Heaven, Hell or Hoboken

More Good News on Corporate Profits

So you are using most recent quarterly data going back to 1960, calculating a "NIPA" off of that (whatever that is, your explanation is very much lacking in specifics) and annualizing that number to come up with an "E" for each company, which you then aggregate into a single "E" for the S&P 500? Or is this a trailing twelve month figure?

Either way, this means that you would have had to adjust earnings for 100,000 observations (500 companies x 4 qtrs in a year x 50 years) to come up with the chart, right? Or am I missing something here?

Also, what level of care was applied in coming up with the "real" earnings for those 100,000 observations, given that astute financial analysis ostensibly is based on as much art as science? Or am I again missing something here?

Hey, I'm just wonderin'.......

More Foreclosure Sales, Please

One thing to keep in mind here, the months supply calculation is based on the current rate of sales and even the NAR said in its statement yesterday that the current rate is not sustainable beyond November.

The Unbearable Pain of 0.01%

This article, or more specifically, the link to the Gross article is very helpful in providing a cogent thesis as to why the equity market keeps going up in the face of economic data evidencing stubbornly persisent headwinds, e.g., U6 =17.5%. How else to explain why the S&P 500 is trading at a 22x P/E, with the SmallCap 600 trading at 34x?

BTW, the original Gross article correctly references WWI.....also, I find it ironic that he panicked in the wake of Lehman and pulled his personal deposits out of his checking accounts, thus contributing to the run on the bank sector....if everybody had acted as he did, where would be now? :-)

Isn't the Fed Monetizing Housing Debt?

Great article.

>> As a real estate investor I value cash flow as my main determinate. Notice I said investor instead of flipper. I think you make the same mistake in this article as the flippers. <<

Surfgeezer, everything you say is valid but the issue here is that the Fed will not be able to hold these securities long-term to realize their intrinsic value, but instead will need to move to unwind this lever of monetary stimulus once the velocity of money picks up, otherwise it runs the risk of creating some level of hyperinflation. Again, I agree with what you are saying, it's just that the Fed does not have the luxury of being a fundamental investor here.

Is Unemployment Only 9.5%?

The U-6 number, or underemployment, is the real number to be focused on here and seasonally adjusted or not, it is perilously high.

More V-Shaped Recovery Signs

What about the weaker than expected reading from the Philadelphia Fed's manufacturing survey released yesterday, which was also lower than last month's print?

Doesn't fit the "V"-Shaped thesis so it doesn't get a mention?

Monetary Policy Update

>> the Fed has been gradually winding down things like TALF.....<<

The TALF is being wound down? Geez, it never really got off the ground vis-a-vis expectations.......beyond that, the CMBS market is still moribund......against that backdrop, I would be surprised to see this wound down at this juncture.

Corporate Credit Market Rally Irrationally Exuberant

>>Don't know how you are tracking it, but if you chart the two you'll get fooled as IG is a spread quote while HY is a $ quote and they do look very convergent in that format. Having said that, the ML HY index has tightened 100 bp since 8/31. <<

Thx for the comment. I chart the two using the following commands on Bloomberg:
* IBOXHYSE <Index>
* IBOXUMAE <Index>

Per Bloomberg, they are both spread histories. On 9/3/09, the spread was 736 bps while on 9/15/09, it had dropped to 547 bps. The ML index with which I am familiar (High Yield Master II index) is for cash not synthetic spreads.Are you referring to something other than that index?

Corporate Credit Market Rally Irrationally Exuberant

I have to agree with the thesis. I regularly track the CDX High Yield-Investment Grade spread differential and was shocked to see yesterday that in a matter of less than two weeks, it had tightened by almost 200 bps and now is "trading" at pre-Lehman levels -- despite the absence of any commensurately compelling fundamental developments.

Consumer Deleveraging Datapoint of the Day

>> We just had an auto-giveaway. Wasn't there a sharp RISE in auto purchases this July and August? <,

This is an astute observation and one of the factors which made the record decline in July all the more surprising (the Bloomberg consensus estimate was -$4 bn compared to the reported $-21.6 bn). However, it would not be surprising to see a blip up in August consumer credit since "cash for clunkers" was rolled out during the last week of July and gathered momentum in August.

That said, if the publicly induced expansion of credit does not result in the jumpstarting of private supply and demand, the increase may be followed by another pronounced decrease, as purse strings tighten and consumption is postponed, this time by a potentially greater amount than pre-"cash for clunkers" program restraint levels. In other words ”if you cannot sustain, you ultimately may drain.”

Obama to Reduce Budget Deficit on 'Fewer' than Expected Bank Failures

What, no borrowing from the insolvent Social Security program this time? :-)......but now the insolvent FDIC is involved in the smoke and mirrors chicanery......this is like playing whac-a-mole.

Steepening Forward Curve Increases the Credit Risk for Swap Providers

Thanks to the author for that clarification.

My second comment was with respect to the notional value of the OTC interest rate market, not the mark-to-market and is meremly meant to illustrate the size of the market, i.e., a substantial amount of that market is not cleared and hence, potentially subject to credit risk (depending on the size of the open credit line, if any, extended by the dealer's credit dept) since there is no mandatory collateral requirement.

This is one of the primary factors which has given rise to the govt's efforts to have as many OTC derivatives as possible cleared so as to eliminate credit risk and with that, any potential systemic risk arising from the interconnectedness of the interdealer market. The primary culprit in the recent financial crisis was credit derivatives, however, the Treasury, CFTC and Congress so far have taken aim at all OTC derivatives, irrespective of the potential for underlying systemic risk. If the gov't is successful , the unintended consequences of its actions could include the locking out of many would-be hedgers on "Main Street" with physical exposures who rather than diverting their productive capital into exchange driven margin requirements, may chose to go unhedged.

Steepening Forward Curve Increases the Credit Risk for Swap Providers

@ cds ftw
The OTC derivative market currently has a notional value of $592 trn, of which 2/3 is comprised of interest rate swaps.

Steepening Forward Curve Increases the Credit Risk for Swap Providers

Interesting article but I would like to add that on the day on which the swap is transacted, the mark-to-market, or credit exposure, should be zero or close to it, with the current steepeness of the yield curve already factored into the pricing.

Of course, if the yield curve were to continue to steepen after execution, meaning that the value of the "pay fixed" leg of the swap becomes greater, credit exposure would increase commensurate with the shift in the curve.

Toxic Assets Are Still a Threat to the Economy

The stress tests were only "successful" due to the fact that Congress threatened to legislate mark-to-market changes if FASB did not do so "on own its volition", which then enabled toxic assets to withstand the heavily negotiated and hence, significantly diluted, stress test assumptions contained the "more adverse scenario". But with perception being reality, confidence in the sector was buoyed, thus enabling banks to raise sorely needed capital to bolster their solvency ratios. All in all, a big ruse which ended up creating a tangible economic benefit for banks. However, as is always the case with gov't involvement and as you point out, the law of unintended consequences basically undermined the dual PPIP programs, with one of them completely disappearing and the other downsized significantly. As such, banks will be able to carry their toxic assets at fictitious values, irrespective of actual economic impairment, with the investor left to guess at what the true economic exposure might be. Who said hope isn't a strategy?