The parallels to the 1930's seem to be growing more apparent (to some that is) and the 'stickiness' of the jobs situation seems to be glossed over as 'we just have to wait and watch it grow slowly'...and yet we keep spending (fed, state and local governments) like drunken sailors....add to it the issues in Europe (more stress based upon irresponsible 'social' spending) and then China and its growing issues (inflation, cutting bank lending, et al) and it appears that with what we have going on (and those who are in power) this will continue to be a WILD RIDE....
prb
Date: Thu, 20 May 2010
From: Stone & Youngberg Portfolio Strategy Group
* Yesterday (5/19), the Federal Reserve released the minutes of its April 28 FOMC meeting. Although there were no surprises in the 10 pages, the minutes reflected what can best be described as frustration on the part of Fed, that its accommodative monetary policy has not produced a more robust recovery. One of the impediments to economic growth in the US is tight credit conditions especially for small businesses. From the minutes... many participants (Fed board members) noted that while financial markets had improved, bank lending was still contracting and credit remained tight for many borrowers. Smaller firms in particular reportedly continued to face substantial difficulty in obtaining bank loans. Because such firms tend to be more dependent on commercial banks for financing, participants saw limited credit availability as a potential constraint on future investment and hiring by small businesses, which normally are a significant source of employment growth in recoveries. Small businesses do not have the access to the capital markets that larger firms do and as such are almost entirely dependent on bank loans for both working capital and investment capital for expansion. Unless and until businesses have easier access to credit, the economic recovery will remain weak.
* The turmoil in Europe continues unabated, and market concern is being manifested throughout the financial system. This unrest in being seen in small, but steady increases in LIBOR. When the Greek crisis began to unfold in mid-April, three month US LIBOR was 0.30%, +5 basis points over the fed funds target rate of 0.25%. LIBOR is typically a few basis points in excess of the fed funds rate. Since then it has climbed steadily higher. At this morning's(5/20) close in London, three month LIBOR was 0.48%, a +18 basis point run-up in roughly 30 days. Although many factors may influence the level of LIBOR, it appears that financial institutions are becoming nervous over the unrest in Europe and the "cost" of lending among such banks is rising.
* The Department of Labor reported this morning (5/20) that initial jobless claims for the week ended May 15, rose +25,000 to 471,000. This represents a reversal of a trend in which initial claims had declined in each of the past four weeks, and today's figure was noticeably above the consensus projection of 440,000. Many areas of the country are still in the grips of the economic downturn and the labor markets are weakening. For example, in California there was an increase of 8,351 in initial claims from last week, bringing the total to 73,800.
* The Labor Department reported an encouraging development in continuing claims, which fell -40,000 to 4,625,000 for the week. There was also a drop of -73,000 in extended benefits to 5.34 million.
* Although somewhat encouraging, the jobless claims data continues to paint a rather bleak picture of the US labor markets overall. Some progress is being made, with both initial and continuing claims down significantly from a year ago; however, things seem to have stalled out and the current level of claims remains stubbornly high. Given the fact that we have had three consecutive quarters of positive GDP growth and the end of the recession was probably in July of 2009, 11 months ago, we should be seeing more job growth at this stage in the business cycle - but we are not.
* The Treasury market is staging a big rally in early trading this morning, Wednesday May 20. However, it has less to do with today's jobless claims data than with surge in Treasury buying from overseas and a substantial sell-off in equities both here and abroad. The 30 year UST long bond is now a full +2 points higher in price since yesterday's close and the yield is 4.12%. By way of perspective, the last time the long bond was yielding 4.12% was 7 months ago in mid-October 2009.
* The price of the 10 year UST is also surging and is now up +¾ of a point and the yield is 3.27%; down -10 basis points from yesterday's (5/19) close. The 2 year UST is also up in price and the yield is now 0.72%; down
roughly -5 basis points in yield from yesterday.
