expectations were for a -$27.3bn read) on a surge in auto imports to take advantage of the cash for clunkers programme. The weekly jobless and continuing claims both dropped by more than expected to their lowest level since July. Upbeat news from household giant Proctor & Gamble (PG), who topped its own full year estimates, should also help early sentiment today. The stock is up 4%.

Thursday’s Market Moving Stories

• Japanese machinery orders, a leading indicator of capital expenditure, fell 9.3% in July, in a sign companies’ spending appetite may drag on the world’s No.2 economy as it crawls out of its deepest slump in decades. Japanese wholesale prices fell 8.5% in the year to August, and economists expect deflation to persist due to weak demand even though downward pressure from the slide in oil prices from record levels last year is likely to ease.
• Asian stocks in general rose Thursday morning as hopes for global economic recovery prompted investors to shift into riskier assets, while oil found support above $71 a barrel following OPEC’s decision to keep output steady. The investor shift kept the US dollar on the defensive. It hit its weakest value in almost a year Wednesday and was holding just above that level today. South Korea and New Zealand kept interest rates at record lows. The Japanese Nikkei gained 1.4% even though machinery orders’ data pointed to weak capital spending. The MSCI index of Asia Pacific stocks traded outside Japan firmed by 0.8%.
• One that passed under the news wires radar Wednesday was the release of the US Bureau of Labour Statistics JOLTS (job openings and labour turnover survey) to the end of July. This report measures gross hirings and separations, and provides some sense of the dynamics underpinning the payroll numbers (NFP), although both surveys are structured quite differently. That said, the broad trends in both sets of data are similar, and while JOLTS data comes out with a lag on NFP, the survey might be giving us a few leading clues (JOLTS history only extends back to 2000, so we have only had two turns in the cycle over the past nine years). In particular, I remain struck that July JOLTS shows a record low number of job openings at the end of month, totalling 2.392m, down from 2.513m at end June. This suggests continued declines in non farm payrolls?
• The Bank of England (BoE) MPC meeting was much ado about nothing Thursday morning. They kept rates at 0.5% and their QE purchase programme at £175bn, all as expected. However there was a major disappointment over the lack of any reference to the rate that the BoE pays on reserves. There had been widespread talk that they may do a Riksbank (make the rate negative) or certainly cut the rate it pays in order to force the banks to lend rather than hoard. The Bank is looking at this, King has said as much, but the lack of a comment suggests that it is either still work in progress or that the MPC do not see the re-ordering of the monetary framework as a priority. In either case, it pushes any implementation of a new framework further into the future.
• British house prices rose for the second consecutive month in August, leaving the average near the level seen at the end of last year. The average house price rose 0.8% to £160,793, the monthly Halifax survey said. Economists had expected a stronger monthly jump of 1.1% and a 10% year-on-year decline.
• Ex-AIG adviser who practiced voodoo on victims gets 12 years for fraud.
• Least We Forget. I am still grinning from watching “The Last Days of Lehman Brothers” last night. I think it was written and directed by Professor Chris Knight of G20 protest fame. The characters were truly superb. Dick Fuld may as well have been played by LT (Lawrence Taylor of the NY Giants). John Thain was depicted as an Oscar Wilde type never devoid of a full champagne glass throughout. In true Orwellian fashion the farmer from Babe was cast as Hank Paulson. It was truly a case of Trading Places meets Wall Street, sure to be a requirement to watch for the 09 graduate intake.

A Positive Beige Book
The highlight of the news flow overnight was a run of Fed rhetoric, of which the most significant was the beige book. This reported that activity in several districts reported some improvement. This is broadly consistent with what we have seen in the various purchasing manager surveys. According to the beige book, “Most districts noted that the outlook for economic activity among their business contacts remained cautiously positive.” This qualitatively suggests the economy is growing in the current quarter. With respect to details, “the majority of districts reported flat retail sales” and “confirmed that the ‘cash-for-clunkers’ program boosted traffic and sales.” Some improvement was noted in residential real estate but commercial construction “remained weak” as was overall loan demand. Moreover, “Labour market conditions remained weak across all Districts” although there was some improvement noted from temporary staffing firms. Regarding inflation, “…prices were described as generally steady in most Districts.” Overall, the beige book reads as being consistent with a moderate second half recovery.

More NAMA Drama
How long before we get the first letter to the Irish Times by someone claiming that their child’s first utterance was NAMA instead of the traditional Dadda! The long awaited amended NAMA legislation has been published and contains some significant (Green?) changes from the initial draft.

NAMA is to have a risk-sharing mechanism “which will deliver equal sharing of risk between NAMA and the banks”. The risk sharing will take the form of subordinate debt and the mix between Government bonds and subordinate debt that will be used to pay the banks for the written down value of the loans will be disclosed next week. The revised legislation will include a condition on participating banks to guarantee to lend a fixed percentage of loans to SMEs, while all directors appointed pre-2008 on the bank’s boards are to be replaced over the next two years. NAMA will now report quarterly to the Minister for Finance, compared to annually in the earlier draft legislation. An 80% windfall tax on gains from the rezoning of land is to be introduced to discourage speculation, while there are additional criteria around planning attached to the determination of long term economic value. It will be a criminal offense to lobby NAMA.

Separately, an article in the Irish Independent indicates that the taxpayer could own over 40% of the proposed new third banking force, consisting of Permanent TSB, EBS and Irish Nationwide. There has been no official announcement on the proposed bank and presumably there is much negotiating to be done before this could get off the ground. Irish Life & Permanent could potentially own 40-45% of the entity, which is expected to be created post the transfer of loans to NAMA by Irish Nationwide (€7bn to be transferred according to the article) and EBS (€700-800m loans going to NAMA) and the recap of both institutions by the Government.

