Aug 24, 2011

I Feel Your Pain

August 24, 2011

Equity futures are down this morning, but have pared their losses after a better than expected durable goods order release. Durable goods were up 4.0% vs. an expected increase of 2.0%, and ex-transports rose 0.7% vs. an expected 0.5% decline. After soaring last week, 10-year treasuries have eased a bit, but the yield is still an ultra-low 2.17%.

Moody’s cut the credit rating of Japan last night one notch, citing their high debt levels and economic-growth challenges. The government announced a new $100 billion credit facility to help domestic companies make foreign investments and offset the impact of the stronger Yen. Oil slumped after the downgrade.

Many prognosticators have been fooled by the economic and market actions over the past few years. Evidently the challenges have extended to those outside the markets, as evidenced by the sign below.

Credit defaults swaps on BofA continue to soar as the company’s stock struggles to find a bottom. The bank is now trading at 0.3x book value and 0.5x tangible book value. Concerns abound regarding the quality of the bank’s loan portfolio.

I spoke with the CEO of a young technology company yesterday who said it was more difficult to raise risk capital than at any time he could remember because of concern about regulations and uncertainties surrounding the tax code. He said that the size of commitments from investors are roughly 15% of where they have been historically.

In a conference call Monday, a CEO said to me “I’m astounded at how politicized the Fed has become.” Two separate conversations, the same conclusion-government is an overhang right now.

It seems as though the President can’t win these days. During his recent 3-day campaign tour, he has been heavily criticized for using tax-payer dollars to build two highly secure travel buses for the trip. Now the citizens of one of the cities he visited, Elkhart, IN, are attacking the President. It seems there was once a vibrant RV industry in Elkhart, and the good people there would have appreciated the work to build the new buses. Alas, the President who is busy trying to create jobs for his minions, decided to have those buses build in Quebec, Canada. I guess Elkhart needs a better lobbying effort? Someday maybe he’ll get it.

Because of the constant movement of the tectonic plates in the Western US, we have daily earthquakes in California, and there is rarely a mention in the news. Yesterday an earthquake in Virginia shook most of the East Coast, and almost immediately the market dropped 1% before quickly rebounding. The evening news and even the front page of this morning’s Wall Street Journal featured stories about the quake. The website posted the picture below showing the magnitude of the devastation from the quake, which brought the East Coast to a halt for almost five minutes.

The latest ASA staffing index, which measures seasonally adjusted temporary jobs, was weak for June (-12K) and continues to be weak. The ASA said the measure declined 1% over the past month, non-seasonally adjusted. Historically there has never been a non-seasonally adjusted decline between June and August. The chart below, courtesy CS, shows the ASA index for the month of August over the past 21 years. Temp jobs tend to be a good leading indicator of overall employment and specifically the non-farm payroll index.

Have a great afternoon.


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