Thursday, May 20, 2010
Tuesday, May 18, 2010
community banking sector
Regulatory burden continues to weigh heavily upon the community banking sector in terms of mega doses of time, financial resources, increasing levels of frustration and inefficient efforts that do not benefit the customer (try explaining Reg Z to a customer in addition to the landslide of paper that it now takes to 'disclose'!). It is being used as leverage by the regulators to accomplish their own agendas (just look at CRA!). And now we are all awaiting the newest addition to the quagmire...financial reform 2010 - the way they are adding amendments this may look like the healthcare bill before it is all said and done!
prb
From: "BBW Capital"
Subject: BBW Capital Weekly Market Monitor
Date: Mon, 17 May 2010 18:09:09 -0600
As the riots rage in Greece, and protesters gather in the streets of Spain and elsewhere to rally against financial responsibility, community bankers here in America ought to be girding for a battle of their own. Lest anyone be confused about Market Monitor’s concern over our government’s position vis-à-vis small business and small banks, let’s be clear that we are in the obsessively paranoid camp, with plenty of cause. A front page article last week in the American Banker repeated one of the many reasons for that paranoia: rising fixed costs of regulation. One industry advisor was quoted as
saying “I think the regulators are less likely today to let small banks off the hook with all the regulations, and the costs are just becoming too enormous to bear.”
Another, noting the high number of banks per capita in the United States versus other industrialized countries, correctly points out that “It’s great for the consumer, great for the businessman…” before finishing the sentence with a moronic thought that is probably, sadly, representative of Beltway thinking these days, “…but as an economic system, I’m not sure I think that’s entirely healthy.” Brace yourselves.
prb
From: "BBW Capital"
Subject: BBW Capital Weekly Market Monitor
Date: Mon, 17 May 2010 18:09:09 -0600
As the riots rage in Greece, and protesters gather in the streets of Spain and elsewhere to rally against financial responsibility, community bankers here in America ought to be girding for a battle of their own. Lest anyone be confused about Market Monitor’s concern over our government’s position vis-à-vis small business and small banks, let’s be clear that we are in the obsessively paranoid camp, with plenty of cause. A front page article last week in the American Banker repeated one of the many reasons for that paranoia: rising fixed costs of regulation. One industry advisor was quoted as
saying “I think the regulators are less likely today to let small banks off the hook with all the regulations, and the costs are just becoming too enormous to bear.”
Another, noting the high number of banks per capita in the United States versus other industrialized countries, correctly points out that “It’s great for the consumer, great for the businessman…” before finishing the sentence with a moronic thought that is probably, sadly, representative of Beltway thinking these days, “…but as an economic system, I’m not sure I think that’s entirely healthy.” Brace yourselves.
Monday, May 10, 2010
Fannie Mae requested another $8.4 billion from the federal government
May 10, 2010
'FNMA - Due to current trends in the housing and financial markets, we continue to expect to have a net worth deficit in future periods, and therefore will be required to obtain additional funding from Treasury…'
Another one of the 'elephants in the room' that our esteemed federal legislative representatives (I use that term very loosely these days - more like career power brokers) ignore. And the heart of the issue falls back to the entitlement mentality - everyone deserves to own their own home, no matter whether they can afford it or not! With Fannie and Freddie leading the way with such risk hungry mortgage underwriting that made getting a car loan look like dealing with the SBA (for those of you who have ever dealt with SBA will know what I mean) in comparison.
And the beat goes on…the continued slide in the stability of the housing market steadily erodes community bank's balance sheets, eats away at the true American Dream, further pushes the envelope of irresponsibility, creates an even higher level of entitlement in the psyche of Americans, creates more blame casting and further divides our country.
The unwinding of the leverage that created the mortgage debacle will take time to work through - as I have said before, when this all started - there is no magic bullet that will instantly put us on the level path to restoration, it took time to get here, it will take time to get back. Yet since we live in the micro wave age, the age of instant gratification, we have our fearless leaders attempting to do just that to appease and assuage us…inevitably creating another potentially deeper crisis down the road.
What do we need? Level headed, future thinking, fiscally responsible leadership.
