Economic Commentary

NEW -> Contingent Buyer Assistance Program
<a href="http://bloomberg.com/apps/news?pid=20601087&sid=aYhaiSOq_Tbc&refer=home">JPM turning bad loans into "income"</a>



Man. I wish I could just manufacture income like that.
 
[quote author="BondTrader" date=1243462015]THE MARKET SURGED ON THE BACK OF THE CONFERENCE BOARD

CONSUMER CONFIDENCE REPORT FOR MAY



? The headline index surged to 54.9 from 40.8 in April and the 25.3 low in

February. The 29.6 point jump over the last three months is a record. This

will revive the ?green shoot? advocates.



? The confidence index is back to where it was in September when the

economy was nine months into recession. In the last two recessions, as an

example, the end of the recession coincided with this index north of 80. So

it is telling us what so many other indicators are signaling which is it that

things are ?less bad? than they were; but this is not enough to terminate the

recession call.



? The bulk of the increase in the index was in ?expectations?, which surged to

72.3 from 54.0 in April ? to stand at its best level since December 2007!

This index is influenced largely by the rally in the equity market, which

becomes circuitous since the market then rallies off a number like this.



THE LAST TIME THAT THERE WERE MORE EQUITY MARKET BULLS (35.8%)

THAN BEARS (30.8%) WAS BACK IN OCTOBER OF 2007 WHEN THE MARKET

WAS HITTING ITS PEAK. THIS METRIC WORKS LIKE A CHARM BECAUSE

LAST MARCH, AT THE MARKET LOWS, THE GAP BETWEEN THE BEARS

(52.8%) AND THE BULLS (19.6%) IN THE OTHER DIRECTION WAS THE

LARGEST SPREAD SINCE JULY 2008 (AND THE SECOND LARGEST GAP ON

RECORD).</blockquote>
Thanks for the info...it is much appreciated! Btw, I've heard on CNBC that the FED has almost but given up by trying to keep 10-year rates low by buying them and has turned their focus on buying the Fannie/Freddie MBS bonds to keep mortgage rates low (spread between the 10-year and 30-year fixed rate was north of 2% back about 8-12 weeks away and is down to about 1% now). What are you seeing on your end?
 
[quote author="usctrojanman29" date=1243478767][quote author="BondTrader" date=1243462015]THE MARKET SURGED ON THE BACK OF THE CONFERENCE BOARD

CONSUMER CONFIDENCE REPORT FOR MAY



? The headline index surged to 54.9 from 40.8 in April and the 25.3 low in

February. The 29.6 point jump over the last three months is a record. This

will revive the ?green shoot? advocates.



? The confidence index is back to where it was in September when the

economy was nine months into recession. In the last two recessions, as an

example, the end of the recession coincided with this index north of 80. So

it is telling us what so many other indicators are signaling which is it that

things are ?less bad? than they were; but this is not enough to terminate the

recession call.



? The bulk of the increase in the index was in ?expectations?, which surged to

72.3 from 54.0 in April ? to stand at its best level since December 2007!

This index is influenced largely by the rally in the equity market, which

becomes circuitous since the market then rallies off a number like this.



THE LAST TIME THAT THERE WERE MORE EQUITY MARKET BULLS (35.8%)

THAN BEARS (30.8%) WAS BACK IN OCTOBER OF 2007 WHEN THE MARKET

WAS HITTING ITS PEAK. THIS METRIC WORKS LIKE A CHARM BECAUSE

LAST MARCH, AT THE MARKET LOWS, THE GAP BETWEEN THE BEARS

(52.8%) AND THE BULLS (19.6%) IN THE OTHER DIRECTION WAS THE

LARGEST SPREAD SINCE JULY 2008 (AND THE SECOND LARGEST GAP ON

RECORD).</blockquote>
Thanks for the info...it is much appreciated! Btw, I've heard on CNBC that the FED has almost but given up by trying to keep 10-year rates low by buying them and has turned their focus on buying the Fannie/Freddie MBS bonds to keep mortgage rates low (spread between the 10-year and 30-year fixed rate was north of 2% back about 8-12 weeks away and is down to about 1% now). What are you seeing on your end?</blockquote>


Whatever the Fed is going to do, it aint gonna work, see attached the bloomberg screen shot of the spreads (the bottom portion) between 10yr US Govt Treasury vs Fannie Mae's 30yr Fixed Rate Mortgage Bonds.