The success of Bank of Ireland’s (IRE) five year covered bond issue is highly significant in that it is the first long term funding outside of the government guarantee. I really don’t think the market understands how important a watershed this is and indicates a big thawing in sentiment towards Irish banking risk from abroad given the make up of the names said to have participated. It’s very good news for the stock and shows what an idiotic idea nationalisation would be (as it would of course prevent the bank from raising fresh equity capital from private investors). Bank of Ireland has certainly shown a greater capacity to handle the crisis. They have been more nimble that their domestic rival AIB who are still fiddling choosing their new king when they should be out funding.

Equity News
European stocks lost their early lustre for the first time in six sessions as profit taking in mining and retailers offset gains by tech stocks. Names such as Randgold Resources, Antofagasta, BHP Billiton (BHP) and Anglo American saw some selling as copper prices retreated as did Home Retail Group (off 7%) as sales at their Argos unit disappointed. To the upside was Dutch semi conductor maker ASML after raising its sales forecast. Indeed the Euro tech space is well supported today with STMicrelectronics and Infineon seeing buying in expectations that they will beat their guidance.

General Motors set out terms of its deal to sell Opel to a group led by Magna though it didn’t provide financial terms. The Magna/Sberbank consortium will buy 55%, employees will hold 10% and GM itself will keep a 35% stake. The agreement will keep Opel/Vauxhall a fully integrated part of GM’s global product development organisation, allowing all parties to benefit from the exchange of technology and engineering resources. Several key issues will be finalised over the next few weeks to secure the binding agreements, including the written support of the labour unions to support the deal with the necessary cost restructuring for viability.

From Wall St To Sesame Street

How Are Your Favourite TV Shows Dealing With The Recession

Disclosures: None

Comments

[NUCLEAR1929:]

beautiful pictures, bravo

Sep 10 03:23 PM

[conceptwizard:]

Fifty-five central banks own the BIS and every two months they journey to the Basel headquarters near the German border to discuss direction, drink the world’s best wines and to eat the best cuisine. Then there is the BIS’s privately owned country club and tennis accommodations. This is why the BIS is called the “Vatican of Finance.” All meetings are in secret and nothing is ever divulged. It is a stock cooperation and once was publicly traded until they forced sale of the shares owned by the public. Needless to say, they tried to screw the shareholders on the buyback.

The BIS pays no taxes and it’s members and employees enjoy extensive immunity. The BIS is totally a secret cabal of bankers. It manages 4% of the world’s currency reserves and 120 tons of gold. They set interest rates as well. What a sweet racket.

It should have been obvious to many economists that what Greenspan did during the 1990s creating the dot.com boom and then their real estate bubble that he was leading America toward financial trouble. The management of the BIS and those 55 central bankers had to know these were the wrong things to do, as the BIS professional staff was saying you are doing the wrong thing.

The Fed is blowing another equity bubble.

Sep 10 03:49 PM

[Dirtnap:]

Conceptwiz, I am right there with you, EXCEPT on the notion that the management of the BIS believing that the U.S. was doing the "wrong thing." We have to keep in mind that these wealthy individuals are international citizens who care little for the health of any individual nation. To an international investor, the reduction of the standard of living in the U.S. is of no consequence, and is in fact perhaps a long term boon for the investor, as American wages can decline to a more nominal international level.

Bubbles are great opportunities for this type of investor, as you can make large amounts of money during the bubble, pull your capital out during the burst, receive taxpayer bailouts if you misstime your withdrawal, and then repurchase assets at bargain prices.

These people didn't make mistakes. They knew exactly what they were doing.


On Sep 10 03:49 PM conceptwizard wrote:

> Fifty-five central banks own the BIS and every two months they journey
> to the Basel headquarters near the German border to discuss direction,
> drink the world’s best wines and to eat the best cuisine. Then there
> is the BIS’s privately owned country club and tennis accommodations.
> This is why the BIS is called the “Vatican of Finance.” All meetings
> are in secret and nothing is ever divulged. It is a stock cooperation
> and once was publicly traded until they forced sale of the shares
> owned by the public. Needless to say, they tried to screw the shareholders
> on the buyback.
>
> The BIS pays no taxes and it’s members and employees enjoy extensive
> immunity. The BIS is totally a secret cabal of bankers. It manages
> 4% of the world’s currency reserves and 120 tons of gold. They set
> interest rates as well. What a sweet racket.
>
> It should have been obvious to many economists that what Greenspan
> did during the 1990s creating the dot.com boom and then their real
> estate bubble that he was leading America toward financial trouble.
> The management of the BIS and those 55 central bankers had to know
> these were the wrong things to do, as the BIS professional staff
> was saying you are doing the wrong thing.
>
> The Fed is blowing another equity bubble.

Sep 10 05:52 PM

[maelstrom:]

The Obama administration is great at blowing a number of things., money, opportunities to cut waste and promises..Barney and Nancy of course have their own tastes

Sep 10 09:22 PM

[AlphaKing:]

Dont forget:
a positive report from the Labor Department. Government noting that initial jobless claims fell last week to their lowest level since July; while continuing jobless claims dipped to 6.09 million, the smallest number since last April. Pretty good confirming news on the labor front for last Friday's NFP is just adding to the ever changing outlook for the economies fate.

Sep 11 01:28 AM