What will we get? Probably more of what we have had - politically motivated, in the moment thinking, 'open buffet' fiscal policy.
prb
NEW YORK (CNNMoney.com) -- Fannie Mae requested another $8.4 billion from the federal government on Monday, saying that it expects its deficits to continue due to trends in the housing and financial markets.
The government-controlled mortgage giant said it lost $13.1 billion applicable to common shareholders in the first quarter of 2010. In the year-earlier quarter, Fannie suffered a $23.2 billion loss, but an accounting change makes comparing the year-over-year losses difficult.
Fannie's request for more federal funds comes just four days after Fannie's twin Freddie Mac also asked for a handout - to the tune of $10.6 billion - after posting an $8 billion quarterly loss.
In using Fannie (FNM, Fortune 500) and Freddie (FRE, Fortune 500) to prop up the mortgage market, the government in December lifted a $200 billion limit on their bailouts, essentially giving the twin housing lenders a blank check. Fannie Mae has already received $76.2 billion from the federal government and Freddie has gotten $50.7 billion.
"In the first quarter, we continued to serve as a leading source of liquidity to the mortgage market, and we made solid progress in our ongoing efforts to keep people in their homes," Fannie Mae President and CEO Mike Williams, said in a press release.
Fannie's bottom line took a greater hit from credit losses, as it saw the single-family delinuqency rate increase to 5.47%, up from 5.38% in the previous quarter.
While the rate increased, the company said the improved employment picture is at least slowing the pace at which the delinquency rate grows. Mortgages that remain "seriously delinquent" continue to do so for extended periods, the company also said.
As for the future, Fannie said it expects to continue to post losses and ask for government handouts in upcoming quarters.
"Due to current trends in the housing and financial markets, we continue to expect to have a net worth deficit in future periods, and therefore will be required to obtain additional funding from Treasury pursuant to the senior preferred stock purchase agreement," the company's press release said
'FNMA - Due to current trends in the housing and financial markets, we continue to expect to have a net worth deficit in future periods, and therefore will be required to obtain additional funding from Treasury…'
Another one of the 'elephants in the room' that our esteemed federal legislative representatives (I use that term very loosely these days - more like career power brokers) ignore. And the heart of the issue falls back to the entitlement mentality - everyone deserves to own their own home, no matter whether they can afford it or not! With Fannie and Freddie leading the way with such risk hungry mortgage underwriting that made getting a car loan look like dealing with the SBA (for those of you who have ever dealt with SBA will know what I mean) in comparison.
And the beat goes on…the continued slide in the stability of the housing market steadily erodes community bank's balance sheets, eats away at the true American Dream, further pushes the envelope of irresponsibility, creates an even higher level of entitlement in the psyche of Americans, creates more blame casting and further divides our country.
The unwinding of the leverage that created the mortgage debacle will take time to work through - as I have said before, when this all started - there is no magic bullet that will instantly put us on the level path to restoration, it took time to get here, it will take time to get back. Yet since we live in the micro wave age, the age of instant gratification, we have our fearless leaders attempting to do just that to appease and assuage us…inevitably creating another potentially deeper crisis down the road.
What do we need? Level headed, future thinking, fiscally responsible leadership.
What will we get? Probably more of what we have had - politically motivated, in the moment thinking, 'open buffet' fiscal policy.
prb
NEW YORK (CNNMoney.com) -- Fannie Mae requested another $8.4 billion from the federal government on Monday, saying that it expects its deficits to continue due to trends in the housing and financial markets.
The government-controlled mortgage giant said it lost $13.1 billion applicable to common shareholders in the first quarter of 2010. In the year-earlier quarter, Fannie suffered a $23.2 billion loss, but an accounting change makes comparing the year-over-year losses difficult.
Fannie's request for more federal funds comes just four days after Fannie's twin Freddie Mac also asked for a handout - to the tune of $10.6 billion - after posting an $8 billion quarterly loss.
