Feb 28, 2010

Housing Still Expensive!

Housing Still Expensive!

March 1, 2010

“Things may come to those who wait, but only the things left by those who hustle.”—Abraham Lincoln

Weekly percentage performance for the major indices
Based on last Friday’s official settlement...

INDU: -.74%
SPX: -.42%
COMPQ: -.25%
RUT: -.48%

The Euro has been weak since late last year due to concerns about the PIIGS (Portugal, Ireland, Italy, Greece and Spain), as evidenced by the chart below (courtesy Finviz.com). The US Dollar has been the main beneficiary of the weakness in the Euro, even though it was slightly down this week for the first time in six weeks. The Yen has also benefitted from the PIIGS, however, strength in the Dollar and Yen have hurt both emerging markets and select commodities. Energy, specifically oil, has moved to the high end of its trading range over the past few weeks, possibly signifying that supply/demand for oil is moving back in line after falling badly out of place in late 2008.

Last week I posted a chart from Bob Bronson showing the 139 year real total return of the stock market. This chart generated more discussion than any other chart or picture in the past six months, excluding of course the picture of Farrah Fawcett. The net view and consensus by most callers/commenters is that the market is likely to be at similar levels three to four years from now as we see today. That doesn’t mean a flat line market or limited opportunities to make money; it just means investors will need to be nimble without the tailwind of an upward sloping market.


Actual Consensus Prior
Consumer Confidence 46.0 55.0 56.5
Case Shiller Home Price -3.1% -3.1% -5.3%
New Home Sales 309K 354K 348K
Initial Claims 496K 460K 474K
Continuing Claims 4617K 4570K 4611K
Durable Goods Orders 3.0% 1.5% 1.9%
Durable Goods ex-Transports -0.6% 1.0% 2.0%
GDP 2nd Estimate 5.9% 5.7% 5.7%
GDP Deflator 0.4% 0.6% 0.6%
Chicago PMI 62.6 59.7 61.5
U of M Consumer Sentiment 73.6 73.9 73.7
Existing Home Sales 5.05 mil 5.50 mil 5.44 mil

After a number of weeks with a somewhat even mix of good and bad economic data, the preponderance of data this week was weaker than expected. The market took the data in stride, but the trends are a bit concerning. I mentioned this in the fall, but it seems as though the economy is acting like a kid learning to ride a bike, wobbling along while the parent (Fed) holds onto the back of the seat, trying to determine when is the best time to let go. Over the next five or six months we should have enough information to determine whether the economy will sustain its recovery or wobble its way into a double dip recession for 2011.

New home sales fell 11.2% in January, a level roughly 80% below the monthly peak reached in mid 2005. Existing home sales unexpectedly dropped 7.2% in January to a seven month low of 5.05 million units. This is the second largest drop ever, behind December’s 16% drop. Weather undoubtedly played a key role in the slow down.

The second estimate of Q4 GDP actually rose from 5.7% to 5.9%. Much has been made of the corresponding decline in the GDP deflator, but we think the keys to the report were the build up of inventory offset by a decline in consumer spending. The chart below, courtesy Barron’s, shows real GDP since 2000. The gray bars show the quarterly numbers we typically discuss.

There was a huge drop in consumer confidence during February. According to The Big Picture, there have been 20 drops of 10 points or more since 1978, and the market typically ended down, sometimes significantly, over the next 30-60 days. In the chart below, courtesy Briefing.com, the purple line represents the current measure.

Durable goods orders exceeded expectations, however, the core number missed consensus. Strength was noted in transportation (up 15.6%) and defense capital goods (up 19.2%). The chart below, courtesy Michael Panzner, shows durable goods orders in blue and the mix of defense orders in the measure in red.

If You Don’t Know What You’re Talking About, Stay Off TV!

