Michael McDonough

Macro
Michael McDonough
Macro
Contributor since: 2008
Company: Bloomberg LP
So you are arguing that the massive buildup of new vessels has had no impact on shipping prices? So the shipping sector is somehow exempt from that same supply (the amount of ships) and demand (the number of cargoes) dynamics that effect every other sector in the economy...?
And since the supply of ships didn't start jumping significantly until the end of 2009, it makes complete sense that were small jumps in the BDI in both of those years providing shippers with a false sense of confidence preventing them from canceling or delaying some of the new vessels orders they are now taking delivery of.
Newships are slowly coming online; they don't all get delivered on Jan.1. China has had almost full control over shipping rates over the past 1.5 years lets not forget, so well surgining rates at the start of 2010 may bode well for the 'success' of Chinese stimulus it does little toward indicating the health toward the rest of the global economy. And if you want to argue a slowdown in China's demand for raw materials will throw the global economy into another double dip recession, then we have bigger problems than falling shipping rates...
Prudent,
The data is from a subscription service. I have not yet found a good free source online for Chinese data (at least that can compete with the databases I currently have).
Still a good time to short the Yen. fiateconomics.com/?p=1495
The labor force fell by roughly 661K I believe, however, an even broader measurement of unemployment, which includes people who are under-employed and the such, rose to 17.3% from 17.2%. I believe this release gives us a more realistic picture of the current situation.
As for the labor force number; I always felt its calculation was somewhat questionable, but so long as they use the same process each month--whether right or wrong--it is at least consistent.
Prior to this announcement I wouldn't have been surprised if the number was positive, but now I would be surprised if it wasn't. Unfortunately, I purchased some volatility hedges for my portfolio today; now I wish I had waited until tomorrow.
I agree that coal is an attractive sector. People sometimes fail to realize is that coal is a fungible asset. In large part, coal's fungibility provides a hedge for the industry against potential anti-coal policies, meaning, barring a ban in the international transport of coal--or heavy taxation--what is not used domestically can easily be sold to foreign entities. Take for example, the government's campaign to stem the use of cigarettes. Domestically, this worked quite well significantly reducing the percentage of the population who were smokers. However, these policies did nothing to reduce the international demand for U.S. tobacco products, or prevent domestic manufactures from benefiting from growing foreign demand. I went long on the coal sector on November 13th with buy recommendations on Walter Energy (WLT), Peabody Energy (BTU), and the coal ETF (KOL), and my view remains bullish today.
Global Macro Based Trading Ideas for Retail Investors: fiateconomics.com/?p=1706
Coal Article (subscription required): www.thestreet.com/p/rm...
Jack, for whatever reason JCI isn't listed under BBergs Batteries/Battery Systems classification. It could be because of their diversified product base and would probably fall under the auto parts classification.
Howard, I agree, so I calculated the SIR for the top 100 NYSE stocks, you can see it here:
fiateconomics.blogspot...
Richard, I agree. I have been speaking with a lot of different investment banks and all of them seem to be significantly enlarging their presence in India. I wish there was some type of forward looking indicator to track the significance of that, but I have a feeling it is pretty high. Essentially, you are going to have a bunch of banks introducing Indian equities to .a lot of clients who would have otherwise not have had a means to invest in the country. It is definitely something to keep an eye on. I have been looking at IFN and EPI
Steven, I agree a lot of loans were given out that never should have been. However, right now a lot of people who should be getting loans can't... And that is a problem... Of course lower housing prices will help, but only if qualified people can borrow money to buy them, which they haven't been able to do.
User 168113, You are correct the ratio we used for oil barrels/gallons was 31 not 42. As you mentioned not all 42 gallons in a barrel are used to produce oil, so we calculated on average what percent of a barrel was used for fuel (this included diesel and may have been a mistake) However, if you did use 42 as the benchmark, the magnitude of the spread would be slightly less, and imply a gas price of around $3.50 vs $3.96 over the next couple of months, but since the entire barrel isn't used for gas production we did not feel this would be accurate. Important to note is that in either case there would be no change to the shape of the XOM price to GAS/WTI spread chart. Hope this helps!
Ethanol production will continue putting upward pricing pressure on the world's food supply as global demand rises. On top of that, it seems it is not the most efficient means of alternative energy. There is some potential in switch grass, but it doesn't seem like it will be immediate.
I recently did a piece on food energy prices:
fiateconomics.blogspot...
