Saturday, January 26, 2013

Today's links

1---The "great housing rebound" in one picture, (first graph), calculated risk

We're back to 1991. Crack the champagne!

2---The 4 stages of a bull market, Big Picture

Can you see the effects of QE1, QE2, QE3, Operation Twist?

3---Visualizing The Euphoria, zero hedge

With Credit Risk Appetite well beyond any previous record high and Global Risk Appetite at its highest since 2006, perhaps it is time to consider the hedging discussion we had yesterday? With the euphoria dramatically dislocated from fundamentals and empirical world wealth trough-to-peak moves indicating a turning point, the lack of bearish arguments is deafening.

4---British Economy Is WORSE than During the Great Depression, washington blog

It’s the worst economic performance since at least 1830, outside of post-war demobilisations,” he told The Daily Telegraph. “It’s worse than the 1920s, it’s worse than the Great Depression.”

He said the economy has been “heading this way for a long time” because of the scale of the problems that came to a head in the 2008 financial crash.

 The top economist at RBS, which is mostly owned by the Government, said it is difficult to recover when much of the world is facing similar problems.

 “It’s the scale of what happened in 2008 but also the build-up to that,” he said. “Compared with other recessions [like in the 1980s and 1990s], this is happening all over the world. There’s not a quick and easy way to export your way out of this.”.....

Mark McHugh reports:
Velocity of money is the frequency with which a unit of money is spent on new goods and services. It is a far better indicator of economic activity than GDP, consumer prices, the stock market, or sales of men’s underwear (which Greenspan was fond of ogling). In a healthy economy, the same dollar is collected as payment and subsequently spent many times over. In a depression, the velocity of money goes catatonic. Velocity of money is calculated by simply dividing GDP by a given money supply. This VoM chart using monetary base should end any discussion of what ”this” is and whether or not anybody should be using the word “recovery” with a straight face:

 British Economy Is WORSE than During the Great Depression

In just four short years, our “enlightened” policy-makers have slowed money velocity to depths never seen in the Great Depression.
 
5----Market performance update, greater fool

the S&P 500 is ahead 4.81% in the last three weeks, and 13.7% in the past year. It’s at a level last seen five years ago, and 4% below its all-time peak. The Dow is even closer, dangling just 2% under its best-ever showing in the autumn of 2007.

This advance has come because of corporate profits and economic growth. Of companies reporting Q4 earnings, like Google and IBM, 73% of them have beat expectations. The latest jobless claims numbers shocked because they were so positive, dropping to a five-year low.

6----How to Minimize the Drag of Austerity, counterpunch

...revenue increases on upper-income households and corporations are, per dollar, the least economically damaging policy option for deficit reduction—see the table below. (Again, why policymakers are abandoning what works and fixating on damaging an economy already depressed nearly $1 trillion—or 5.6 percent below potential output—with bleak prospects for emerging from depression, is a question for another post.) Some simple math helps underscore the benefit of increasing the revenue share in hitting a fixed deficit reduction target.

7---HARP success could trickle down to non-agency borrowers, Housingwire

With the success of the Home Affordable Refinance Program for Fannie and Freddie borrowers, there is an expected push on the part of the Obama Administration to offer performing borrowers falling outside the agency's purview a way to lower their mortgage payments – through either a refinance or loan modification, Amherst Securities Group said.

Amherst's latest Mortgage Insight Report focuses on the implications of both Sen. Jeff Merkley's plan for refinancing underwater borrowers and the Treasury proposal for modifying mortgages in private-label securitizations.

The mechanics of the refinance plans are different in that under the Merkley Plan and other refinancing proposals, the loan is removed from the private label securitization trust (PLS trust), whereas under the Treasury plan, the mortgage loans remain in the PLS trust. Sen. Jeff Merkley, D-Ore., introduced his plan last year, proposing that the government would buy underwater mortgages from banks, reduce the principal for eligible borrowers and refinance the loan into a new Federal Housing Administration-backed mortgage....

In regards to the implementation of the proposed Treasury plan, borrowers with loan-to-value ratios greater than 125 would automatically be eligible while those with LTVs in the 100-to-125 range would need to show "hardship," to see a modification.

8---Treasury Likes Non-Agency HARP-Like Proposal, mortgage finance

A proposal by Sen. Jeff Merkley, D-OR, to help refinance non-agency borrowers with negative equity has support from the Obama administration and could begin tests without action from Congress. The proposed “Rebuilding American Homeownership” has been characterized as a Home Affordable Refinance Program for non-agency mortgages. “I think the policy is very good; it’s very well designed,” Treasury Department Secretary Timothy Geithner said in testimony last week before the Senate Committee on Banking, Housing and Urban Affairs ...

9---Fed Intervention For Dummies - What A Record $3 Trillion In Fed Assets Gets You, zero hedge

The Market vs The Jobs...



 and the real wealth effect...




10---S&P 500 Post Longest Winning Streak Since 2004 on Profits, Bloomberg

U.S. stocks rose, giving the Standard & Poor’s 500 Index its longest winning streak since 2004, as Starbucks Corp. and Procter & Gamble Co. reported increased profit and German business confidence beat forecasts....

The S&P 500 added 0.5 percent to 1,502.96 in New York. The benchmark gauge closed above 1,500 for the first time since December 2007 and gained for eight straight days, the longest string of advances since November 2004. The Dow Jones Industrial Average gained 70.65 points, or 0.5 percent, to 13,895.98 today. About 6.3 billion shares traded hands on U.S. exchanges today, in line with the three-month average. .....



