With no POMO on the calendar today and the WSJ suggesting that QE2 may be a couple of hundred billion over several months, but by most measures a disappointment for the bulls who were using it as an excuse to run up the market over the past two months, futures are looking down big this morning.
Yesterday, William Dudley, the president of the FRB NY said the central bank cannot fix the sluggish economy. If you recall from the special report I wrote on QE2, Dudley has been one of the largest advocates of loosening monetary policy. Perhaps with currency wars and protectionism, angry allies who have been forced into currency interventions of their own as a result of our actions, and an American electorate who has by now somewhat begun to understood the risks of more Fed action, Dudley has decided that it may be time to back it off a bit.
Wednesday, October 27, 2010
Tuesday, October 26, 2010
Market Update
Futures are pointing down this morning after disappointing earnings from ArcelorMittal (MT) and UBS. UBS beat estimates with the help of an 825M franc tax credit, but its investment banking unit posted a surprise pretax loss of 406M francs due to 'very low levels of client activity' and a charge on the bank's own debt.
Meanwhile, UK GDP grew twice as fast as expected in Q3 at 0.8% and S&P reaffirmed the U.K.'s AAA credit rating and revised its outlook to stable from negative. Interestingly though, this could pressure the BOE to delay additional bond purchases. Goodbye stimulus?
The U.S. will report 3Q GDP on Friday this week, just ahead of the FOMC meeting on November 3rd. If we posted a better than expected 3Q GDP (unlikely given the durable goods orders data, etc over the past few months) on Friday, would QE2 expectations have to come way down, and in the process, bring the market way down?
Another two signs that expectations for further monetary stimulus in the U.S. may be overdone include comments from Nissan COO Toshiyuki Shiga this morning, "we can't adequately express our concern about the sharp yen rise on our earnings by simply saying...we are worried about it. The company is now working with a sense of crisis."
And, a 5-year TIPS auction yesterday was done at a negative yield for the first time ever. Investors bought $10B at (0.55%) on expectations for higher inflation (monetary stimulus). It will end up being a shame if these investors end up paying the government to loan it money...
On today's economic calendar we will have the Case Shiller 20 city home index and Consumer Confidence.
We will also have another round of POMO. The target of which will be longer dated treasuries.
Remember that the market tends to see its apex on POMO days at 8:30 PST. So, if we sell of hard in the morning, you might buy a few beaten down names going into the POMO (if they be tech or materials names...with MT down 5% pre-market, that could be a decent candidate...) and cover your shorts.
Meanwhile, UK GDP grew twice as fast as expected in Q3 at 0.8% and S&P reaffirmed the U.K.'s AAA credit rating and revised its outlook to stable from negative. Interestingly though, this could pressure the BOE to delay additional bond purchases. Goodbye stimulus?
The U.S. will report 3Q GDP on Friday this week, just ahead of the FOMC meeting on November 3rd. If we posted a better than expected 3Q GDP (unlikely given the durable goods orders data, etc over the past few months) on Friday, would QE2 expectations have to come way down, and in the process, bring the market way down?
Another two signs that expectations for further monetary stimulus in the U.S. may be overdone include comments from Nissan COO Toshiyuki Shiga this morning, "we can't adequately express our concern about the sharp yen rise on our earnings by simply saying...we are worried about it. The company is now working with a sense of crisis."
And, a 5-year TIPS auction yesterday was done at a negative yield for the first time ever. Investors bought $10B at (0.55%) on expectations for higher inflation (monetary stimulus). It will end up being a shame if these investors end up paying the government to loan it money...
On today's economic calendar we will have the Case Shiller 20 city home index and Consumer Confidence.
We will also have another round of POMO. The target of which will be longer dated treasuries.
Remember that the market tends to see its apex on POMO days at 8:30 PST. So, if we sell of hard in the morning, you might buy a few beaten down names going into the POMO (if they be tech or materials names...with MT down 5% pre-market, that could be a decent candidate...) and cover your shorts.
Wednesday, October 20, 2010
France, Germany, Currencies, G20 and QE2
Reuters paraphrases Angel Merkel today as having said that 'the vulnerability of the euro has not yet been lastingly overcome and the currency is being shielded at the moment by the euro zone's safety net.' Relatedly, the German chambers of industry and commerce said today that if the Euro rises to $1.50 that the German economy will come under pressure.