This week I watched Congresswoman Maxine Waters, Dem-CA, demonstrate she is a complete moron during her questioning of Ben Bernanke during the Humphrey Hawkins hearings. Ms. Waters wanted Mr. Bernanke to “guarantee” that the increase in the discount rate wouldn’t cause more foreclosures. While Mr. Bernanke tried to explain to her that the discount rate had very little, if anything to do with mortgage rates, Ms. Waters continued to spew forth without any consideration to the fact that what she was saying made no sense.

I don’t consider Mr. Bernanke to be the jovial type, however, if you look at his responses to Ms. Waters, it is pretty apparent he is smirking.

I wonder if he is beginning to think it would have been a good idea if he hadn’t been confirmed?

Lending Drops the Most since Truman

According to the FDIC, U.S. bank lending fell 7.5% last year. The $587 billion drop marked the biggest yearly decline since the 1940s. FDIC Chairwoman Sheila Bair felt that most of the decrease can be attributed to cutbacks by the biggest banks.

New Advances in Science

Lawrence Livermore National Laboratory in California has now identified with certainty the heaviest element known to science. The new element, Pelosium (PL), has one neutron, 25 assistant neutrons, 88 deputy neutrons, and 198 assistant deputy neutrons, giving it an atomic mass of 312.

These 312 particles are held together by forces called morons, which are surrounded by vast quantities of lepton-like particles called peons. Pelosium is inert, and has no charge and no magnetism. Nevertheless, it can be detected because it impedes every reaction with which it comes into contact. A tiny amount of Pelosium can cause a reaction that would normally take less than a second, to take from 4 days to 4 years to complete.

Pelosium has a normal half-life of 2 years. It does not decay, but instead undergoes a biennial reorganization in which a portion of the assistant neutrons and deputy neutrons exchange places.

Pelosium mass will increase over time, since each reorganization will promote many morons to become isodopes. This characteristic of moron promotion leads some scientists to believe that Pelosium is formed whenever morons reach a critical concentration. This hypothetical quantity is referred to as critical morass.

When catalyzed with money, Pelosium becomes Senatorium, an element that radiates just as much energy as Pelosium since it has half as many peons but twice as many morons.

Thanks Al.

Here Comes the Taxes

President Obama is proposing a new Medicare tax on passive income.

I talked about the spending, now we’re seeing the taxes. Hello tax and spend!

Tech Spending a Bright Spot

The team at Gartner came out with their IT spending forecast for 2010. They estimate that overall IT spending will “return to growth of 4.6% in 2010. Currently, most businesses are operating in a quarterly budget approval regime which will remain in place through 1H10.”

They also forecast semiconductor revenue growth of 20% growth in 2010, driven by stronger-than-expected PC unit growth.

Commercial Real Estate Problems

According to Bloomberg, the default rate on commercial mortgages in the U.S. increased from 1.6% in the fourth quarter of 2008 to 3.8% in the same quarter last year. Real Capital Analytics said the rate could hit 5.4% at the end of 2011. "The level of distress continues to rise irrespective of improving economic trends," said Sam Chandan, global chief economist at Real Capital.

According to a recent report by the Congressional Oversight Panel entitled “Commercial Real Estate Losses and the Risk to Financial Stability”:

“Between 2010 and 2014, about $1.4 trillion in commercial real estate loans will reach the end of their terms. Nearly half are at present “underwater” – that is, the borrower owes more than the underlying property is currently worth. Commercial property values have fallen more than 40 percent since the beginning of 2007. Increased vacancy rates, which now range from eight percent for multifamily housing to 18 percent for office buildings, and falling rents, which have declined 40 percent for office space and 33 percent for retail space, have exerted a powerful downward pressure on the value of commercial properties.

The largest commercial real estate loan losses are projected for 2011 and beyond; losses at banks alone could range as high as $200-$300 billion. The stress tests conducted last year for 19 major financial institutions examined their capital reserves only through the end of 2010. Even more significantly, small and mid-sized banks were never subjected to any exercise comparable to the stress tests, despite the fact that small and mid-sized banks are proportionately even more exposed than their larger counterparts to commercial real estate loan losses.”

