Bianco News Clips


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Example of Jim Bianco News Clips that is distributed each day to readers. Nice compilation of pertinent news stories with comments.

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Bianco News Clips

  1. 1. Bernanke Is TIME’s Named Person Of The Year, God Help Us In 2010 December 16, 2009 Note: As of this writing the actual TIME magazine cover was not yet online (they have a tiny one in the corner of the link below). TIME did, however, offer this picture of Bernanke. • - Federal Reserve’s Bernanke Named Time’s ‘Person of the Year’ Federal Reserve Chairman Ben Bernanke, 56, was named “Person of the Year” by Time magazine, the publication announced on NBC’s “Today” show this morning. There were six finalists for “Person of the Year,” including U.S. President Barack Obama; House Speaker Nancy Pelosi; Steve Jobs, Apple Inc.’s co-founder and chief executive officer; the Chinese worker, an “increasingly influential group”; General Stanley McChrystal, the top U.S. and NATO commander in Afghanistan; and Jamaican sprinter and Olympic gold-medalist Usain Bolt.
  2. 2. Comment Paul Montgomery of Universal Economics popularized the idea of TIME magazine covers as contrarian indicators. Within this study, he has noted that the Man of the Year, now called Person of the Year (POY), has been a particularly good contrarian indicator. Not every POY has an investment implication, but when it does, it has been profitable to do the opposite of what it says. Does this cover imply the Federal Reserve will botch the exit strategy? 2008: Obama was named POY as a transformational figure. Currently his approval rating is among the lowest ever recorded for a President 11 months into his term. 2007 2007: Putin was name POY. In 2008 the Russian stock market fell 75%. More selected examples include: 2006 1999 1997 1991 1989 1982 1979 1974 1966 1955
  3. 3. In 2006, the POY was “you” as a reference to YouTube. Google, which acquired YouTube, was up almost 50% this year meaning this was not a good contrarian indicator. However, in 1982 the personal computer was “Machine of the Year” and the next year technology stocks peaked and struggled. In 1999 Jeff Bezos of Amazon was POY and the next year saw the peak of the 1990s tech stock mania and Amazon’s stock. Likewise, in 1997 Andy Grove of Intel was POY and Intel finished 1998 poorly. In 1991 Ted Turner of Turner Broadcasting was POY. The next year his stock struggled. In 1989 Soviet Union leader Mikhail Gorbachev was Person of the Decade (1980s). Within two years his country ceased to exist and he was living a meager life on a state-provided pension. In 1979 the Ayatollah Khomeini was POY. Also, in 1974 Saudi King Faisal was POY. 1975 and 1980 each saw a major high in crude oil. In 1966 the “under 25 generation” (baby boomer generation) was POY. Stock market/economic historians will recognize 1966 as the beginning of the rise in inflation that ended in 1980. In hindsight many believed the baby boom generation and its need for resources provided a necessary catalyst for this boom. Additionally “Middle America” was POY in 1969 (not shown above) underscoring this idea. In 1955 General Motors’ President Harlow Curtice was POY. That year GM became the first corporation ever to surpass $1 billion in sales. This was was also the year Engine Charlie Wilson, the former CEO of GM and Secretary of Defense said “What’s good for General Motors is good for the country.” In 1955 90% of all cars sold in the United states were made by the big three, and 45% were GM cars. This was the high water mark. GM stocks struggled in 1956 and has yet to recover 50 years later! Additionally in 1929 Walter Chrysler of the Chrysler Corporation was POY (not shown above). This was the year the stock market crashed. Foreign Demand For U.S. Assets • The Wall Street Journal - Foreign Demand for U.S. Assets Softens Foreign demand for long-term U.S. financial assets softened in October, as investors sold corporate bonds and agency debt, the Treasury Department said Tuesday. Net foreign purchases of long-maturity U.S. securities totaled $8.3 billion compared with the prior month, according to the monthly Treasury International Capital report, known as TIC. Net purchases in September totaled $26.7 billion…Win Thin, a senior currency strategist at Brown Brothers Harriman & Co., said country holdings are sometimes volatile on a month-to- month basis. “Bottom line: The big global reserve managers are not dumping U.S. [dollar] assets on a sustained basis,” he wrote in a research note.
