Friday, May 31, 2013

Brazil Hikes Interest Rates, Higher Than Expected

From Reuters:
Brazil's central bank on Wednesday evening lifted the Selic by 50 basis points to 8.0 percent in an unanimous decision announced hours before the start of a national holiday on Thursday, which shut financial markets.
Before the announcement of the decision, many economists and investors had bet policymakers would keep raising borrowing costs at a more modest pace while economic activity falters.
Of course, the obligatory Vale 5-day stock price:
3.91% drop for Vale, so far.
I suppose a Chinese interest rate hike could be next, which will release its PMI numbers tomorrow.  So that means we will have seen Markit's PMI, the OPEC meeting, US GDP numbers, a Brazilian interest rate hike and China's PMI numbers within about a week.

Saving For a Mortgage

This was inspired by the news that personal income declined in April.
30-year mortgage rate minus personal saving rate (black; left).  Real personal saving rate (blue; right)?
Ok, the "real" personal saving rate above is not exactly true.  But I was wondering how households managed to pay off their 30-year mortgages from 1978 to 20008 while the 30-year mortgage rate exceeded the personal saving rate for all but a few months during that entire time.  I suppose cumulative savings and net worth may explain such.
A different "real" personal saving rate.

Wednesday, May 29, 2013

Pre-OPEC Meeting: Musings

Just because it may be a significant event, and some of the rhetoric has been amusing (or rather on track with expectations) just before Friday.

My reading list, put together in a not-so-sensationalist-like order:

I.M.F., Predicting Slower Growth for China, Urges Overhauls
The lowered forecast — the I.M.F. shaved a quarter of a percentage point off its previous projection for 8 percent growth in China, to 7.75 percent — was the latest in a string of similar reductions by analysts in recent weeks. And although the new projection remains higher than the Chinese government’s target of 7.5 percent growth, the I.M.F.’s revision and comments underlined the challenges facing policy makers as they try to revamp the Chinese economy, the world’s second-largest, after that of the United States.
Copper Falls as IMF Cuts Forecasts For Economic Growth In China
Copper fell in New York after the International Monetary Fund cut forecasts for economic growth in China, the world’s largest consumer of the metal, while some production may restart at the second-biggest mine.
What Does a Chinese "Recession" Look Like?
A drop in manufacturing will affect the middle class, because their jobs, and especially increases in wages, depend on factory expansion. Anxiety about pay almost certainly will trigger a drop in consumer activity, which is supposed to be the new engine of China's GDP growth
WTI Crude Falls on Speculation Fed to Cut Stimulus
“Equities are getting pummeled and oil is taking a hit as well on concerns about the Fed,” said Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania. “Once again, Ben Bernanke is a bigger determinate of what happens in the oil market than OPEC.”
Saudi Arabia's Naimi Says Current Situation Best for Oil
“This is the best environment for the market,” Ali al-Naimi told reporters today in Vienna when asked about the balance of supply and demand. “Demand is great,” al-Naimi said as he arrived at his hotel.
Greece Enters Sixth Year of Recession
On Tuesday, Greece’s battered debt ratings received a rare upgrade from Fitch which noted “clear progress” on eliminating deficits.
Brazil Economists Trim GDP Growth View, Raise 2014 Rate Outlook
Economists trimmed forecasts for Brazil's economic growth this year to 2.93 percent from 2.98 percent previously, according to the median estimate in a weekly central bank survey published on Monday.
Brazil's GDP Grows 0.6% In Q1
Brazil says the country's gross domestic product grew 0.6 percent in the first quarter of the year. The result was below the 0.9 percent market analysts had forecast.

Tuesday, May 28, 2013

How Low Can You Go: Asset-Backed Commercial Paper

Nose-dive?  Not time yet to attach those accounts-receivable?
Asset-backed commercial paper as percent of total commercial paper.
There's just one thing I got to know... low can you go?

Rebound in Coal Based Electric Generation

From the EIA:
After an equal share of electric power was generated from coal and natural gas in April 2012, EIA's most recent preliminary data through March 2013 show coal has generated 40% or more of the nation's electricity each month since November 2012, with natural gas fueling about 25% of generation during the same period. 
Since May 2012, a combination of higher prices for natural gas and increased demand for electricity during the summer months led electric systems across much of the country to increase their use of coal-fired units. In March 2013, coal-fired units generated a little over 130,000 megawatthours of electricity, while natural gas units produced nearly 85,000 megawatthours.
Electric power generation by source, percent share.