I think it is also interesting look at the lag of the some of crack spreads and this sectors stock price. I believe the spread of gasoline to crude prices as the lowest it has been in at least 15 years, imagine that could cut into margins.
Further explained here: fiateconomics.blogspot.../
A good old fashion moral hazard slippery slope
I believe the Fed instructed JPM to offer no more than 2/share to show this was not a bailout of BSC shareholders, so it will be interesting to see how this will play out. I imagine the Fed will not be happy about this but at the same time, there will be a lot of unhappy people if they don't agree.. Looks like a moral hazard slippery slope mess!
NY Times is reporting that JPM is in talks to increase the offer to USD10/share to appease angry shareholders... Lets see what happens
I got into XLF right after the BSC meltdown, thus far it has proven to be rather lucrative, but given this market who knows what is going to happen this week. However, XLF is a good way to play the banks if you work at one and have trading restrictions...
-TM
Given the weakness in a number of the manufacturing indicators, I am expecting Wed. durable goods report to probably throw more coal on the fire...
-TM
fiateconomics.blogspot.../
I think this week has the potential for some possible downside. We have a good bit of consumer related news coming out that is likely to disappoint (spending, sentiment, home sales, etc...). The data will likely reaffirm to some investors that the current problem is not just isolated to the financial economy. I am not sure if the market will have enough upward momentum to continue last weeks gains through-out the week. Unless of course the numbers surprise to the upside, which would be very surprising, and who knows at this point what other tricks the Fed has up their sleeves!
Read more here: fiateconomics.blogspot.../
The news is reporting the opposition party has won the elections.
I see some good value in that Dow 30 worst YTD chart...
The recent parliamentary elections in Taiwan provided the China 'friendly' party with a landslide victory; a result which is likely to follow in the March 22nd Presidential elections. Once the new administration takes power they will likely attempt to strengthen ties with China, and Taiwan could begin sharing in China's economic success, from which it has remained mostly isolated. We have bought into EWT a month or two ago and are pleased with the return thus far and think there is a lot of upside. I did a trip to Taiwan recently and the sentiment I got seems to be in general people want whatever it takes to have a stronger economy and more jobs. Bettering ties with China will do this. Right now all trade has to go through a third party between the countries (usually HK). I think if and when direct investment is allowed in Taiwan we will see a strong rally. However, it is important to keep in mind that the 'China Friendly' party isn't running on a platform of reunification, but just on bettering the relationship. Which is a lot better in terms of economic potential than we have seen in the past. Bottom line is I am bullish on the country.
Read more here: fiateconomics.blogspot.../
I think we are just seeing a bit of the speculative buyers selling for some profit taking and to move back into EQ (hard to resist the past couple up days). The supply of commodities are pretty sticky, and demand is still growing rapidly, which means prices should continue going up.
Read more here: fiateconomics.blogspot.../
Would be interesting to see that data overlayed with Vix or something of that nature.
I was looking at some of the BSC puts, but don't think I will make a move since I can't really put my finger and what is driving BSC stock higher. I have heard all kinds of speculation, but I would really like to know who is doing the buying first.
I would bet it was a combination of both, but we should continue to see some buying, unless of course there is some surprise news. Don't forget both Lehman and Goldman beat expectations, and this was after Lehman was all but left for dead; this was the big driver yesterday the Fed just helped.
It isn't surprising the Fed cut rate by 75bps, and made an equivalent move in the discount rate. What is interesting is that the Fed had two dissenters to the vote, Governor Plosser from Philly and Governor Fisher from Dallas, both wanted a smaller cut. Plosser is a well known hawk on the FOMC, so this was not surprising. However, this combined with a stronger inflation message, could imply the end of strong rates cuts. Keep in mind, the market responded very favorably to the move, despite at one point having priced in a 100% chance of a 100bp cut (the GS and LEH news did help). This also supports the possibility that we could be near the end end of the rate cuts or at least at a point where we see a significant reduction in its magnitude (ie 25bps). Of course the Fed's future reaction will be very reactionary to market news and data. My Opinion...
Honestly, If I was getting paid in Euros right now, there would be a really good chance I would be looking at some real estate in the US. You have the drop in housing prices and the weak dollar both working on your side. USD100K house would equal EUR63K. Even a couple of months ago it would have cost over EUR68K. The bottom line is we will probably start seeing a lot of foreign buyers coming and buying up second, third, or fourth homes.
I do think this is going to lead to some great buys in the sector. I am going to start taking a look at some Citi long dated calls. At first glance they look pretty cheap, and I think this week will only get cheaper.