Economic Commentary

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[quote author="freedomCM" date=1255565885]hey baby, no revenue, no jobs, and the DOW breaks 10k!



we don't need no stinkin' fundamentals!</blockquote>


Agree, this market has nothing to do this fundamentals anyways. Sounds like sth I heard back in the doc com days...
 
<strong>U.S. RETAIL SALES CAME IN BETTER THAN EXPECTED</strong>

Looking at the details of the retail sales report nearly two thirds

of the components posted gains in September and it was beyond just

?staples?, discretionary items was also in demand in September. The ?staples?

(food/beverages and health and personal care combined) rose another 0.7%

MoM in September and the discretionary items (clothing, furniture/electronic

stores, and sporting goods combined) rose 0.5% MoM in September on top of

the 0.7% increase in August and are now up three months in a row. Department

store sales up 0.4% in September adding to the 1.1% pop seen in August, but

box stores and discount stores out sold the traditional department stores as

sales rose 1.3% MoM and are now up three months in a row.



<strong>U.S. BUSINESS INVENTORIES NOW DOWN 12 MONTHS IN A ROW</strong>

Business inventories for August came in lower than expected, falling 1.5% MoM

versus expectations of a 1.0% decline. July was revised lower, to -1.1% from -

1.0% previously. Businesses have now pared back their inventories for the 12th

straight month, which brings the level down to its lowest since December 2005

at $1.311 trillion. On a year-on-year basis, inventories are now falling at a

13.3% rate ? a record.



This still seems to be a purely technically driven market, though excitement

continues to build over a company?s ability to surpass low-balled expectations

on earnings and revenues. This next up-leg may be the last gasp, but the

strength could carry it to the 1,098 gap or the 1,121 50% Fibonacci

retracement (that's 3% more).
 
[quote author="awgee" date=1255663756]Trivia time:

What event occured March 29, 1999?</blockquote>


Interesting, I just got off the phone with a UBS banker and he told me when he moved to NY back in 99, he remember that day Dow acrossed 10k the first time and everyone on wall street is cheering......time flies
 
For the first time, the Dow Jones Industrial Average closes above the 10000 mark. 9 out of 10 homebuyers who bought in Crystal Cove shortly after were in their early 30s cashed in their stocks and bought homes with a good lump sum down payment.
 
Bank of American lost $2bn in Q3!! Early in the week, I mentioned that the only bank?s earning I?m not certain about is BAC. But it still surprised me this morning how bad it is. One will have to imagine how bad/stinky BOA?s balance sheet is and how much more write downs it will have to take once they reinstate the market to market rule. Those banks can borrow from the Fed at literally 0% interest rate, how could you not making money by lending?!! Of course Goldman is a different animal, which make 90% of their profit on trading, or shall I say front running their institutional clients. Banks are not lending.



<strong>So What?s Priced in at Dow 10K?</strong>



There were fewer and fewer securities left in the market that were priced inexpensively.

U.S. investment grade credit is now priced for 2.5% GDP growth in the coming year (was 2.0% two-months ago)

And the S&P 500 is now de facto pricing in 4.8%!! which, by the way, is now basis

points shy of what it was discounting in the summer/fall of 2007. S&P 500 is also pricing

in $85 of operating earnings, which I think will be, at best, a 2012-2013 story.

Commodities are priced for 2.7% ?global? growth and are at least one ?asset class?

that is priced for a muted recovery; though I would still classify corporate bonds as

being within the zone of fair-value but at the expensive end of that zone currently.

As an aside, the consensus is looking for +2.4% real GDP growth in the U.S.A. for

next year, and +3.1% for global growth, YES WE CAN!!!!.....NOT.
 
Well, I think I just won a bet ...



A friend's friend's husband is a dentist. About a week ago an old time client walks in and they begin chit-chatting. He works for the FDIC and tells the dentist that they will announce the takeover of a major bank at the end of the month, Oct. 31 to be exact. So, we've been debating over the possible candidates and got down to Citi and BOA. I voted for BOA because of the recent, un-planned departure of their CEO. Now, the earnings statements are not so good. Hum, what kind of beer should I get and how do I make a ton of cash off this since none of the markets seem to expect it?



By the way, would it be insider trading if the info is 4th hand and came from a guy with a bunch of dental instruments in his mouth?



Thanks,

FH
 
[quote author="Fishhead" date=1255747056]

By the way, would it be insider trading if the info is 4th hand and came from a guy with a bunch of dental instruments in his mouth?



Thanks,

FH</blockquote>


Absolutely yes.
 
[quote author="no_vaseline" date=1255753264][quote author="Fishhead" date=1255747056]

By the way, would it be insider trading if the info is 4th hand and came from a guy with a bunch of dental instruments in his mouth?



Thanks,

FH</blockquote>


Absolutely yes.</blockquote>


I have a series 7 and if I remember correctly, if you simply overheard it and traded on it, it's ok. But I need to double check on that. I do feel sth is up at BOA though, the number is surprisingly bad.
 
[quote author="Oxtail" date=1255754945]I've had some BoA puts for a while that are pretty underwater...</blockquote>
Just image if they didn't have those Merrill results in the earnings...it would have looked really ugly. The acquisition of MBNA at the peak and Countrywide will be a nightmare for BofA for years to come.
 