In using Fannie (FNM, Fortune 500) and Freddie (FRE, Fortune 500) to prop up the mortgage market, the government in December lifted a $200 billion limit on their bailouts, essentially giving the twin housing lenders a blank check. Fannie Mae has already received $76.2 billion from the federal government and Freddie has gotten $50.7 billion.
"In the first quarter, we continued to serve as a leading source of liquidity to the mortgage market, and we made solid progress in our ongoing efforts to keep people in their homes," Fannie Mae President and CEO Mike Williams, said in a press release.
Fannie's bottom line took a greater hit from credit losses, as it saw the single-family delinuqency rate increase to 5.47%, up from 5.38% in the previous quarter.
While the rate increased, the company said the improved employment picture is at least slowing the pace at which the delinquency rate grows. Mortgages that remain "seriously delinquent" continue to do so for extended periods, the company also said.
As for the future, Fannie said it expects to continue to post losses and ask for government handouts in upcoming quarters.
"Due to current trends in the housing and financial markets, we continue to expect to have a net worth deficit in future periods, and therefore will be required to obtain additional funding from Treasury pursuant to the senior preferred stock purchase agreement," the company's press release said
Wednesday, April 28, 2010
April 2010 FOMC meeting
'because it could lead to a build-up of future imbalances and increase risks to longer run macroeconomic and financial stability'
It appears that Hoenig is the only one who sees the potential for another 'bubble' formation ? ? ?
taken from the FOMC meeting press release:
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman;
William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Donald L. Kohn; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh.
Voting against the policy action was Thomas M. Hoenig, who believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to a build-up of future imbalances and increase risks to longer run macroeconomic and financial stability, while limiting the Committee's flexibility to begin raising rates modestly
It appears that Hoenig is the only one who sees the potential for another 'bubble' formation ? ? ?
taken from the FOMC meeting press release:
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman;
William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Donald L. Kohn; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh.
Voting against the policy action was Thomas M. Hoenig, who believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to a build-up of future imbalances and increase risks to longer run macroeconomic and financial stability, while limiting the Committee's flexibility to begin raising rates modestly
Monday, April 26, 2010
BBW Market Monitor Week of April 26, 2010
The effects of what happened in the residential mortgage market seem to cascade on forever. I believe that it has been directly influenced by the 'entitlement' mindset and has taken that mindset a step further. As we reach a position in our
country where more and more people rely on some form of government 'entitlement' program it does not bode well for our future as a free nation. The tide must be changed, individual freedom and liberty must be brought to the forefront, growing government bondage has to end (the bigger you build it the more that will come appears to be the current mantra yet who is going to be able to pay for it!) - responsibility must be restored in and to our economic lives (personal, federal, state, local - at all levels!).
prb
BBW MARKET MONITOR WEEK OF APRIL 26, 2010
Are we out of the woods yet? It sure seems like it if you look at what the stock market is telling us. Stocks are up 8+% YTD and 79% since the lows in March 2009. But what is it exactly that is keeping consumer spending and the stock market charging forward? Unfortunately, the answer lies mainly in the largess of the federal government and mortgage defaults. Over the past year we have seen:
Government income assistance: $243 billion
Tax reductions: $63 billion
Government wages: $27 billion
Decline in savings rate: $22 billion
Strategic mortgage defaults: $120 billion
This totals a cash flow boost of $475 billion which equates to 5% of consumer spending. Unfortunately, we question its sustainability, especially considering the increasing discontent with Washington’s historic deficit spending and the inevitable increase in taxes to follow, coupled with the fact that eventually “strategic” defaulters are going to have to start paying for their shelter.
For a typical example of a “strategic” mortgage defaulter, take the case of Cheryl Trella, who was profiled in a Financial Times article this week. She’s a 56-year old grandmother living in the Phoenix suburb of Chandler who has not made a payment on her $300,000 home in more than a year. Yet, her lender, Bank of America, has not contacted her since August. Basically, she has been living rent free for that entire time. She is not alone.