Real Estate Foreclosure Rates
Industry sources said the percentage of home loans in foreclosure and those behind by one payment was at its highest during the fourth quarter, exceeding 15%. However, the delinquency rate for home loans fell from 9.64% in the third quarter to 9.47% of all outstanding loans as of the end of last year.

Home Prices Still High
The current Fed policy of ultra low rates has made ownership costs on a monthly basis appear cheap. However, the most important ratio - median annual income to housing costs - shows that prices still remains elevated at 363% versus the prior decade ratio of 300-325%. Thanks to The Big Picture for the chart below.

The market action was a bit dull last week in spite of the bad economic news. The market seems to have successfully tested support, and is now approaching its 50 DMA.

I appreciate all the great feedback, reader contributions, the clicks on the ads, and ongoing support for this note. I also appreciate all the referrals for new readers-I added 32 this week alone, all from reader referrals.

Have a great week.


“Don’t worry about people stealing your ideas. If the ideas are any good you’ll have to ram them down people’s throats.”—Howard Aiken, Computer Scientist, 1900-1973

Feb 22, 2010

The Consumer is Back, Sort Of

The Consumer is Back, Sort Of

February 21, 2010

“Real knowledge is to know the extent of one’s ignorance”—Confucius

Weekly percentage performance for the major indices
Based on last Friday’s official settlement...

INDU: 3.0%
SPX: 3.1%
COMPQ: 2.8%
RUT: 3.4%

We just finished the best week of the year, and in a bullish twist no one seems to be happy about it. Among other issues, there seems to be concern about the low volume rally, which really shouldn’t be surprising as rolling or range bound markets typically signify little conviction in either direction. Volume is typically lower and volatility wanes, much as we’ve seen since the beginning of the year. The market bounced smartly beginning late the week prior, just above significant support levels, and just shy of the 10% correction which has long eluded this market. The chart below, courtesy The Big Picture, shows the S&P 500 since 2004.

The Fed made a symbolic gesture this week by raising the discount rate by 25bps, the first increase since the middle of 2006. There was no change in the more important Fed Funds rate as the spread between the two measures of 50bps is now closer to the historical “normal” range of 50-100bps. The Fed commented that the move will encourage financial institutions to rely more on money markets rather than the central bank for short-term loans. The move only impacts banks utilizing the Fed’s discount window, an unusual tactic during normal times as banks typically borrow at Fed Funds, away from the window. The problem still hampering the Fed and their ability to stimulate the economy is that banks are not lending and money velocity is so low that monetary growth has stalled.

When the Fed does decide to reduce liquidity, they plan to use different approaches to dry up excess liquidity and not rely entirely on interest rates. "We're in a different situation than ever before, and the tools we are using are entirely new," said former Fed Governor Lyle Gramley. Stay tuned.


Actual Consensus Prior

Wholesale Inventories -0.8% 0.5% 1.6%
Trade Balance -$40.2 bil -$35.8 bil -$36.4 bil
Initial Claims 473K 438K 442K
Continuing Claims 4563K 4500K 4563K
Retail Sales 0.5% 0.3% -0.1%
Retail sales ex-auto 0.6% 0.5% -0.2%
Michigan Sentiment 73.7 75.0 74.4
Business Inventories -0.2% 0.2% 0.5%
Housing Starts 24.91 18.00 15.92
Building Permits 621K 620K 653K
Industrial Production 0.9% 0.7% 0.7%
Capacity Utilization 72.6% 72.6% 71.9%
PPI 1.4% 0.8% 0.4%
Core PPI 0.3% 0.1% 0.0%
Leading Indicators 0.3% 0.5% 1.2%
CPI 0.2% 0.3% 0.2%
Core CPI -0.1% 0.1% 0.1%

The past two weeks have been another mixed bag for economic releases, with a bias to weaker than expected results. Consumer expectations (yellow line in chart below courtesy of briefing.com) appear to have peaked, but are still up significantly from a year ago. PPI was higher than expected, but the overly manipulated core-CPI measure actually showed a decline for the first time in decades.