  4. 4. Financial-market analysts consider the monthly data from the Treasury Department to be a significant but imprecise gauge of how easily the U.S. can finance its trade deficit. The government last week reported it ran a $32.9 billion trade deficit during October, down 7.6% from $35.7 billion in September. An increase in exports exceeded the rise in imports. Comment We agree with the above comment that monthly holdings are sometimes too volatile to analyze. As such, we tend to look at the TIC data on a 12-month rolling sum basis. Yesterday we examined foreign inflows of capital into the U.S. against the trade deficit, concluding: Because foreign demand for U.S. assets has picked up while the trade deficit has shrunk, the gap between these two measures has almost closed. It is even possible that next month’s numbers will show this gap completely closed. While it would be nice to know the U.S. is seeing capital inflows equal to its trade deficit, Washington is doing everything in its power to ensure the budget deficit makes this gap little more than an afterthought.
  5. 5. <Click on chart for larger image> Virtue vs. Vice • The Wall Street Journal - Some ETFs Attempt to Keep the Faith Exchange-traded funds continue their expansion into new territories in terms of sectors, asset classes, countries-and, now, Christian denominations. On Tuesday, two such ETFs launched-FaithShares Baptist Values (trading symbol: FZB) and Lutheran Values (FKL) funds. Each ETF, managed by FaithShares Advisors LLC, is tailored to each denomination’s specific doctrines and investing guidelines. This follows last week’s debut of FaithShares Catholic Values Fund (FCV) and Methodist Values (FMV) and Christian Values (FOC) funds. While larger investors can give millions to a money-manager and ask that it be managed in accordance with their beliefs, smaller investors have few ways to do that, said Thompson Phillips Jr., president of FaithShares. He and Garrett Stevens, who is chief executive and portfolio manager, work with a number of Christian organizations, and “in almost every case, there’s a tension, a tug of war between them wanting to be good stewards and make money, but avoid undesirable industries” or “sin stocks,” he said. Comment Prior to the markets turning south near the end of 2007, a “vice” fund invested in tobacco, gambling, and firearms returned far more than many of the “virtue” funds shown below. Since the credit crisis hit, these funds have all fallen back into line for the most part. Since the end of 2003 the Vice Fund has returned roughly 17%, compared to slight losses over the same period for the Domini Social Equity Index and the Calvert Social Index.
  6. 6. <Click on chart for larger image> The Federal Reserve Meets • MarketBeat (WSJ Blog) - On Tap Wednesday: Fed Statement in Focus Wednesday at around 2:15 p.m. ET the Federal Reserve’s rate-setting committee hands down its all-important decision on interest rates. And while the widely held consensus is that no rate change is imminent, as always market watchers will be closely perusing the Federal Reserve’s prose in the hopes of divining some clues about when the central bank will start trying in earnest to wean the markets off the extraordinary assistance it offered in the wake of the financial crisis. But as The Journal’s Jon Hilsenrath pointed out earlier this week, the Fed is unlikely to touch the “extended period” language everyone on the Street is fixated on, it could make other edits: Though cautious about the outlook, rhetorically, the Fed has become steadily more upbeat in its assessment of the economy. In August, after a regular meeting of the Federal Open Market Committee, officials said the economy was leveling out and the Fed would use “all available tools” to promote a recovery. By
  7. 7. November, they said the economy had “continued to pick up” and they would use just “a wide range of tools.” … Officials could upgrade their assessment of how the economy is performing. With emergency programs expiring, they could note they are narrowing how many tools they will use to promote recovery. At some point, they could also make it more expensive for banks to take out emergency short- term loans directly from the central bank at its discount window. Comment See our poll question to the right. It is almost unanimous that the Federal Reserve will keep “extended period.” This is the only phrase that matters in the statement. The rest of the talk about upgrading the economic outlook is largely irrelevant. If “extended period” stays, and the Federal Reserve gives no hint it is going to be removed at the next meeting, it means that rates are staying the same for several more meetings. Under this scenario, what difference does it make what they think about the economy today? They will have many more FOMC meetings to adjust that before they raise rates. Only after they remove “extended period” does their assessment of the economy matter. Fannie/Freddie • The Wall Street Journal - Big Decision Looms on Fannie, Freddie The U.S. Treasury faces a decision by year end on whether to increase its bailout of Fannie Mae and Freddie Mac beyond the $400 billion it has already committed. So far, the companies have taken $112 billion in capital infusions from the government, and most analysts believe they are unlikely to use up the full $400 billion. But some analysts say the Treasury and regulators should take precautions, in case losses run higher than expected. After Dec. 31, the U.S. government would have to seek congressional approval for any increase. Until then, it can increase its commitment unilaterally. The politics of any decision are thorny. If the Treasury doesn’t increase the reserves now but needs to do so next year, it would have to appeal to a bailout-weary Congress in an election year. But upping its reserves now could remind taxpayers they still bear significant risk for the government’s rescue of the financial system. If the companies were to exhaust their reserves and Congress didn’t authorize an increase, Fannie and Freddie would be placed in receivership, a form of bankruptcy restructuring. Distressed Debt
  8. 8. <Click on chart for larger image> • The Financial Times - Distressed debt on the wane in US markets Distressed debt - defined as a bond trading at less than 50 cents on the dollar - is rapidly disappearing from US financial markets as yield-hungry investors push up the prices for even the most beaten-down securities. Bonds trading at less than 50 cents on the dollar now account for only 1.1 per cent of the high- yield market, or $8.9bn in securities, down from 27.5 per cent, or $202bn in bonds, a year ago, according to JPMorgan data. The intense demand for once- distressed bonds is stirring the debate about whether investors are acting wisely or piling into junk bonds because of a lack of opportunities elsewhere in the fixed-income markets…”The Fed’s zero interest rate policy has been a catalyst for billions and billions of dollars flowing into the high-yield market,” said Tim Donohue, managing director for high-yield markets at JPMorgan. “The government is holding down interest rates and, as a result, cash is chasing one of the few asset classes that still offers a healthy yield.” • The Financial Times - Return of junk-rated bonds Investors’ recent appetite for junk-rated company debt is prompting different reactions. Some observers fear it is a sign of a return to the debt-fuelled binge that triggered the credit crisis. Others see it as a welcome move that makes funding available to a wider range of companies. High-yield issuance - bonds rated double B or below - has leapt in recent months as investor demand for higher returns has led them beyond the safe world of investment grade companies into the riskier end of the corporate spectrum. This year, global issuance has totalled $151bn, according to Thomson Reuters, a three-year high and four times the level seen last year. European issuance reached $19bn in the past quarter alone and $35bn in the year-to-date, just shy of its all-time 2006 record of $37.9bn. Yields have dropped sharply as a result of investor demand
  9. 9. (see chart) which has helped reopen the market to even the weakest-rated companies. Securitization • The Financial Times - How to restore confidence in loan securitisation On Monday, President Barack Obama pressed 12 large US banks - all recipients of federal assistance - to increase their lending to businesses and consumers. In fact, during the third quarter of 2009, total loans at US banks fell by $210bn (€144bn, £129bn), or 3 per cent, the biggest quarterly decline since 1984. However, loan volume is not driven primarily by banks. In 2006, before the financial crisis, banks accounted for less than 25 per cent of all credit extended in the US; most loans were originated by non-bank lenders such as auto finance companies, credit card issuers and insurance companies. These non- bank lenders depend heavily on loan securitisation - the process of selling loans to a Wall Street bank, which then creates a pool of loans and sells securities based on the cash flows from these loans. In 2006, the US volume of loan securitisation was $100bn per month; in 2009, this volume is averaging less than $5bn per month. Investors no longer want to buy loan-backed securities for three good reasons, all of which need to be addressed. First, many of the non-bank lenders do not have any “skin in the game”. For example, mortgage brokers can sell whole loans to a New York bank and be released from all liability if the loan defaults. Without any liability, mortgage brokers have little incentive to ensure that borrowers are creditworthy and that the loan documentation is in order. To remedy this problem, Congress should require all lenders to retain at least 5 per cent of the risk of loss for any loans they originate and sell into the secondary market. Raising The Debt Ceiling • Zero