Money Supply still contracting

The government may have stopped producing the M3 data, but several sources have done a fine job reproducing the broadest money supply data

Commodity carry-Roll trade generates alpha

Finding Buried Alpha With the Commodity Carry Trade

Commodity roll yields are usually discussed in the context of optimising the risk and return of long only commodity indices, or explaining why commodity indices have lagged spot performance but the “commodity carry trade” can be a huge engine of alternative beta in its own right, and one that eclipses both long only commodity returns and other risk premiums. The strategy could hardly be simpler, which is why it should be dubbed alternative or exotic beta that is passively replicable as opposed to alpha that’s not – and the ease of execution leaves plenty of time for 3 hour long French lunches.

IEA's view on key oil demand & supply issues over next few decades

Forecast says oil sands to play increasingly important role as crude prices to keep climbing for two decades

China's voracious appetite for fuel will push up oil prices substantially over the next two decades and will ensure that unconventional oil, notably Canada's oil sands, will play an increasingly important role in the global energy mix, the International Energy Agency said its flagship World Energy Outlook report.
The report, published Tuesday, said crude oil prices will reach $113 (U.S.) a barrel (in 2009 dollars) in 2035, up from an average of $60 last year.

ECONOMICS - Peripheral Euro bond action beginning to look ugly

AOK - excellent if slightly snippy post that notes some worrying trends for Ireland & other peripheral euro economies, as the run on their bonds seems to be shaping up while the German support is carefully but obviously limited ..

iPIGS + CBs = GSEs Redux

Thursday, November 04, 2010

That's QE behind us and if yesterday was Xmas eve then today feels like Christmas afternoon, with the parents on the sofa having eaten too much QE and sold even MORE dollars. But the ADHD market kids having unwrapped their pressies, broken most, lost the rest and will be looking for something else to play with. TMM have been waiting for Europe to fill the role for some time.

Feedback loop between home price declines & "walk-away" foreclosures

AOK - An interesting thesis and well-documented chain of casuation & feedback. The critical parameters are of course the delta and time-frame of incremental "walk-aways" to home price declines. And thsoe parameters in turn probably have feedback effects to the strength of the loca ljob market. The less income potential in the area, the less likely I am to feel good about buying a house and therefore home demand is weaker; and the less perceived income potential the more likley I am to consider wlaking away form my under-water mortgage and upping roots. All suggesting that we'll see an acceleration of differences between various US housing markets.

Understanding the Housing 'Walk Away' Threat and Measuring Its Risk

by: Michael James McDonald November 23, 2010  

The “strategic default” or “walk away” is the final hurdle housing must get over. It only exists in certain areas and regions but it is potentially very dangerous. It can trigger self-sustaining price declines that carry forward and destroy building projects, investor profits and bank earnings. Builders, bankers and investors must all know how to quantify this risk.
This article presents a conceptual approach to doing this.

Chinese forest products demand & prices higher

 China’s Hunger for Wood Raw Material Pushes Timber Prices Upward

by: Hakan Ekstrom November 23, 2010

"Continued increases in demand for wood raw-material from sawmills, plywood plants and pulp mills in China has pushed domestic log prices upward and many Chinese companies are increasingly exploring the opportunities of importing more logs and wood chips to supplement the domestic fiber sources.
The tight log supply has resulted in higher prices for domestically sourced logs this year. Chinese fir sawlogs prices were almost 17 percent higher in the 2Q/10 as compared to the same quarter in 2009, according to the Wood Resource Quarterly (WRQ). Eucalyptus logs, mainly used by the pulp industry, have also become more expensive the past 12 months, reaching new record-highs.
The continued high costs of locally sourced logs has resulted in higher volumes being imported so far this year.