According to the Commerce Department, in spite of additional exports, the U.S. trade deficit increased in December to $40.2bil, the highest level in a year. Exports increased 3.3%, but imports of crude oil went up 9.2%. So much for a weak dollar policy.

According to Xinhuanet.com, China's exports, measured in U.S. dollars, increased 21% last month compared with January 2009. At the same time, the trade surplus narrowed because of additional imports.

The Leading Economic Indicators (see chart below courtesy ECRI) was still up, but missed consensus as the money supply component of the measure grew less than anticipated and less than in prior months. This is partially explained by the lack of credit creation as bank borrowing remains soft and the consumer (see Consumer below) continues to de-lever. One regional bank commented this week that they aren’t lending, but instead holding their cash in the form of treasuries to ensure they have adequate capital available to meet the needs of existing customers.

The Consumer Comes Out of His Shell

This week’s title reflects a trip I took to my local retail center this afternoon. Today it was cold here. I know that it’s Southern California, but I actually had to put on a sweatshirt (and later had jeans and a jacket on at my son’s baseball game this evening). I went out around mid-day to grab a Starbucks’ decaf, and the center near my home was absolutely packed. Target, Bed Bath & Beyond, GNC, Jamba Juice, Rubios, and Starbucks were among those which appeared full. I don’t know that this signals a recovery, but I think it’s apparent the consumer has at least come out of hiding.

A year ago I discussed this same retail center as being completely empty a number of times. One difference is that it was obvious these consumers weren’t spending as aggressively as two years ago. Based upon recent retail reports and observations, the average retail ticket size is down significantly as foot traffic begins to increase. The rub is that in general consumers are not using their credit cards as aggressively, and in fact are deleveraging.

Toyota Issues Not All Bad

We have all heard the conspiracy theories about the government squeezing Toyota to help out their investment in GM and Chrysler. First, to the conspiracy theorists, I must say GET REAL! This government couldn’t coordinate brunch much less a synchronized attack on a foreign corporation requiring the interaction and cooperation of multiple three letter agencies.

While Toyota may suffer a temporary public relations black eye from the recall, the reality is that this is big business for the dealers. I had breakfast last week with a friend who advises the owner of one of the biggest Toyota dealers in California, and he said his client’s dealership had scheduled over 20K vehicles to come in for inspection or repair. Maintenance is the most profitable business for the dealers and they benefit from the OEM-paid warranty work, are able to cross-sell additional maintenance and service, and get unbelievable foot traffic to look at their new and used car inventory.

This may work so well that I wouldn’t be surprised to see GM announce a recall to help out their ailing dealer base. Now THAT would be a conspiracy!

Credit Conditions
Much discussion has been made about future Fed rate increases. Specific concerns have been raised regarding the impact of the Fed Funds Rate on the 30-year mortgage rate. The chart below, from Iacono Research, shows that the Fed Funds rate has had minimal impact on mortgage rates over the past 40 years.

The bigger impact has come from the secondary MBS market, which the Fed has committed $1.25 trillion over the past 18 months. This program ends next month, and while I wouldn’t anticipate an immediate bump in mortgage rates, a steady increase would not surprise me.

Long Bear Markets
During the 20th century the US has experienced long periods of prosperity interspersed with equally long periods of economic despair (or vice versa). One example can be found from the crash of 1929. It took the Dow 25 years, or until 1954, to regain its 1929 high when adjusted for inflation. I have often said we are in a similar economic period, and it may take at least that many years until the NASDAQ touches its peak from March 2000. Despite last year’s gains, the NASDAQ still sits roughly 60% below its all-time peak.

Ratings Agencies Finally Waking Up!
S&P, that much-maligned debt ratings agency, announced last week they were revising their outlook on two of the nation’s largest banks, BofA and Citi. S&P downgraded the credit outlook from stable to negative for both banks on concerns about the banks’ asset quality.