According to Moody’s Economy.com, six million people continue to live in their homes free of charge even though they are significantly delinquent or in some stage of foreclosure. Lender Processing Services estimates that 1.4 million borrowers have not made a single payment in the past year. Of course, these days banks have good reason for moving slowly. Once they take possession of a property, they must write down its value to reflect market prices, taking millions of dollars in losses in the process.
Assuming that you have decided to “strategically” default on your mortgage and you no longer have to pay the $1,000-$5,000+ per month for your mortgage payment, what would you do with your new found windfall? Well it seems many are spending it like a drunken sailor on vacations and toys – one last splurge before bankruptcy must be declared. The blog Calculated Risk recently detailed a case study of an actual HAMPlicant at one of the nation’s largest servicing shops. HAMP applicants much submit a “hardship affidavit” to show they can no longer “maintain payment on the mortgage and cover basic living expenses at the same time.” In conjunction, they must also submit recent paystubs and bank statements to verify this affidavit. One couple had a $1,880 monthly mortgage payment on which they had defaulted, yet their bank statements for the past 30 days included the following expenses:
Visits to the tanning salon
Visits to the nail salon
Shopping at a gourmet produce market
Visits to various liquor stores
A DirecTV bill that involved many premium programming and pay-per-view events
Over $1,700 in retail purchases including: Best Buy, Baby Gap, Brookstone, Old Navy, Bed, Bath & Beyond, Home Depot, Macy’s, Pac Sun, Urban Behavior, Sears, Staples and Footlocker.
This case study probably should be taken with a grain of salt, but there is no question that a new population within our society has emerged. Studies like this suggest that there are a rising number of people that appear to have no qualms about defaulting on their debt, while using the windfall of the default to have one last spending spree.
To make matters worse, web sites such as http://www.youwalkaway.com/ make the process seems as easy as 1-2-3, showing a happy couple with their small child laughing and playing in the front yard without a care in the world. Of course, we are all going to pay for this in the long term. In the short term, we at BBW Capital Advisors, feel this demonstrates 1) the
Federal Reserve will keep short-term rates near zero in order to give banks a license to print money to recover from all these “strategic” defaults and 2) that the recovery is hardly sustainable. Remember that 70% of GDP comes from consumer spending. It will be interesting to see what happens to that statistic once these millions of “strategic” defaulters actually have to start paying for their shelter.
country where more and more people rely on some form of government 'entitlement' program it does not bode well for our future as a free nation. The tide must be changed, individual freedom and liberty must be brought to the forefront, growing government bondage has to end (the bigger you build it the more that will come appears to be the current mantra yet who is going to be able to pay for it!) - responsibility must be restored in and to our economic lives (personal, federal, state, local - at all levels!).
prb
BBW MARKET MONITOR WEEK OF APRIL 26, 2010
Are we out of the woods yet? It sure seems like it if you look at what the stock market is telling us. Stocks are up 8+% YTD and 79% since the lows in March 2009. But what is it exactly that is keeping consumer spending and the stock market charging forward? Unfortunately, the answer lies mainly in the largess of the federal government and mortgage defaults. Over the past year we have seen:
Government income assistance: $243 billion
Tax reductions: $63 billion
Government wages: $27 billion
Decline in savings rate: $22 billion
Strategic mortgage defaults: $120 billion
This totals a cash flow boost of $475 billion which equates to 5% of consumer spending. Unfortunately, we question its sustainability, especially considering the increasing discontent with Washington’s historic deficit spending and the inevitable increase in taxes to follow, coupled with the fact that eventually “strategic” defaulters are going to have to start paying for their shelter.
For a typical example of a “strategic” mortgage defaulter, take the case of Cheryl Trella, who was profiled in a Financial Times article this week. She’s a 56-year old grandmother living in the Phoenix suburb of Chandler who has not made a payment on her $300,000 home in more than a year. Yet, her lender, Bank of America, has not contacted her since August. Basically, she has been living rent free for that entire time. She is not alone.