The puts I have are part of a long strangle I threw up for BoA. I figured I could play the volatility of financials that way no matter which way the market moved. Of course BoA is at almost the exact same price right now as they were when I bought the options so I've lost out on almost 2 months worth of time value. Oh well, I've got 4 months left on the options for BoA to make a big move.
 
All I can do is shake my head in response to folks who tell me the notional value of CDS and interest rate swaps is irrelevant because they are hedged and offsetting. Tell that to the Harvard Endowment.

<a href="http://www.zerohedge.com/article/how-harvard-nearly-went-bankrupt-after-rogue-interest-rate-swap-went-very-sour">How Harvard Nearly Went Bankrupt After a Rogue Interest Rate Swap Went Sour</a>

My take on all hedged CDS and IRS positions: The spread risks going to $0 or notional value depending on the ability of the counter party to pay up.
 
<strong>CASH RATIOS FOR EQUITY PMs DOWN TO 4%</strong>

When we are talking about cash on the sidelines, it begs the question as to how

much liquidity is sitting in equity mutual funds. As Chart 3 illustrates, we have

gone from around a 6% liquidity ratio when the market was testing its cycle lows

earlier in the year, to 4.0% currently. So, running down cash levels meant nearly

$100 billion of buying power just from PMs putting cash to work during this huge

rally. At 6.0%, institutional equity PMs were at their highest liquidity ratio since

the 2001 recession/bear market; now at 4%, they are back to where they were

in October 2007 (the month the bull market ended).



Historically, institutional equity investors carry less than 4% cash in their

balances less than 1/25 thof the time. Therefore, unless we either start to see

share buybacks, capitulation by the private client or some insider buying, it

remains to be seen where the buying power for the next leg of the bull market is

going to come from now that the shorts have been covered.
<fieldset class="gc-fieldset">
<legend> Attached files </legend> <a href="http://www.talkirvine.com/converted_files/images/forum_attachments/459_WtSr2wCeWNKzNXfPKW1X.jpg"><img src="http://www.talkirvine.com/converted_files/images/forum_attachments/459_WtSr2wCeWNKzNXfPKW1X.jpg" class="gc-images" title="SP32-20091020-090343.jpg" style="max-width:300px" /></a> </fieldset>
 
<strong>COULD IT BE THAT HOUSING IS SPUTTERING AGAIN?</strong>

No sooner did we see the October National Association of Home Builders?

housing market index disappoint but the September U.S. housing start data also

came in light, at 590k units at an annual rate (were 587k in August) and have

been flat now since June. No growth at all.



To be sure, all the weakness was in multiple-housing units (sliding 15% MoM

and down now in three of the past four months); apartment construction still

goes into GDP. Single-family housing starts did bounce 3.9% MoM but this did

not fully recoup the 4.7% slide the month before. What really caught our eye

was the 3.0% MoM decline in single-family building permits ? the first setback

since the first of the ?green shoots? emerged in March.



<strong>DEFLATION PRESSURES PREVAIL</strong>

U.S. producer prices did the unthinkable in September and declined 0.6% MoM

? the consensus was looking for no change. Even the core PPI (which excludes

food and energy) was down 0.1% MoM, which is a rare event indeed. This

occurred despite the slump in the U.S. dollar and the surge in commodity prices,

so it would seem as though margins are being squeezed as opposed to hitting

cycle highs. Core consumer goods PPI (which excludes energy) fell 0.1% MoM,

now down for the second time in the past three months. This is very positive for

the U.S. treasury market.
 
<strong>EMPLOYMENT STILL TANKING</strong>

The state by state U.S. employment data were just released and showed that the

aggregate job loss in September was 451,600 (recall that the initial nonfarm

payroll release revealed a 263,000 decline). New record highs for the

unemployment rate were reached in three states ? Florida, Nevada and Rhode

Island. There are now 14 states that have double-digits unemployment rates.

Moreover, the decline was so widespread that 43 of the states posted

reductions in their employment base last month.



<strong>IS THIS A GREEN SHOOT?</strong>

The U.S. architectural billing index managed to rise, to 43.1, in September from

41.7 in August ? recouping the decline that month. But here?s the rub ?

anything below 50 means contraction and that?s exactly what is happening in

the commercial real estate sector.



<strong>RESIDENTIAL REAL ESTATE STILL IN THE DUMPS</strong>

It looks like the U.S. housing market is rolling over ? so look for the government

to quickly come to the rescue again and extend or even expand that homebuyer

tax credit. Mortgage applications sank 13.7% in the October 16 th

week and this followed a 1.8% falloff the week before. Bad news for the homebuilder stocks to

be sure.
 
Just wanna inform everyone I got the ax.....



I will try my best to keep this tread going and I'm interviewing for another position with my current employer.
 
Sorry to hear that BondTrader. Your information is always knowledgeable and very insightful. Was this out of the blue or just an across the boards cut that you kinda saw coming?



Good luck in your interview!
 
That sucks! Hopefully you get that other position.



I can post the economic updates if you will no longer receive them. I get the same email from Rosey in the AM.
 
[quote author="BondTrader" date=1256269188]Just wanna inform everyone I got the ax.....



I will try my best to keep this tread going and I'm interviewing for another position with my current employer.</blockquote>
Sorry to hear that sir. I hope that something good comes out of a scary situation.
 
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