Could it be that S&P is now trying to function in a manner useful to investors? Miracles never cease to amaze me.

China’s central bank took its second step in a month to restrain inflation and control asset prices, ordering banks to set aside larger reserves. The reserve requirement will rise 50bps effective Feb. 25. The existing level is 16% for the biggest banks and 14% for smaller ones.

Policy makers are reining in credit growth after banks extended 19% of this year’s 7.5 trillion Yuan ($1.1 trillion) lending target in January and property prices spiked the most in nearly two years.

“Policy makers are becoming more concerned about containing inflationary expectations and managing the risk of asset price bubbles,” said Jing Ulrich, chairwoman of China equities and commodities at JPMorgan Chase & Co. in Hong Kong. “2010 is likely to be characterized by further policy tightening.”

Didn’t I Already Say That?

Repeating what I have been saying for at least 24 months, The Washington Post is reporting that a wave of foreclosures on commercial properties in the U.S. likely will hit community banks especially hard. "There's been an enormous bubble in commercial real estate, and it has to come down," said Elizabeth Warren, chairwoman of the Congressional Oversight Panel. "There will be significant bankruptcies among developers and significant failures among community banks."

It’s always interesting waiting around for that other shoe.

According to Bloomberg, investors are coming back to high-yield bonds. The default rate on high-yield securities was 10.2% in December, but bond buyers seem to be expecting that measure to come down at the fastest rate in a decade. The market is pricing high-yield bonds in a way that assumes the default rate will be down to 0.3% by the end of the year, JPMorgan Chase said.

Fed Balance Sheet
After purchasing an additional $53 billion in mortgage-backed securities last week, the Fed's balance sheet now holds over $1 trillion of MBS. This program, which is expected to end next month, is presently capped at $1.25 trillion.

More Real Estate
Real estate foreclosures in the U.S. declined 10% last month from December, but an “increase might be on the way as alternatives to foreclosure are abandoned or fall through,” said RealtyTrac. "If history repeats itself, we will see a surge in the numbers over the next few months as lenders foreclose on delinquent loans where neither the existing loan-modification programs or the new short sale and deed-in-lieu of foreclosure alternatives works," said James Saccacio, the company's CEO.

Foreclosure filings were up 15% year over year to 315K.

Even More Real estate
An investor notified me this week that the big pools of 5/1 residential ARMs are going to start resetting early this year. They said the pools are “pretty big” and could result in more delinquencies, foreclosures and pressure on both real estate prices and lenders.

Let the Bottom Fishing Begin!

Simon Property Group offered nearly $10 billion to buy General Growth Properties, which has been in Chapter 11. The buyout brings almost a third of U.S. malls and one-half of the top performing malls in the country under a single owner. Simon's offer has the support of General Growth's committee of unsecured creditors and consists of $7 billion to pay off debt and nearly $3 billion for shareholders.

As we’ve been discussing since the beginning of this note, secondary assets are going to be where bargains exists for an extended period of time.

Supercycle Winter Until Oct 2014

According to Bob Bronson:

“The S&P 500 index is currently at the same level as it was four to five months ago, 15 months ago and 12 years ago – that is, there are 0% gains over each of those periods, the latter of which especially has caused the 16-year Supercycle Oscillator to be approaching its predictable 0% +/- 2% trough.

We continue to expect the end of the current Supercycle Period (a Supercycle Winter, or deflationary Supercycle Bear Market Period) will be signaled by the Oscillator declining still further from about 5% at present to probably below 1% during the next several years, a forecast supported by our Supercycle fundamental valuation and other indicators in our forecasting models.”

I’m glad to be back after a week off. People have been asking about positioning. I haven’t come back to the gold trade, yet, but expect to do so after what I anticipate will be a near term run-up then a substantial pullback. I also closed the QID trade for a nice short term profit. From an exposure standpoint I’m about 125% long and 100% short. I plan to maintain that position for now.

Have a great week.


