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Posted
Jun 16 2009, 02:40 PM
by
Catherine Holahan
Rating:
Money Blog: Top Stocks Blog - MSN Money
 The worst recession since the Great Depression will
officially end sometime in the next three months, according to economists at
the nation's biggest banks. The Economic Advisory Committee of the American
Bankers Association -- aka the chief economists for JPMorgan
Chase, Citigroup,
Bank of
America, and most other major banks -- announced today that they expect that
nation's GDP to grow in the third quarter of 2009.
But most Americans will still feel as though they are living
through a recession well into 2010.
"The economy will return to growth but not to
health," said Bruce Kasman, chief economist for JPMorgan Chase in a
statement. "Growth in the coming quarters is likely to gather momentum but
will not prove sufficiently robust to undo much of the severe damage to our
labor markets and public finances."
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Posted
Jun 15 2009, 07:08 AM
by
Todd Harrison
Rating:
Money Blog: Top Stocks Blog - MSN Money
Just as I suspected, through much of the last two quarters, investors were missing the biggest drivers of this market. It's happening again, but this time for different reasons. More on this later.
During the fourth quarter of 2008 and the first quarter of this year, the focus was on the supposed second-worst recession of all time, which “justified” multi-year lows. I asserted that incredibly flawed rules (see my podcasts on key rules, policy fixes, and so on) were the primary causes, as they had been for all of 2008, and were exacerbated following the collapse of Bear Stearns. Is it too early to declare this case closed? Maybe. But let’s look at just two key facts:
1. By almost every statistical measure, we're in either the seventh- or eighth-worst recession. So this is nowhere even close to the second-worst recession of all time -- and won't be. Yet stocks put in the second-worst showing, and actually printed the worst rolling 10-year showing for large-company stocks as tracked by Ibbotson. This should at least make people question why.
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Posted
Jun 12 2009, 11:14 AM
by
Todd Harrison
Rating:
Money Blog: Top Stocks Blog - MSN Money
This post was written by Minyanville Executive Editor Kevin Depew.
1). Credit crisis abating
Last week I talked about rising bond yields affecting equity prices and how the most-watched events of the week would be the Treasury auctions. I was wrong. I began this week fiercely determined to remain awake long enough after churning out one of these daily columns to closely monitor three days' worth of Treasury auctions; the 3-year, 10-year and 30-year auctions collectively known as "refunding," a *** misnomer that was probably once an inside joke that just happened to stick. So much for that. The action isn't in Treasury funding at all, but corporate issuance.
On Tuesday, the following note on Anadarko Petroleum (APC) scrolled across my Bloomberg screen:
* ANADARKO PETROLEUM TO SELL $750 MILLION OF 5-, 10-YR DEBT
But that's not what happened. As it turned out, demand was so strong APC boosted the size of its sale from $750 million to $900 million. As well, the spread (the difference in yield for this debt above Treasurys) estimated to be in the 305-337.5 basis point range, actually came in lower, 295 to 325 basis points.
OK, that's one company, but all told there were more than $2.2 billion in corporate bonds issued last Tuesday, in spite of a record $71 billion the Treasury is raising over the next couple of days.
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Posted
Jun 10 2009, 02:29 PM
by
Todd Harrison
Rating:
Money Blog: Top Stocks Blog - MSN Money
In early 2006, when subprime powerhouse New Century went bust, vulture investors began to salivate at the opportunities a collapsing mortgage market would offer up like manna from the trading gods. They started raising money. And lots of it.
Billions were poured into so-called "mortgage opportunity funds," which planned to pick through the wreckage of the once-high-flying housing market. Some investors aimed to focus on mortgage-backed securities, hoping to buy in at pennies on the dollar so just a few bond payments would reap sizable returns. Others, however, delved into the realm of whole loans, buying troubled mortgages from floundering banks.