Hedge (Blog) - 99% Of Americans Are Against Raising The Debt Ceiling In a poll on Fox News, with over 163 thousand people voting, the vast, vast majority, or 99% of poll respondents are against raising the debt ceiling, claiming “This out-of-control spending is outrageous and irresponsible.” (at least Obama will get time to sneak in another 50-60 stimulus bills before China says “no mas”). We are not sure just how scientific this sampling is, but we would give it the benefit of the doubt with these kinds of numbers. Remember - the Senate is about to raise the debt ceiling from $12.1 trillion to something like $14 trillion. This means that the Senate is about to go against the wishes of 99% of America. How the Administration hopes to moderate the unprecedented political fallout that is sure to follow such an action is far beyond our meager analytical skills. Gold vs. The Dollar
  10. 10. • The Wall Street Journal - Gold-Dollar Link Wearing Thin Gold futures finished fractionally lower, capping a choppy session in which the tight relationship between gold prices and the U.S. dollar showed signs of fraying. Gold prices have shown a close inverse relationship with the dollar in recent months, and dollar weakness helped propel the metal to a string of record highs last month. In the past two weeks, however, gold has stumbled as the dollar has gained amid concerns about sovereign credit in Europe and expectations that the Federal Reserve could tighten monetary policy sooner than anticipated. Tuesday, the dollar gained significant ground amid renewed concerns about credit problems in Europe and as investors anxiously await the Fed’s next monetary policy statement, set for release Wednesday. Gold was weak early in the day, but rallied to close only modestly lower…”I think there’s some disbelief in the dollar rally,” said Sterling Smith, commodity trading advisor and market analyst with Country Hedging. He said participants are unwinding profitable gold positions ahead of the year’s end. But next year they will resume selling the dollar and buying commodities, he said. Abu Dhabi Seeks A Bailout Of Sorts • The Wall Street Journal - Abu Dhabi Seeks Exit From Citi Deal Abu Dhabi Investment Authority, the Middle East’s largest sovereign wealth fund, is demanding that Citigroup Inc. scraps a deal that would see the fund make a heavy loss on a $7.5 billion investment in the bank. The fund, controlled by the oil-rich rulers of the Persian Gulf city-state of Abu Dhabi, is seeking more than $4 billion in damages from Citi if the deal to invest in the bank is upheld for what it alleges were “fraudulent misrepresentations” of the original agreement, according to the lender. Citi said in a statement late Tuesday that it will “vigorously” defend itself against the allegations by the sovereign wealth fund, known as Adia…Adia may have to overpay on about $7.5 billion of the Citi shares it is committed to buy at $31.83 each in a deal struck two years ago. Adia committed in November 2007 to pump billions into Citi in return for an 11% dividend until March next year, when it has to start buying the bank’s common stock. A spokesman for Citi in the Middle East also declined to comment…The dispute with Adia follows Kuwait’s decision to sell its stake in Citi. The Kuwait Investment Authority, the Gulf country’s sovereign-wealth fund known as the KIA, said this month it sold a $4.1 billion stake in Citigroup, for a $1.1 billion profit. The KIA invested $3 billion in Citi and an additional $2 billion in Merrill Lynch & Co. in 2008 as Wall Street lenders turned to outside investors to replenish capital. The Government of Singapore Investment Corp. said in September it made a $1.6 billion profit by selling about half its stake in Citi since converting its holdings from preferred shares to ordinary shares earlier in the month. The Case For Optimism • The Wall Street Journal - Alan Blinder: The Case for Optimism on the Economy
  11. 11. The U.S. economy is digging itself out of a deep hole. You have probably heard a lot of doom and gloom lately, including talk of a jobless recovery, an L- shaped recovery (which means no recovery at all), or even a W-the feared double-dip recession. The Scrooges have a point: There are serious dangers to the nascent recovery. But you’ve heard all that many times. Let me offer instead, in deliberately one-sided fashion, the case for optimism. It is, after all, the holiday season. The case begins with the “slingshot effect” I wrote about on this page last summer (”The Economy Has Hit Bottom,” July 24, 2009). When the growth rate of any component of GDP rises, it gives overall GDP growth a boost. And going from sharply negative growth to zero is a notable rise. In July, the slingshot scenario was hypothetical-though likely. In today’s economy, it’s a real phenomenon. Cartoons None Today Article printed from Bianco Research: URL to article: Click here to print. Copyright © 2008 Bianco Research. All rights reserved