This is a not so subtle demand for the US to cease devaluation plans.
Sarkozy is calling for currency manipuliaton to be on the docket at the G20.
Brazil is boycotting the events and has been forced recently to play vigorous defense to offset the impacts of USD moves on the Real.
The Yen is flying.
Those believing the Fed will still announce a full QE2 effort on November 3rd may be mistaken.
For the Fed to turn around only two weeks after the G20 and in defiance of an almost global insistence on stopping the dollar slide, I can't imagine we move forward with massive monetary stimulus. I'm not ruling out the possibility for a morsel of monetary stimulus to be announced, but even voting Fed governors (Dallas Fed's Fisher for ex) are starting to suggest they have questions about both the efficacy of another round of monetary stimulus and also the Fed's ability to implement it without taking extraordinary risks (hyperinflation, currency wars, increased protectionism, destroying purchasing power of American consumer who could be bogged down by high food and fuel costs, etc).
This is a not so subtle demand for the US to cease devaluation plans.
Sarkozy is calling for currency manipuliaton to be on the docket at the G20.
Brazil is boycotting the events and has been forced recently to play vigorous defense to offset the impacts of USD moves on the Real.
The Yen is flying.
Those believing the Fed will still announce a full QE2 effort on November 3rd may be mistaken.
For the Fed to turn around only two weeks after the G20 and in defiance of an almost global insistence on stopping the dollar slide, I can't imagine we move forward with massive monetary stimulus. I'm not ruling out the possibility for a morsel of monetary stimulus to be announced, but even voting Fed governors (Dallas Fed's Fisher for ex) are starting to suggest they have questions about both the efficacy of another round of monetary stimulus and also the Fed's ability to implement it without taking extraordinary risks (hyperinflation, currency wars, increased protectionism, destroying purchasing power of American consumer who could be bogged down by high food and fuel costs, etc).
Market Update: POMO
Today's POMO was a mere $660M (after Monday's massive $6.26B). Dow is up 120 at its completion.
Market Update: BAC Thoughts
Two hours into the trading session, the Dow is up 115 points, the S&P up 10, and the Nasdaq up 20. High beta stocks are off and running. This is a POMO day afterall.
Meanwhile, BAC is getting hammered on the threat of mortgage put-backs. Paul Miller at FBR says the amount of pushbacks might be nearly unquantifiable. Stifel Nicholas downgraded BAC this morning with an apologetic tone given it was downgrading one of the four horsemen at a time when the stock is trading below its just-announced TBV (BAC 11.39, -0.40, -3.5%) of 12.91. At some point, BAC is probably a buy for a trade, especially if the selling takes this even a little bit further. We are now at 0.9x TBV. At 10.30, we'd be at 0.8x. How much BV could the mortgages pushed-back actually consume....? No one knows, hence the sell-off. But, TBV is approx $128.673B. The market cap is now $114.74B. So, the market has already essentially sliced off $13.9B. The headline articles suggest BAC would be on the hook for put-backs on securitizations with total value of $46B. So, 30% of the loans in the securitizations being delinquent/fradulent, etc. has already been priced into the stock. I'd caution against trying to catch a falling knife, but at some point this becomes interesting. At 10.30, or at 0.8x TBV, we'd see ~$26B taken off (or 56% of the securitizations' total value).
Disclosures & Disclaimers: This post is intended for informational purposes only and is not a recommendation to buy or sell any security.
Meanwhile, BAC is getting hammered on the threat of mortgage put-backs. Paul Miller at FBR says the amount of pushbacks might be nearly unquantifiable. Stifel Nicholas downgraded BAC this morning with an apologetic tone given it was downgrading one of the four horsemen at a time when the stock is trading below its just-announced TBV (BAC 11.39, -0.40, -3.5%) of 12.91. At some point, BAC is probably a buy for a trade, especially if the selling takes this even a little bit further. We are now at 0.9x TBV. At 10.30, we'd be at 0.8x. How much BV could the mortgages pushed-back actually consume....? No one knows, hence the sell-off. But, TBV is approx $128.673B. The market cap is now $114.74B. So, the market has already essentially sliced off $13.9B. The headline articles suggest BAC would be on the hook for put-backs on securitizations with total value of $46B. So, 30% of the loans in the securitizations being delinquent/fradulent, etc. has already been priced into the stock. I'd caution against trying to catch a falling knife, but at some point this becomes interesting. At 10.30, or at 0.8x TBV, we'd see ~$26B taken off (or 56% of the securitizations' total value).