Saturday, May 25, 2013

US Crude Oil Inventory: 30+ Year High

US crude oil inventory is at a three decade high.  From Barron's (a free preview):
There are a number of reasons for oil prices to fall: U.S. demand is slumping, Middle East output is steady, growth in China is slowing, and market prices are well above production costs for even the most expensive barrels. The Organization of the Petroleum Exporting Countries added to the bearish picture this month with a warning that global demand growth could slow this year.
The chart from the EIA's website of weekly crude inventory. 
US crude oil inventory.
The Barron's article also mentions that the S&P 500 and WTI oil have been in lock step.  I feel that for the past six months, the major indices have been on a tear while oil has remained rather stable, although the Brent-WTI spread is dropping. Similarly related, why did WTI oil (and the Nikkei 225) drop this past week?  I would lean toward recent release of Markit's Chinese manufacturing index, which shows weakening in Chinese manufacturing (thought here is still an expansion in stocks of finished goods).
S&P500/WTI oil price (spot) - past 5 years.

Tuesday, May 21, 2013

Egypt Credit Downgrade: CCC+

From the Financial Times:

The S&P report described Egypt’s outlook as “stable” because of the willingness of the international community to prop it up. Qatar recently committed to giving Egypt $3bn in financial aid. A $2bn Libyan deposit in the country’s central bank last month papered over the unhealthy state of its foreign currency reserves, which have dropped from $36bn at the start of Egyptian revolution to $14.4bn at the end of April.

Monday, May 20, 2013

Chinese Stimulus

Or not.  From Reuters (via Yahoo!):
"If there in an over-reliance on government-led and policy driven measures to stimulate growth, not only is this unsustainable, it would even create new problems and risks," Li was quoted by the paper as saying indirectly.
It is not a strong quote (indirectly?), but perhaps the politburo has come to terms with reducing domestic inflation in order to preserve wage competitiveness or at least reduce the rise in wages to preserve unemployment.

Might we see wave of government reform to address environmental issues?  I would think that such reform could lead the shift toward a stronger Chinese service sector and less reliance on export and more consumption of domestic production.

Here are a few other articles I have been reading lately:
Chinese NPLs (and another)
Chinese Foreign Exchange Rules
Hong Kong Dollar Peg
Hong Kong Yuan Peg

Wednesday, May 15, 2013


A few articles on REITs (Real Estate Investment Trusts). 

First, an article from Bloomberg discussing a few notable REITs, particularly American Capital Agency and its chief investment officer, Gary Kain. 
“Fannie Mae and Freddie Mac were not regulated by the markets,” Kain said. “That was a key complaint which turned out to be very fair. There weren’t any market forces that were controlling the government sponsored enterprises. They could borrow money irrespective of their risk posture because of the implied guarantee” of the government, he said.
Heard that before - do not necessarily agree.
The firms had “grown rapidly” by using low-cost, short-term financing to fund purchases of longer-term debt, he said.
Heard that before.  From earlier in the article.
REITs (BBREMTG) have been among the biggest winners from government policies to resuscitate housing and stimulate the economy. The Fed has made it easier and cheaper for the companies to borrow through the so-called repo market. The central bank’s buying has also pushed up the value of mortgage bonds that REITs invest in.
Second, an article from the Wall Street Journal.
Mortgage REITs, which use short-term debt to buy longer-term mortgage securities, also are at the greatest risk if interest rates rise because that would increase their short-term borrowing costs and cut the value of the mortgage bonds that they hold, possibly resulting in losses and reduced dividends.
 The Wilshire REIT index.
Wilshire REIT Total Market Index.
And finally a recent CNBC (via Yahoo!) article:

Institutional investors are especially drawn to REITs because they provide not just earnings growth, but strong dividend growth. REITs are required to distribute at least 90 percent of taxable income to shareholders in the form of dividends. Also, real estate is relatively inexpensive right now. 
"Physical real estate is attracting institutional investors because there is a positive spread between how much it costs to finance real estate versus the income generated," added Goldfarb. 

Tuesday, May 14, 2013

Chinese Currency Speculation

Good post at Sober Look:

China's government allows exporters to buy yuan and sell dollars in order to convert their export proceeds back to domestic currency. But by exaggerating their exports (which are reported to understaffed and bureaucratic customs officials - and not the National Bureau of Statistics ) these firms are allowed to buy larger amounts of CNY than they need - effectively taking a bet on the currency. The more they claim they exported the more CNY they can buy. As CNY appreciates, they make money. Normally China would not allow currency speculation, but these folks have found a loophole that lets them go long CNY against USD. The unintended consequence of the FX speculation is a bloated national export number.
Interesting idea considering how commodity stockpiles are growing larger in China, and that those stockpiles can be used as collateral to roll-over loans (much like using home equity to refinance a mortgage).  I find myself asking: who benefits from this trade: the dollar seekers or the yuan seekers?