Employment cycle chart for post-war recessions

AOK -  I've seen this graphic around a few places, it is probably the single most powerful image that scales the depth of this economic downturn and the associated issues. Some comments on today's jobs report follow:

05 Nov 2010 10:41 am

Ryan Avent is cheered by the October employment report:
I think the most plausible explanation is that private-sector employment had begun a decent recovery earlier this year, then lost steam because of the European debt crisis, the BP oil spill, and the fading contribution of fiscal stimulus. Those restraints have begun to lift. Data on factory orders, retail sales and car sales suggest a modest rebound began in the last few months. Indeed, retail employment rose 28,000 in October. The odds favour a continuation of decent job growth, though not as briskly as in October. And hazards remain. Bank credit continues to contract, although more slowly than earlier this year. Political gridlock could trigger a premature shift to fiscal tightening. But for now, optimists should celebrate, and Mr. Obama can rue the injustice of the economic data calendar.




Felix Salmon says that the report continues "the same story we’ve been seeing for a while: good news for the employed, bad news for the unemployed":
Overall, the private sector has now added more than a million new jobs over the past year — a good start, in the wake of the 8 million job losses we saw over the course of the recession. And 400,000 of those new jobs have come in the past three months. For people with jobs, wages and hours are rising, too. Over the past 12 months, average hourly earnings are up 1.7%, while average hours worked are up 1.8%, resulting in a rise in average weekly earnings from $753.20 to $779.64. That’s a raise of $1,375 per year — pretty healthy, given the state of the economy and the large number of people out of work.
But government employment is down, and the extra hiring simply isn’t making any kind of a dent on the unemployment figures. 

Krugman is still dour:

At this rate we’ll return to full employment around 2030 or so."

 

Financial Advisor Sentiment - Highest since July 2007

Financial Adviser Sentiment: Highest Since July 2007 by Babak
This week the Investors Intelligence survey of newsletter editors is 46.7% bullish. That is the highest level of bullishness since May 2010. Another sentiment measure, much less known is the Rydex SGI Advisor Confidence Index (ACI).

Rare Earths - a detailed look forward

The Post-China Price: What Beijing's Green Revolution Means for Rest of Us  by Sean Daly

"Living in a liquidity-driven economy for the past decade, US pundits can be excused for seeing yet another mania in “rare earths” miner start-ups like Molycorp (MCP), Ucore Rare Minerals (UURAF.PK), and Rare Element Resources (REE), all of which now sport rich valuations and skeletal operations. But when you really look deeply into the historical pricing circumstances of the rare earth elements (REE) industry, you don’t see a bubble. You see the exact opposite.

On the Value of High Yield

AOK - Read through for a great graph on high yield spreads, note signifcant & fast compression from earlier in the crisis.

China tight on Farmland

China Running Out of Farmland: What This Means for U.S. Stocks
by: Greyson S. Colvin October 27, 2010

As the Chinese growth engine continues to propel forward, the government is faced with the dilemma: How do we feed our growing and developing population? China’s middle class is expected to double over the next 10 years and will demand a higher protein diet. China has roughly 20% of the world’s population although only 7% of the world’s arable land.

Goldman follows through on test 50-yr bond issuance to take in $1.3B

Submitted by Tyler Durden

"As we noted yesterday, Goldman was in the market for a 50 year bond at a token amount of $250 million. We speculated this was merely a test to gauge market interest in the space.

Commercial real estate split into three different markets ...

More on the 'Trifurcated' Commercial Real Estate Market by Brad Case

"I commented on a post last week about commercial property values that Moody’s had reported a “trifurcated” market in which the values of “trophy” properties are already going up while the values of properties from distressed sellers are continuing to sink. David Geltner, a professor at MIT’s Center for Real Estate, fleshed out this interesting market situation in a separate commentary published on the Moody’s web site.

Glut in shipping market likely to continue

AOK - Seems unlikely this will be contributing to inflation soon. On the other hand, over at least the medium terms the low elasticity of supply is likely to make oil shipping charges & availability another contributor to oil price & economic volatility ... Supertankers Face Two-Year Losing Streak as Frontline Shuns Oil By Alaric Nightingale Oct. 25 (Bloomberg) -- Supertanker owners are facing the longest stretch of unprofitable rates in 17 years as the supply of new vessels increases nine times faster than demand for oil. Shipping companies are making $3,155 a day for a single voyage, 90 percent below the $30,900 Frontline Ltd., the biggest operator, says it needs to break even.