Yields on Fannie Mae?s current-coupon 30- year fixed-rate mortgage bonds climbs above 4%, the highest since March 10 and up from 3.94% on May 20. So all that govt talk of cheap refinancings is now officially off the table.
<fieldset class="gc-fieldset">
<legend> Attached files </legend> <a href="http://www.talkirvine.com/converted_files/images/forum_attachments/328_Hr8Kl3joofOR4Mae1fu8.gif"><img src="http://www.talkirvine.com/converted_files/images/forum_attachments/328_Hr8Kl3joofOR4Mae1fu8.gif" class="gc-images" title="sg2009052761507.gif" style="max-width:300px" /></a> </fieldset>
 
[quote author="freedomCM" date=1243486762]yes, the 10yr hit 3.7% today.



30 yr mtg is going to hit 5.5%-6% by July, I bet.</blockquote>


Buy now or get priced out forever!!!
 
[quote author="freedomCM" date=1243486762]yes, the 10yr hit 3.7% today.



30 yr mtg is going to hit 5.5%-6% by July, I bet.</blockquote>
So much for that housing recovery. haha I hope all the current responsible home owners out there were able to lock in those ultra low rates while they lasted. Looks like that mortgage origination fee income that the banks generated in Q1 and Q2 will dry up more and more the higher rates go.
 
[quote author="usctrojanman29" date=1243487138][quote author="freedomCM" date=1243486762]yes, the 10yr hit 3.7% today.



30 yr mtg is going to hit 5.5%-6% by July, I bet.</blockquote>
So much for that housing recovery. haha I hope all the current responsible home owners out there were able to lock in those ultra low rates while they lasted. Looks like that mortgage origination fee income that the banks generated in Q1 and Q2 will dry up more and more the higher rates go.</blockquote>


Well, it's possible QE round 2 will happen, big Ben looks at his balance sheet of 3.2 trillion and saying fxxk it, I will keep printing till we reach 5 trillion, so I have enough money to save the banks in Q2 2009 when all the CMBS exploded. Buy gold, sliver and foreign stocks, get out of the dollar.
 
[quote author="freedomCM" date=1243486762]yes, the 10yr hit 3.7% today.



30 yr mtg is going to hit 5.5%-6% by July, I bet.</blockquote>


If I were Bren, I'd be moving the big Woodbury East grand opening up by a month to early June. Or maybe delaying it again until 2015 or something.
 
[quote author="BondTrader" date=1243488561][quote author="usctrojanman29" date=1243487138][quote author="freedomCM" date=1243486762]yes, the 10yr hit 3.7% today.



30 yr mtg is going to hit 5.5%-6% by July, I bet.</blockquote>
So much for that housing recovery. haha I hope all the current responsible home owners out there were able to lock in those ultra low rates while they lasted. Looks like that mortgage origination fee income that the banks generated in Q1 and Q2 will dry up more and more the higher rates go.</blockquote>


Well, it's possible QE round 2 will happen, big Ben looks at his balance sheet of 3.2 trillion and saying fxxk it, I will keep printing till we reach 5 trillion, so I have enough money to save the banks in Q2 2009 when all the CMBS exploded. Buy gold, sliver and foreign stocks, get out of the dollar.</blockquote>


I do not think Ben has a ceiling on printing. According to B-52 Ben, printing money is without cost.



Troj - Word is the Fed is buying agency debt, but it is impossible to know for sure because the Fed will not reveal what is on it's balance sheet.
 