Disclosures & Disclaimers: This post is intended for informational purposes only and is not a recommendation to buy or sell any security.
BHP/POT and Meryvn King on Protectionism and Global Co-op on Policy
WFC reported record profits this morning as credit improved. $0.60 vs. $0.56 consensus on $20.9B of revenue. USB also reported this morning, and saw its 3Q profit rise 51% YoY, to post $0.45 vs. $0.43 expected. (Incidentally, these reports should bode well for Fairfax which owns large stakes in both banks.)
Bloomberg has a story out this morning detailing the deepest budget cuts in British history as Chancellor of the Exchequer, George Osborne, outlined austerity measures designed to virtually eliminate a $245B budget deficit. These plans include eliminating approx 490,000 public-sector jobs, putting a permanent maximum sustainable tax revenue on the financial services sector, cuts to the royal family's funding from the 'civil list', a 7.1% decrease in funds for local governments by 2015, a 24% cut to the Foreign Office budget, and a 6% cut to the Ministry of Justice. The pound is little changed this morning on the announcement.
BHP's offer to Saskatchewan of $360M for infrastructure investment was turned down by the province, as BHP's offer doesn't come close to offsetting the C$3B in revenue thed province would lose if BHP is successful in its attempted acquisition of POT. Saskatchewan Premier Brad Wall will lay out the province's position on the hostile offer in a speech today. Canada has until Nov. 3 to block the bid if it doesn't provide a net benefit to the country. (Bloomberg)
Bank of England Governor Mervyn King gave a speech yesterday ahead of this weekend's G20 meeting discussing the dire need for globally coordinated policy decisions in order to keep the level of protectionism from rising to a point where it would slow global output. “The risk is that unless agreement on a common path of adjustment is reached, conflicting policies will result in an undesirably low level of world output, with all countries worse off as a result,” King said. “The need to act in the collective interest has yet to be recognized, and, unless it is, it will be only a matter of time before one or more countries resort to trade protectionism.” Mr. King went on to discuss how countries with floating exchange rates are 'innocent victims' and how Brazil has had to retaliate and even how India is considering intervening in the market if the rupee appreciates past 43 to the dollar. His most troubling statement however was when he said that a real agreement at the G20 would require a "revolution". (Bloomberg)
Bloomberg has a story out this morning detailing the deepest budget cuts in British history as Chancellor of the Exchequer, George Osborne, outlined austerity measures designed to virtually eliminate a $245B budget deficit. These plans include eliminating approx 490,000 public-sector jobs, putting a permanent maximum sustainable tax revenue on the financial services sector, cuts to the royal family's funding from the 'civil list', a 7.1% decrease in funds for local governments by 2015, a 24% cut to the Foreign Office budget, and a 6% cut to the Ministry of Justice. The pound is little changed this morning on the announcement.
BHP's offer to Saskatchewan of $360M for infrastructure investment was turned down by the province, as BHP's offer doesn't come close to offsetting the C$3B in revenue thed province would lose if BHP is successful in its attempted acquisition of POT. Saskatchewan Premier Brad Wall will lay out the province's position on the hostile offer in a speech today. Canada has until Nov. 3 to block the bid if it doesn't provide a net benefit to the country. (Bloomberg)
Bank of England Governor Mervyn King gave a speech yesterday ahead of this weekend's G20 meeting discussing the dire need for globally coordinated policy decisions in order to keep the level of protectionism from rising to a point where it would slow global output. “The risk is that unless agreement on a common path of adjustment is reached, conflicting policies will result in an undesirably low level of world output, with all countries worse off as a result,” King said. “The need to act in the collective interest has yet to be recognized, and, unless it is, it will be only a matter of time before one or more countries resort to trade protectionism.” Mr. King went on to discuss how countries with floating exchange rates are 'innocent victims' and how Brazil has had to retaliate and even how India is considering intervening in the market if the rupee appreciates past 43 to the dollar. His most troubling statement however was when he said that a real agreement at the G20 would require a "revolution". (Bloomberg)
Tuesday, October 19, 2010
Dallas Fed's Fisher on Monetary Policy
"In my darkest moments, I have begun to wonder if the monetary accommodation we have already engineered might even be working in the wrong places."
Dow is down 200
Dow is down 200
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