“In this game the market has to keep pitching but you don’t have to swing. You can stand there with the bat on your shoulder for six months until you get a fat pitch.”—Warren Buffet

Feb 8, 2010

When Risk Unwinds

When Risk Unwinds

February 8, 2010

“The trouble with learning from experience is that you never graduate.”—Doug Larson, syndicated columnist

Weekly percentage performance for the major indices
Based on last Friday’s official settlement...

INDU: -4.0%
SPX: -4.4%
COMPQ: -5.6%
RUT: -1.5%

The market continued correcting last week, driven by fears of sovereign credit defaults in the PIGS countries (Portugal, Ireland, Greece and Spain). During the past two years we have witnessed an aggressive risk reallocation from bank and consumer balance sheets to government balance sheets. The weak underlying fundamentals of the credits hasn’t changed, and with government receipts running soft due to the global slowdown, the default risk has now shifted to these governments. The impact of a default by one or more of these countries may or may not have a Lehman-like impact on the global markets. A spread of default to larger countries or entities such as the UK, California, or even the US would be catastrophic.

Investor response to the fear of sovereign credit default was a continued unwinding of the risk trade. The dollar strengthened to a seven month high as it continues to be viewed as a safe haven by global investors. The Euro was pounded; the Canadian dollar fell 11% against the US Dollar; material, energy, and financial sectors all underperformed; oil and gold fell; commodities were down; the yield curve steepened; corporate spreads over treasuries widened; and the VIX soared.

The S&P 500 broke under 1050 Friday before staging a strong rally in the last two hours of trading. Last week I discussed support at the 1030 level, which is still accurate. Should the market fail to hold its current levels, watch that key 1030 level for an indication on whether the market will find its footing or continue to correct.

Actual Consensus Prior
Construction Spending -1.2% -0.5% -1.2%
ISM Index 58.4 55.5 54.9
Pending Home Sales 1.0% 1.0% -16.4%
ISM Services 50.5 51.0 49.8
Initial Claims 480K 455K 472K
Continuing Claims 4602K 4581K 4600K
Productivity-Prelim 6.2% 6.5% 7.2%
Factory Orders 1.1% 0.5% 1.0%
Nonfarm Payrolls -20K 15K -150K
Unemployment Rate 9.7% 10.0% 10.0%

The economic data continues to be mixed, with a slight bias towards better than expected numbers. The ISM (see chart below courtesy Briefing.com) came in at its highest level since August 2004, indicating an ongoing recovery in the manufacturing sector, which has been leading the economy out of the recession. This represents the sixth monthly increase in a row.

The ISM services index came in slightly less than consensus at 50.5, demonstrating that the service sector is still struggling in relation to manufacturing. Eric Boucher at ISI notes that the increase in the manufacturing index coincides with 5.7% real GDP, while the services measure coincides with just 1.5% real GDP.
The unemployment rate declined from December's 10.0% to 9.7% in January, driven largely by an expansion in temporary employment services, which added 52K jobs. Overall, nonfarm employment was down 20K versus expectations of a gain of 15K, primarily due to weakness in construction hiring. More Americans unexpectedly filed first-time claims for unemployment insurance last week, possibly indicating companies lack confidence the economic recovery will be sustained. Initial jobless applications increased to 480K in the week ended Jan. 30, the most in seven weeks, from 472K the prior week.

Jobs & Stimulus Package

Boosted by tax credits and other stimulus measures, the U.S. wind industry enjoyed in 2009 its best year in history, putting an additional 10K megawatts into service. But the green-energy jobs that were expected to be created have been slow in coming. According to the Los Angeles Times only 52K green-energy jobs have been created or saved by President Obama's $787 billion economic stimulus program. That is far short of the 1.2 million jobs claimed by the Administration.

Remember, as we have discussed many times, government doesn’t create jobs, the private sector creates jobs. Government only inefficiently reallocates jobs to favored industries and pet projects.