Global Nuclear Power Industry - A Current Overview

AOK - Carbon emissions concerns, galloping emerging market demand for electricity and worries about the stability of future petrocarbon supplies are driving a resurgence of interest & investment in nuclear power

Syria re-establishing itself as a power-broker

 AOK - a quick history of the roots of the three-way alliance and an analysis of how Syria has re-positioned itself to once again be a critical player in Middle Eastern affairs.

Syria, Hezbollah and Iran: An Alliance in Flux

By Reva Bhalla, October 14, 2010 | 0916 GMT
Iranian President Mahmoud Ahmadinejad arrived in Beirut on Oct. 13 for his first official visit to Lebanon since becoming president in 2005. He is reportedly returning to the country after a stint there in the 1980s as a young Islamic Revolutionary Guard Corps (IRGC) officer tasked with training Hezbollah in Lebanon’s Bekaa Valley. A great deal of controversy is surrounding his return. Rumors are spreading of Sunni militants attempting to mar the visit by provoking Iran’s allies in Hezbollah into a fight (already the car of a pro-Hezbollah imam who has been defending Ahmadinejad has been blown up), while elaborate security preparations are being made for Ahmadinejad to visit Lebanon’s heavily militarized border with Israel.
Rather than getting caught up in the drama surrounding the Iranian president’s visit, we want to take the opportunity provided by all the media coverage to probe into a deeper topic, one that has been occupying the minds of Iranian, Syrian and Hezbollah officials for some time. This topic is the durability of the Iran-Hezbollah-Syria alliance, which STRATFOR believes has been under great stress in recent months. More precisely, the question is: What are Syria’s current intentions toward Hezbollah?

Well I'm not buying any U.S. bank stocks soon ...

AOK - A well-written piece pulling a lot of the current bank & mortgage issues together.

An update on asymmetric information and corporate governance in bank bailouts

Edward Harrison | October 21, 2010 2:00 pm |

---

"Last June I wrote a post on the topic of corporate governance that pointed to one of only two outcomes as the likely result of the bank bailouts. Outcome number one was bank prudence and low credit growth in the face of uncertainty. Outcome number two was a reckless heads I win, tails you lose mentality that permeated the 1980s  leading to the S&L crisis. To date, we have mostly seen outcome number one, which (if you can believe it) is the thing you would like to see.  But this necessarily means slow growth until the uncertainty about earnings and litigation passes.
Let me take this opportunity to update you on my thinking in the wake of the foreclosure crisis.
Regulatory forbearance means under-performance or excessive risk

Bill Dahmer - Thoughts from a Warm Island: Mexico and other Emerging Markets

Mexico has not really been on my radar, so it is good to read something about it.  Anecdotally, I have one friend who is Mexican who recently moved from Austin back to Mexico.  She seems to love it.  No poverty where she is.  At least not in the photos she posts on FB.  My step-brother on the other hand is a Drill Push and has been working down in Mexico for a number of years now.  He thinks it is the biggest SNAFU going.  So the truth is probably somewhere in between. 

Bill Dahmer - Thoughts from a Warm Island: China and The Markets

By Bill Dahmer

China is very effective at using organizations like the WTO and IMF to its own advantage against the west, while effectively keeping foreign competition out of China with tariff and non-tariff barriers to trade as well as with bureaucratic measures.  I know lots of foreign companies make stuff in China, but very few actually make any money in China.  The Chinese have simply not allowed that to happen.  It is almost a political-trade policy crafted after studying Japan's export-driven trade policy combined with France's masterful manipulation of EU political institutions for its own narrow, national self-interest.  You have to admire China Inc. on some level that they are able to out-compete us using the western institutions that we created like the WTO, IMF and even the UN. 

PLEASE READ THIS - Decriminalization Works - it's been tested

AOK- This is an incredibly important point to get out to North Americans - the "War on Drugs" is not even close to being won; with not only insane amounts of money, time, resources & political rhetoric being wasted but also so many lives being warped and ruined - of users, enforcement personnel, victims of the criminal gangs, their families and countless others. Just saying. It's time to change things.