OPEC Meeting

OPEC will have an official meeting later this month, on the 31st in Vienna, Austria.  OPEC is keen on the possibilities of a Chinese and Eurozone recession affecting demand, as well as the rise in US production and the debate over the XL-Pipeline affecting supply.  Member nations Libya and Iraq are still expected to request quota increases, and Iran and UAE are expected to be the most opposed.

As far as prices?  There is not a whole lot of news about prices.  However, I remain agnostic.  Given the general language from the OPEC countries (notably Iraq, Iran and UAE), there does appear to be some squabbling going on that indicates production will go up in Iraq and Libya.

So for a country like Saudi Arabia, which is seen as holding the most control over prices because they can  make the largest reduction in volume, the supply and demand balance will have a big impact on government revenue.  So consider the production and consumption amongst some of these OPEC nations over the past several years.

Monday, May 13, 2013

Finished Motor Gasoline Stock

How much lower can the stock of US gasoline get?
Gasoline stock (blue; left) and production minus consumption (red; right).

Saturday, May 11, 2013

Chinese Cotton Stockpiles

From Fox News:
For the past three years, China has been turning to the U.S. for millions of bales of cotton. But instead of consuming that cotton and keeping the demand high, the Chinese have been storing it, gradually building its stock up to to more than 60 percent of the world's inventory.
This news could explain the chart in a previous post of mine. Also, this news goes along with the "Chinese are hoarding commodities" theme circulating the media, as seen here for example.

Another amusing, semi-related series at FRED:
Personal Consumption: Nondurable Goods: Female clothing (blue; left), male clothing (red; left), and the female to male ratio (green; right).

Thursday, May 9, 2013

Housing Charts

If my city (Houston) is any indication of the current state of the housing market - it is looking good (on the outside).  I caught this post at Dr. Housing Bubble and thought it would be worthwhile to look at a couple charts.
Household real-estate assets to disposable income (blue; left) and housing starts (red: right).
Real-estate loans to owner's equity (blue; left) and average house sales price (red; right).
Starts and prices appear to have rebounded.  It  may seem that the low-inventory fueled price rebound has worn thin - until shadow inventory is factored in.  What exactly would a bank do with newly built foreclosed houses on its book versus older houses?

If it were up to me - I would rent the newer houses and demolish the older houses (to build new units).  How then would anyone be able to afford an assumed more expensive newer house?  Credit.

We are indeed seeing greater mortgage application and refinance activity, and maybe soon we will see a rebound in mortgage amounts.
Mortgage debt (blue; left) and year-over-year change in mortgage debt (red; right).

Monday, May 6, 2013

Household Debt Payments: Percent of GDP

This is great.  I have taken the household debt payment (TDSP) and financial obligations series (FODSP), which measure payments as a percent of disposable income, and I have divided them by gross domestic product (GDP).  Household debt payments are currently 8% of GDP and were 10.5% of GDP at the height of the financial crisis.
Household debt payments (TDSP) and household financial obligations (FODSP) each multiplied by disposable personal income, and then divided by GDP.
The ratio of the two series: payments:obligations.
Household debt payments (TDSP) to financial obligations (FODSP).
So what else can we do with the debt payment series?  Factor in taxes.
Debt payments and tax payments as percent of personal income.

Sunday, May 5, 2013

Credit Market Debt - Private Nonfinancial Sectors

The following chart shows the private nonfinancial sectors' debt as percent of private debt (less government debt).  The nonfinancial corporate sector's debt-share amongst the various private sectors has increased since the recession - perhaps reflected in part by an increase in (low-yielding?) junk bonds.
Households (blue), nonfinancial corporate business (red), nonfinancial noncorporate business (green) and farm business (orange).

Friday, May 3, 2013

Eurozone Update

PIIGS Unemployment
PIIGS Unemployment rate.
Eurozone production index - construction sector.
Production index in the construction sector.

Thursday, May 2, 2013

Top 50 Holding Companies (Banks) By Assets

Actually the Top 49 - data appears to be missing for the last name on the list, lol.  JPMorgan and Bank of America together make up 30% of the Top 49; add in Citi, Wells Fargo and Goldman and it is 57% of the Top 49.  From the Federal Financial Institutions Examination Council.
Top 49 bank holding companies by total assets.