11---The Visible Hand Of The Fed, dshort

1--Better than expected earnings - not counting the fact that expectations had been dramatically lowered over the last quarter. If you lower the bar enough you will get better results. However, if expectations levels had remained where they were previously every single report would have missed so far.
2-- Stronger economic growth ahead - expectations are once again, as we have seen over the last 3 years, that the economy will grow at 3% or better in the coming year. Unfortunately, most of the economic data suggests that 2013 will remain mired closer to 2% after a very lackluster first half of the year. ....

The point to made here is that each time the market has rallied the media, and analysts, try to attribute the rally to a fundamental support. In most cases the arguments boil down to "hope" more than "reality." However, what is really driving the current rally is likely far more simplistic: $85 billion a month.
With the Federal Reserve currently engaged in two simultaneous quantitative easing programs (QE 3 and 4) totaling $85 billion a month in purchases of both mortgage backed and treasury bonds - the excess reserve accounts of the banks have soared in recent weeks. There is a very high historical correlation (85%) between the expansion of the Fed's balance sheet and the stock market.
The chart below shows the relationship between the financial market and the expansion/contraction of excess reserves held by banks. Historically, these excess reserves, prior to 2008, averaged about 18.9 billion. Today those excess reserves amount to $1.58 Trillion.
It is clear that the visible hand of the Federal Reserve is firmly in control of the markets at the moment as liquidity flows are increased. However, extrapolating the current advance indefinitely into the future becomes somewhat dangerous. Each previous program cycle has ended with a fairly nasty decline, in both the markets and the economy, as the fundamental drivers were being supported solely by artificial interventions. Those declines would have likely been far worse had they not been halted by the next round of "liquidity injected goodness.....

Will the markets continue to play out as the chart above potentially forecasts? I haven't a clue. With the Fed fully engaged in stimulus programs domestically, as well as the ECB and Japan globally, there is excess liquidity sloshing throughout the financial system. The market rally could well rise farther, for longer, than most would expect possible.

The current belief is that the central banks will have the foresight to withdraw the stimulus before the next bubble is formed, unfortunately, there is no historical precedent that supports that claim. However, with the markets fully inflated, we have reached the point that where even a small exogenous shock will likely have an exaggerated effect on the markets. There are times when investors can safely "buy and hold" investments. This likely isn't one of them.

12---Then vs. now: Obama’s first term by the numbers, msnbc

The Dow Jones Industrial Average is up more than 5,500 points, just shy of the 14,000 mark. The economy is growing rather than contracting; in the first quarter of 2009, the Gross Domestic Product shrank 6.1%, it grew 3.1% in the third quarter of 2009, when last measured. Consumer confidence has nearly doubled. And a larger percentage of Americans–35% according to NBC News’ last poll–believe the country is headed in the right direction, up from 26% in January of 2009.

On the other hand, there is also plenty of data to support that idea that the country isn’t much better off than it was four years ago–and that the struggling economy continues to take a toll on families. Median household income is lower than it was in 2009. And to further mar his image, 46 million American live below the poverty line, several million more than four years ago.

The federal public debt has increased from $10.6 trillion in January 2009 to $16.4 trillion now.
But one number that is exactly the same as it was four years ago: the unemployment rate of 7.8%, though it’s down from a high of 10% in October of 2009.

13---The market is not worried about anything, CNBC

Market professionals, as measured by the Investors Intelligence survey of investors newsletters, are bullish by a 53.2 percent to 22.3 percent margin, the largest spread in four months. The last time the gap was this big preceded a 7 percent market drop in a month, which in turn preceded the current rally.
Finally, the more than 470 days the market has gone without a correction - or 10 percent market drop - marks the 10th longest such streak in market history and the best run since the record 2,553 days that lasted from 1990-97. Three-quarters of the Standard & Poor's 500 stocks are in overbought territory, according to Bespoke Investment Group.

"If the market keeps moving higher, not worrying about anything, it's going to be difficult for the bulls," said Quincy Krosby, chief market strategist at Prudential Annuity. "The market's not climbing a wall of worry - it's not worrying about anything. Typically when that happens something will come along to pull it back."

14---Is the Dow Record-Bound?, motley fool

When the Dow Jones Industrials  dropped below 7,000 in early 2009, many investors thought the venerable market measure might never return to its glory of 2007, when it seemed to set new highs all the time, eventually topping out above 14,000 before its historic plunge in the financial crisis. But with the latest push higher in the stock market, the Dow is within 400 points of its closing high of 14,164.53, set on Oct. 9, 2007. Will the Dow get there?

15--Stocks Confront Painful Past, WSJ

The stock market is on the verge of new all-time highs, or the mother of all head-and-shoulders crashes.
The S&P 500 crested over the 1500 level Thursday, a milepost it hasn’t seen since 2007. The Dow Jones Industrial Average is near 14000. The Dow transports index is already in record territory. The Wilshire 5000 hit a record high Thursday as well.

These big, round numbers—1500, 14000—often get more attention than they merit. The S&P 500, after all, is up only 2.5% since its September high. Yet the market appears to be in a buying mood and record levels are on the radar.
But just looking at a chart of the S&P 500 over the past 16 years presents a stark warning that the market has been here twice before—twice, in fact—and it hasn’t been pretty.



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