Mar 28, 2012

The Dodgers Sell for $2 Billion!

March 28, 2012

Equity markets are slightly down this morning as we approach the end of the first quarter. Durable goods orders were weaker than expected, rising 2.2% vs. expectations of a 3.0% increase. Durable goods ex-transports rose 1.6% vs. expectations of a 1.7% increase, and non-defense capital goods orders rose by 1.2% vs. expectations of 1.5%.

We’ve discussed at length the issues facing California and how the economic weakness has been more severe here than in most parts of the country. A portion of the weakness can be blamed on California’s heavy exposure to real estate, the other of course on a long-running policy debacle in Sacramento. The chart below, courtesy of Merrill Lynch, shows that unemployment claims across the country have been falling, but claims in California (red line) have diverged and stopped improving.

Despite commentary supporting a fledgling stabilization in the US housing market, the numbers don’t support the argument. The Case-Shiller Home Price index fell 3.8% in January.

The OECD warned that Europe’s sovereign debt crisis isn’t over yet. They said that although financial markets have calmed for the time being, the Eurozone shouldn’t become too complacent and that economic reforms are still needed to quell the situation. I think that’s a nice way of saying they’ve been kicking the can down the road.

In a minor blow to Obamacare advocates, it appears the Supreme Court justices agreed that the Anti-Injunction Act of 1867 doesn’t preclude the court from hearing the case challenging the Healthcare act. The court will conclude two days of hearings today on the constitutionality of the new law. One quote I heard from the plaintiff’s counsel asked “can the government determine that we must buy a cell phone?” while questioning the legality of forcing consumers to purchase insurance. The individual mandate is at the core of the argument, and both sides have agreed that without the clause the law is rendered useless.

Copper spiked to its biggest gain in a month on a weakening dollar. Meanwhile, natural gas futures have dropped to a 10 year low as analysts expect a huge surplus to be announced this week.

I’ve discussed issues with the FHA in the past, but now Moody’s is saying the agency is close to requiring a taxpayer bailout. The FHA was counting on “robust” market growth in their forecasts for 2012, growth which hasn’t occurred. The projections assume that the insurance fund would be bolstered by the growth, but now is in trouble. Is anyone, besides the leadership at FHA and Congress, surprised that lending to weaker credits and extending 97% LTV loans doesn’t seem to be working?

Brazil is struggling through pension problems that make California look prudent. Payroll taxes used to fund pensions in Brazil are 32% of gross salary, larger than any major country except Italy.

The bidding for the Dodgers appears to be over, and a group led by Magic Johnson and Mark Walter of Guggenheim Partners has won the bidding with a price tag reportedly over $2 billion. Owner Frank McCourt had been seeking at least $1.5 billion as the Dodgers became the most valuable US sports franchise ever sold.

Have a great day


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