According to Moody’s Economy.com, six million people continue to live in their homes free of charge even though they are significantly delinquent or in some stage of foreclosure. Lender Processing Services estimates that 1.4 million borrowers have not made a single payment in the past year. Of course, these days banks have good reason for moving slowly. Once they take possession of a property, they must write down its value to reflect market prices, taking millions of dollars in losses in the process.
Assuming that you have decided to “strategically” default on your mortgage and you no longer have to pay the $1,000-$5,000+ per month for your mortgage payment, what would you do with your new found windfall? Well it seems many are spending it like a drunken sailor on vacations and toys – one last splurge before bankruptcy must be declared. The blog Calculated Risk recently detailed a case study of an actual HAMPlicant at one of the nation’s largest servicing shops. HAMP applicants much submit a “hardship affidavit” to show they can no longer “maintain payment on the mortgage and cover basic living expenses at the same time.” In conjunction, they must also submit recent paystubs and bank statements to verify this affidavit. One couple had a $1,880 monthly mortgage payment on which they had defaulted, yet their bank statements for the past 30 days included the following expenses:
Visits to the tanning salon
Visits to the nail salon
Shopping at a gourmet produce market
Visits to various liquor stores
A DirecTV bill that involved many premium programming and pay-per-view events
Over $1,700 in retail purchases including: Best Buy, Baby Gap, Brookstone, Old Navy, Bed, Bath & Beyond, Home Depot, Macy’s, Pac Sun, Urban Behavior, Sears, Staples and Footlocker.
This case study probably should be taken with a grain of salt, but there is no question that a new population within our society has emerged. Studies like this suggest that there are a rising number of people that appear to have no qualms about defaulting on their debt, while using the windfall of the default to have one last spending spree.
To make matters worse, web sites such as http://www.youwalkaway.com/ make the process seems as easy as 1-2-3, showing a happy couple with their small child laughing and playing in the front yard without a care in the world. Of course, we are all going to pay for this in the long term. In the short term, we at BBW Capital Advisors, feel this demonstrates 1) the
Federal Reserve will keep short-term rates near zero in order to give banks a license to print money to recover from all these “strategic” defaults and 2) that the recovery is hardly sustainable. Remember that 70% of GDP comes from consumer spending. It will be interesting to see what happens to that statistic once these millions of “strategic” defaulters actually have to start paying for their shelter.
Wednesday, March 31, 2010
Morning Market Update for Wednesday March 31st
The eerie economic as well as political correlations/similarities to the period of the 1930's continues to gain momentum. Continuing high levels of joblessness, ineffective government spending programs, increasing federal entitlements, constitutionally questionable legislation…for those of us that are history fans it almost looks like 'play it again Sam'!
I guess only time will tell if we are truly smarter than our ancestors (like everyone seems to think!) and we can return to a thriving economic scenario in the short term. Although at this point the odds don't seem to favor that outcome. And I hope that we will not have to have another WWII to shake us out of our doldrums!
prb
From: S&Y PSG Morning Market Update for Wednesday March 31st
…the housing market, although showing signs of life, has yet to surprise anyone with its strength. Similarly, even with gains in the past few months, the US labor market is still very weak, jobs creation is anemic and most analysts do not expect the unemployment rate to decline appreciably over the next few years. In addition, inflation is virtually nonexistent. This suggests that economic growth will remain weak for some time, and rates/yields should not experience
undue upward pressure. Finally, the Fed will almost be forced to remain on the sidelines as long as unemployment remains so high.
Earlier today, Wednesday March 31, ADP reported its payroll change for March. The report showed an unexpected decline of -23,000 in ADP processed payrolls; i.e. job cuts. (The ADP data covers 365,000 of ADP’s non-farm clients
and represents approximately 24 million workers.) The market consensus had projected a rise of +40,000 in the March ADP data, so today’s report was a bit of a surprise. Presumably, US companies are still reluctant to start hiring until they have a higher degree of confidence in the sustainability of the US economic recovery, and can count on an appreciable rise in final demand.