[quote author="BondTrader" date=1243032291][quote author="awgee" date=1242969824][quote author="BondTrader" date=1242965473][quote author="awgee" date=1242964600]BondTrader - I hope you were short today.</blockquote>


I put my money where my mouth is, been shorting since the first time SPY went to 93. Good luck to you all.</blockquote>


Sorry, I should have been more specific. I meant bonds.</blockquote>


We are buying CDS and long bonds, you probably saw tons of debt issuances out of the bank/insurance spaces these days (Principal, Allstate, Aflac, COF (WTF!!!)), we didn't participate in anyone of them.</blockquote>


In the interest of my education and others, could you please verify that this purchase of the long bonds by your employer would not seem fortuitous. I was a bit surprised when you wrote they were buying the long bond because in my mind they appeared to be as expensive as they could get. Am I missing something?
 
[quote author="BondTrader" date=1243488561][quote author="usctrojanman29" date=1243487138][quote author="freedomCM" date=1243486762]yes, the 10yr hit 3.7% today.



30 yr mtg is going to hit 5.5%-6% by July, I bet.</blockquote>
So much for that housing recovery. haha I hope all the current responsible home owners out there were able to lock in those ultra low rates while they lasted. Looks like that mortgage origination fee income that the banks generated in Q1 and Q2 will dry up more and more the higher rates go.</blockquote>


Well, it's possible QE round 2 will happen, big Ben looks at his balance sheet of 3.2 trillion and saying fxxk it, I will keep printing till we reach 5 trillion, so I have enough money to save the banks in Q2 2009 when all the CMBS exploded. Buy gold, sliver and foreign stocks, get out of the dollar.</blockquote>
Speaking of CMBS....errrr...the next shoe to drop....how are the AAA tranches of the CMBS bonds trading in general?
 
[quote author="awgee" date=1243490740][quote author="BondTrader" date=1243488561][quote author="usctrojanman29" date=1243487138][quote author="freedomCM" date=1243486762]yes, the 10yr hit 3.7% today.



30 yr mtg is going to hit 5.5%-6% by July, I bet.</blockquote>
So much for that housing recovery. haha I hope all the current responsible home owners out there were able to lock in those ultra low rates while they lasted. Looks like that mortgage origination fee income that the banks generated in Q1 and Q2 will dry up more and more the higher rates go.</blockquote>


Well, it's possible QE round 2 will happen, big Ben looks at his balance sheet of 3.2 trillion and saying fxxk it, I will keep printing till we reach 5 trillion, so I have enough money to save the banks in Q2 2009 when all the CMBS exploded. Buy gold, sliver and foreign stocks, get out of the dollar.</blockquote>


I do not think Ben has a ceiling on printing. According to B-52 Ben, printing money is without cost.



Troj - Word is the Fed is buying agency debt, but it is impossible to know for sure because the Fed will not reveal what is on it's balance sheet.</blockquote>
Ok, I'm trying to think how they would account for that extra printed money on their balance sheet....they would credit cash when it comes in, but what's the corresponding debit to? Note Payable? Loan Payable? Due to Taxpayers Payable?
 
<strong>Pending sales up strongly in April</strong>

Pending home sales rose 6.7% M/M in April, for the third consecutive monthly

gain. This was higher than consensus estimates for a 0.5% gain, with sales in

the Northeast (+32.6% M/M) and Midwest (9.8% M/M) leading the way. Sales in

the two largest markets were less impressive, with the South -0.2% M/M and the

West 1.8% M/M. Recall that ending home sales reflect signed contracts for

existing single-family homes, condos and co-ops, and tend to lead existing sales

by 1-2 months (with the strongest relationship in Y/Y terms). First-time

homebuyers, lured by record affordability, deeply discounted foreclosure

properties and an $8K tax credit, were behind the monthly gain, according to the

NAR. In short, these figures suggest that existing home sales could increase in

May after a 2.9% rise in April.

We are cautious about jumping to such a conclusion, as the NAR notes "the

relationship between contracts on pending home sales and closings on existinghome

sales is taking longer than in the past...mortgage processing time has

increased and it is taking many months to close on homes requiring short sales

with lender approval...and some sales are falling through at the last moment."