Credit Conditions
Companies in need of financial flexibility have tapped the high-yield debt market, but Moody's Investors Service said those firms are facing looming maturities. More than $700 billion is set to come due from 2012 to 2014, according to the credit rating agency. "If everything behaves normally and you have an efficient market, things should be OK," said Kevin Cassidy, senior credit officer at Moody's. "But that's a big if."

This reminds us of 1989-91, when a slew of high yield debt was coming due and corporate bankruptcies and workouts soared.

Let them Defend Themselves

According to the German publication Spiegel Online, the European Parliament appears close to blocking an agreement that gives U.S. terrorism investigators broad access to data on international banking wire transfers originating in Europe. Werner Langen, leader of the Christian Democrats in the European Parliament, said his party opposes the measure. "I expect there will be a relatively large coalition against it," he said.

I say, let’s focus on keeping the US safe and if an “enlightened Europe” wants to open themselves up to terrorism, so be it. That diverts attention from US targets.

Cuts to Entitlements Needed
Buried deep in U.S. President Barack Obama's budget proposal is a forecast that indicates a decade will pass before the budget deficit declines to a level that economists consider sustainable, according to a New York Times analysis. The projection brings into focus a longstanding warning by experts that an increasing deficit will diminish the country's standing as a world power. Before becoming Obama's chief economic adviser, Lawrence Summers used to address the issue with a question: "How long can the world's biggest borrower remain the world's biggest power?"

More on Government Debt

Moody's said the US faces a debt-growth trajectory that is "clearly continuously upward" as the credit rating agency warned that the country's triple-A credit rating might come under pressure. "Unless further measures are taken to reduce the budget deficit further or the economy rebounds more vigorously than expected, the federal financial picture as presented in the projections for the next decade will at some point put pressure on the triple A government bond rating," according to a Moody's note.

The table below, courtesy The Economist and Iacono Research, shows the UK, Greece, Spain, and the US hitting critical levels of debt in relation to GDP (note they use 2009 GDP).

Same Store Sales for January
Sales at major retail chains in the U.S. increased 3.3% in January compared with the same month last year and versus analyst expectations of a 2.5% gain. Most retail experts consider January the weakest month for retail sales. Let’s keep this in perspective as last January the world was ending and retail sales posted their worst January decline ever.

Real Estate
Federal Reserve Bank of New York President William Dudley said that “the U.S. Federal Reserve is leaving the door open for restarting its program to support the mortgage market, if the economy weakens or interest rates increase sharply.” Currently the central bank's purchases of mortgage-backed securities are scheduled to end March 31st. “Obviously, if mortgage rates were to back up a lot and if that had a big consequence for the economy, then we very well could rethink the issue about whether we wanted to buy more mortgages," Dudley said

In other words, we will be supporting the housing market until it breaks us.

European Problems Broad Based

The IMF now predicts that the government debt-to-GDP ratio in the G20 nations will explode to 118% by 2014 from pre-crisis levels of around 80%. According to the Wall Street Journal, U.K. banks have $193 billion of exposure to Ireland and German banks have the same amount of exposure to Ireland and an additional $240 billion to Spain. Many international bond mutual funds also have sizeable exposure to the sovereign debt of Portugal, Ireland, Greece and Spain as well. According to David Rosenberg, contagion risks are back. He recommends staying defensive and expect an increase in volatility.

Super Bowl Commercials

Overall I thought the commercials weren’t as good as last year’s, however, four stood out: Snickers (because it answered the long running trivia question about whether Abe Vigoda is still alive or not), Google, and two Bud commercials (the human bridge and the “Lost” parody). In the battle of sudsy ads, Motorola killed Dove, although both were very weak.

You can see them all at http://www.hulu.com/adzone.


I am travelling this coming weekend, and won’t be publishing Sunday evening. My wife and I are taking a short trip up the coast with some friends, and are looking forward to enjoying some good food and wine.

Have a great week.


“Success is not the key to happiness. Happiness is the key to success. If you love what you’re doing, you will be successful.”- Albert Schweitzer