The unexpected decline in the ADP payrolls creates nervousness in the markets on the eve of the Labor Department’s employment report scheduled for Friday (4/2) morning. Although the historical correlation between the ADP report and the “official” non-farm payroll report is not very strong, there is a general sense that if ADP payrolls are falling, perhaps the market expectation of payroll gains on Friday are overly optimistic. At the moment, the consensus estimate for March non-farm payrolls is for an increase of +184,000. If the consensus prediction is correct, it would be the first increase over +150,000 in monthly payrolls since March of 2007.
I guess only time will tell if we are truly smarter than our ancestors (like everyone seems to think!) and we can return to a thriving economic scenario in the short term. Although at this point the odds don't seem to favor that outcome. And I hope that we will not have to have another WWII to shake us out of our doldrums!
prb
From: S&Y PSG Morning Market Update for Wednesday March 31st
…the housing market, although showing signs of life, has yet to surprise anyone with its strength. Similarly, even with gains in the past few months, the US labor market is still very weak, jobs creation is anemic and most analysts do not expect the unemployment rate to decline appreciably over the next few years. In addition, inflation is virtually nonexistent. This suggests that economic growth will remain weak for some time, and rates/yields should not experience
undue upward pressure. Finally, the Fed will almost be forced to remain on the sidelines as long as unemployment remains so high.
Earlier today, Wednesday March 31, ADP reported its payroll change for March. The report showed an unexpected decline of -23,000 in ADP processed payrolls; i.e. job cuts. (The ADP data covers 365,000 of ADP’s non-farm clients
and represents approximately 24 million workers.) The market consensus had projected a rise of +40,000 in the March ADP data, so today’s report was a bit of a surprise. Presumably, US companies are still reluctant to start hiring until they have a higher degree of confidence in the sustainability of the US economic recovery, and can count on an appreciable rise in final demand.
The unexpected decline in the ADP payrolls creates nervousness in the markets on the eve of the Labor Department’s employment report scheduled for Friday (4/2) morning. Although the historical correlation between the ADP report and the “official” non-farm payroll report is not very strong, there is a general sense that if ADP payrolls are falling, perhaps the market expectation of payroll gains on Friday are overly optimistic. At the moment, the consensus estimate for March non-farm payrolls is for an increase of +184,000. If the consensus prediction is correct, it would be the first increase over +150,000 in monthly payrolls since March of 2007.
Wednesday, March 3, 2010
Wednesday March 3, 2010
Opportunity ahead….but how do we get there?
The fiscally responsible unraveling of the leverage that our economy has built up at all levels (city, county, state, federal, individual) as well as the world in general, will be the cornerstone of what may lie ahead… appropriate deleveraging while controlling inflation should be the goal. But as we continue to see our country does not seem to have the fiscal discipline to walk that path – we don’t even want to crawl on to it! We are so adverse to the ‘perceived’ level of pain that most assuredly must occur we continue to undermine what needs to be accomplished. And from the government’s perspective (at all levels) spending money is power and who wants to give that up…for the ‘greater good’ is today NOT tomorrow or so it appears the thought process has become!
The dam is leaking and the gum is running out! An uncharted and historic level of spending by our governmental bodies comes with a price – and who is willing to pay that price! As the cartoon character, Wimpy, from Popeye so brilliantly stated “I will gladly pay you Tuesday for a hamburger today” – was he a politician! Well, after we have eaten all of our hamburgers Tuesday is coming and there is a price that will have to be paid!
prb
Date: Wednesday, 3 Mar 2010
From: "Stone & Youngberg Portfolio Strategy Group"
- Yesterday's (2/3) Treasury market started out the day weaker and prices were under pressure until early afternoon when bids picked up and prices rose. The market shrugged off the progress reportedly made in resolving the Greek debt crisis, which should normally reverse the flight to quality, cause the dollar to weaken and Treasury prices to fall.