More recently, pending sales have indeed given mixed signals about actual sales

transactions and, with mortgage applications for purchase down 2.4% M/M so far

this month, any upside in May resales appears quite limited, in our view.



<strong>Consumers slowly dip back into autos</strong>

Light vehicle sales surprised to the upside in May with a 9.9M unit outturn

(annualized) versus 9.3M in April and consensus estimates of 9.4M. While this

was the highest rate of sales since last December, activity is still the weakest

since 1982 and hovering near record lows in per capita terms. Domestically-made

auto sales came in better than expected at 7.3M units, with Ford and the foreign

transplants gaining market share at the expense of the two bankruptcy-laden

manufacturers. Even so, both Chrysler and GM reported better traffic and

reported relatively better than expected sales after slashing prices on many

models in order to clear inventories ahead of dealership closings. Imported name

plate sales also rose, with the strongest gain among in trucks (+9.4% M/M).

Stronger fleet sales were likely a factor in May, which may have been boosted by

government purchases of fuel-efficient vehicles from the big-3 producers as the

Obama Administration completed orders of 17,600 units by June 1st. Such sales

were placed within the past two months and at most, could have boosted sales by

0.2M units in May. Ongoing incentives, the Memorial Day holiday and improved

consumer confidence were also tailwinds over the month. Looking ahead, more

cautious lenders, a more frugal consumer and rising unemployment likely will all

weigh heavily on auto sales, making for a very slow-moving recovery.
 
<strong>Impact from stimulus package very muted</strong>

According to an article from Bloomberg News, the $787 billion package passed in

February is having less of an impact than most economists expected. About $111

billion in planned infrastructure spending is arriving so slowly that recovery in the

final six months of the year may be weak.



<strong>More on the intensifying restraint at local government</strong>

Not only is the stimulus from the federal government going slowly out the door, it

appears much of it is going to be offset by the intensifying penny-pinching at the

state and local levels of government. State tax collections have become more

sensitive to the business cycle in recent years, which means the drop in revenues

is likely to be deeper and last longer this time around. So, this is a theme that is

simply not going away. Turn to page A2 of today?s Wall Street Journal, ?States?

Budget Woes Are Poised to Get Even Worse?.

We also see that New York City Mayor Bloomberg just announced a plan to raise

$887 million by increasing the city sales tax rate and repealing an exemption for

clothing purchases of less than $110. However, the plan did include tax relief for

small businesses with incomes less than $100,000.
 
<a href="http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/the-next-crisis-has-already-begun.aspx">The next crisis has already begun</a>



<blockquote>How that will play out exactly, how long it will take and what the road map along the way might look like is difficult to say, due to the many permutations of how events might interact.



But the ultimate outcome will be a weaker currency, more inflation and higher rates until such time as the printing press is finally taken away from the Fed.</blockquote>
 
*According to a response filed by the Solicitor General Elena Kagan on behalf of the United States of America, no court, not even the Supreme Court, has an authority to rule on the applicability of the TARP funds, previously designated exclusively for financial company bail outs, for the Chrysler case.

The Obama Administration argued Monday that no court, including the Supreme Court, has the authority to hear a challenge by Indiana benefit plans to the role the U.S. Treasury played in the Chrysler rescue, including the use of ?bailout? (TARP) funds. The Indiana debt holders, U.S. Solicitor General Elena Kagan wrote, simply have no right to raise that issue, thus putting it out of the reach of the courts.



Although arguing that the courts may not rule on the validity of Treasury?s decision to shore up a new Chrysler company with funds from the Troubled Assets Relief Program, the Solicitor General did argue that those funds may go to a troubled auto company, and not just to banks or other regular financial institutions.

Convenient - so if not the highest judicial institution in the US can decide on what the proper venue for TARP utilization is, does that mean that Geithner and Obama are now completely above the law in terms of how they burn taxpayer cash.