- The proximate cause of the market's firm tone was a rather pessimistic assessment of economic conditions in the latest Fed Beige book. Across the board, economic indicators were pointing to an anemic at best economic recovery; "consumer spending remained sluggish...dismal holiday spending season...conditions weakened for agricultural producers...drops in business loan demand...continued tight credit availability." Given where we are in the business cycle, roughly eight months since the presumed end of the recession (July 1), this Beige Book paints a bleak picture of the supposed recovery phase we are now in.
- Earlier today, Wednesday March 3, ADP reported their February payrolls had dropped by -20,000. This was in line with expectations and represents improvement from the January payroll drop of -60,000. Although the ADP data is prone to sometimes appreciable revisions, it is nonetheless viewed as providing insight into the Bureau of Labor Statistics national unemployment data released two days hence on Friday.
- The Treasury market is weaker this morning (3/3) across the curve. Prices are fading today partially as a consequence of a pull back from the rally in Treasuries over the past week. In addition, the soon to be resolved Greek crisis has served to reverse the flight to quality. The 30 year long bond is down -¼ of a point and the yield is 4.58%. The 10 year UST is also off -¼ of a point and the yield is now 3.63%. By way of perspective, one week ago on Wednesday Feb. 24, the 10 year was yielding 3.69%. The short end of the market is slightly weaker the 2 year UST is yielding 0.80%.
The fiscally responsible unraveling of the leverage that our economy has built up at all levels (city, county, state, federal, individual) as well as the world in general, will be the cornerstone of what may lie ahead… appropriate deleveraging while controlling inflation should be the goal. But as we continue to see our country does not seem to have the fiscal discipline to walk that path – we don’t even want to crawl on to it! We are so adverse to the ‘perceived’ level of pain that most assuredly must occur we continue to undermine what needs to be accomplished. And from the government’s perspective (at all levels) spending money is power and who wants to give that up…for the ‘greater good’ is today NOT tomorrow or so it appears the thought process has become!
The dam is leaking and the gum is running out! An uncharted and historic level of spending by our governmental bodies comes with a price – and who is willing to pay that price! As the cartoon character, Wimpy, from Popeye so brilliantly stated “I will gladly pay you Tuesday for a hamburger today” – was he a politician! Well, after we have eaten all of our hamburgers Tuesday is coming and there is a price that will have to be paid!
prb
Date: Wednesday, 3 Mar 2010
From: "Stone & Youngberg Portfolio Strategy Group"
- Yesterday's (2/3) Treasury market started out the day weaker and prices were under pressure until early afternoon when bids picked up and prices rose. The market shrugged off the progress reportedly made in resolving the Greek debt crisis, which should normally reverse the flight to quality, cause the dollar to weaken and Treasury prices to fall.
- The proximate cause of the market's firm tone was a rather pessimistic assessment of economic conditions in the latest Fed Beige book. Across the board, economic indicators were pointing to an anemic at best economic recovery; "consumer spending remained sluggish...dismal holiday spending season...conditions weakened for agricultural producers...drops in business loan demand...continued tight credit availability." Given where we are in the business cycle, roughly eight months since the presumed end of the recession (July 1), this Beige Book paints a bleak picture of the supposed recovery phase we are now in.
- Earlier today, Wednesday March 3, ADP reported their February payrolls had dropped by -20,000. This was in line with expectations and represents improvement from the January payroll drop of -60,000. Although the ADP data is prone to sometimes appreciable revisions, it is nonetheless viewed as providing insight into the Bureau of Labor Statistics national unemployment data released two days hence on Friday.
- The Treasury market is weaker this morning (3/3) across the curve. Prices are fading today partially as a consequence of a pull back from the rally in Treasuries over the past week. In addition, the soon to be resolved Greek crisis has served to reverse the flight to quality. The 30 year long bond is down -¼ of a point and the yield is 4.58%. The 10 year UST is also off -¼ of a point and the yield is now 3.63%. By way of perspective, one week ago on Wednesday Feb. 24, the 10 year was yielding 3.69%. The short end of the market is slightly weaker the 2 year UST is yielding 0.80%.
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