*Several ex-TARP banks are allowed to pay back TARP money, but interestingly Wells, BOA, Citi (supposively big and heathly by now) are not on the list.



*A light week in terms of economic releases, the focus will be on treasury auctions, Chinese has moved down the term curve to focus on more buying on the 2-3 year T-bonds (in defense of a potential rate hike and US lost its AAA rating), so God knows how 10yr T-bond yield can drop over, which has been the key of recent surge in 30yr mortgage rates, refinance activities were down 60%+ in the last 2 weeks.



*GM is above a dollar.
 
<strong>Offsetting The Stimulus Package</strong>





U.S. retail gasoline prices are now up a full buck from the lows, to $2.62 a gallon (up 41 days in a row) ? the equivalent of a $130 billion drag on discretionary spending at an annual rate. Tack on the 60bps bounce in mortgage rates too, which has triggered a near-60% collapse in mortgage refinancings. Then tack onto that the 0.2% decline in average weekly earnings in May ? down now in two of the last three months ? and a consumer relapse could well be in the offing and end up snuffing out this ballyhooed inventory-led recovery that has underpinned equities and undermined Treasuries over the last 3-4 months.

.
 
The next two weeks are the "window dressing" week for most equity mutual funds managers. I urge you move money out of those "road kills".





SOME POSITIVE SIGNS IN CHINA

While exports seemed to have suffered a bit of a setback in May (-36.4% YoY

versus -22.6% in April), it does look as though the government stimulus is

percolating through the Chinese economy much more quickly than it is the case

in the industrialized world. Retail sales are up more than 15.0% YoY; turnover in

the commercial and residential real estate market has expanded 45.3% and

investment spending has accelerated at a 33% YoY pace. No wonder

commodity prices are booming again. (GAS is at $3/gallon again and it's not even summer yet)



GAS PAINS FOR THE U.S. CONSUMER

Gasoline receipts surged at a 52.0% annual rate in May and the ?siphon off?

effect is going to get worse because the IEA is forecasting $2.70 on retail

gasoline across the U.S.A. by next month. That would imply a $150 billion drag

at an annual rate so far this year on discretionary spending or the equivalent of

a near 2% pay cut for the average worker (where is my Obama stimulus?).



THESE ARE GREEN SHOOTS?

These YoY numbers, as of last week, hardly paint the picture of an imminent

recovery:

? Raw steel production (-47.3%)

? Lumber production (-32.6%)

? Railway traffic (-20.1%)

? Electrical output (-12.9%)
 
[quote author="BondTrader" date=1245103549]These YoY numbers, as of last week, hardly paint the picture of an imminent

recovery:

? Raw steel production (-47.3%)

? Lumber production (-32.6%)

? Railway traffic (-20.1%)

? Electrical output (-12.9%)</blockquote>


No inflation!
 
Tuesday, June 16, 2009

GE Capital Is Back In The Game To Win It



Posted by Tyler Durden at 1:01 PM



<em>

After providing several hundred billion in second liens and other subordinated tranches to some of the worst companies in existence over the past 5 years, a result of a complete lack of investing discipline which nearly brought parent General Electic down, GE Capital Corp. is back in the game, and this time it plans to win it. Bankrupt commodity product rollup extraordinaire Spectrum Brands (provider of such deflation worthless products as Remington shavers and Rayovac batteries) announced it has secured a $242 million exit financing as part of its emrgence into a "normal" company, with none other than perma-glutton for punishment, GE Capital.



The company went bankrupt after several Goldman led refies in 2007 straddled it with over $4 billion in debt. One can bet that Goldman syndicated any exposure faster than you can say Lllloyd: Zero Hedge would not be surprised if it was GE Capital itself that ended up being on the receiving end of the soon to be worthless paper.



But you gotta put capital to use: and those GECC principals are just so familiar with the whole zinc forward curve, and lawn manure comps that it would be a waste not to capitalize on that extensive experience. We give GE about a year before it manages to again somehow be underwater this particular investment.</em>
 
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