As noted in the Wall Street Journal this morning, an investment strategy that seemed like a slam dunk on paper -- buying distressed mortgages on the cheap, and working out equitable arrangements with borrowers -- has proven extremely difficult to execute.
The prevailing wisdom was that, as delinquencies rose, and banks amassed a seemingly limitless portfolio of troubled loans, the likes of JP Morgan Chase (JPM), Bank of America (BAC) and Citigroup (C) would be forced to unload assets at firesale prices. Because they were buying at super-low prices, investors expected to have the necessary cushion to forgive principal, lower interest rates, or otherwise get borrowers back on track. They would, of course, earn a hefty profit for the effort.
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Posted
Jun 09 2009, 12:14 PM
by
Todd Harrison
Rating:
Money Blog: Top Stocks Blog - MSN Money
Just a friendly reminder: Please remember how important tomorrow’s 10-year auction will be for near-term equity direction. And with regard to Thursday’s 30-year auction: The market will extrapolate how that will go based on tomorrow’s 10-year results.
If the auction goes well (i.e. no large yield tails, a good bid to cover, a good amount of indirect bidders), and bonds mount a nice rally, then theS&P should react in kind -- and you’ll see 950 in the rearview mirror. A breach of 950 will then set up a test of target levels (at 980).
The market -- and, more importantly, the banks (e.g. Wells Fargo (WFC), JPMorgan (JPM), Bank of America (BAC), Citigroup (C), etc.) -- have been chopping wood for the better part of a month. In order to justify higher prices at the moment, the market needs some fresh meat -- meat that it doesn't immediately reject as a subjective lagging indicator that's already “priced in.”
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Posted
Jun 05 2009, 10:04 AM
by
Todd Harrison
Rating:
Money Blog: Top Stocks Blog - MSN Money
We often talk about how developments in the economy will impact the stock market, but we rarely discuss the other side of the relationship: How the market impacts the real economy.
It does, and the current run-up in stocks is very positive for the economy. Here's why:
1. Financial stocks have doubled from their lows. This is great news for banks like Wells Fargo (WFC), Citigroup (C), and JPMorgan (JPM) -- they were able to capitalize on higher stock prices, issuing $85 billion of new common equity in one month. Some of the newly issued equity will go to pay back TARP money from the government; some will allow banks to boost their balance sheets so they can swallow more losses pending from mortgages, credit cards, commercial real estate, etc.; whatever is left will go to originate new loans.
Since banks use leverage, equity funds will allow banks to generate new loans in the multiple of 15-20 times of issued equity. Of course, banks have to be willing to lend, and consumers/corporations will need to be willing to borrow - but that's a different story.
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Posted
Jun 04 2009, 05:57 AM
by
Todd Harrison
Rating:
Money Blog: Top Stocks Blog - MSN Money
Despite the best efforts of the Federal Reserve and the Treasury Department, the free market is winning the battle over mortgage rates. Tens of trillions of dollars in support for the financial system can't change the stark reality: Giving out home loans remains risky business.
Borrowers looking to take advantage of rock-bottom interest rates are seeing the opportunity slip through their fingers, as rates have risen by more than 0.50% in the past few weeks.
According to the Wall Street Journal, the pop in rates is due to expectations of economic recovery, combined with fears that the mounting pile of debt incurred by Washington's central economic planners may not be sustainable. As the government prints money and plunges the country into an ever-deeper deficit, holders of U.S. Treasuries (e.g. China) are getting skittish. These investors are quietly demanding a higher return on their bet that our economy will pull out of its current tailspin.
This, in turn, is pushing up mortgage rates, which doesn't bode well for nascent signs of recovery. Big lenders like Wells Fargo (WFC), Bank of America (BAC) and JPMorgan Chase (JPM) -- despite offloading nearly all default risk to taxpayers via Fannie Mae (FNM), Freddie Mac (FRE), or the Federal Housing Administration -- are asking prospective borrowers for hefty points up front to get the lowest rate possible.
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Posted
May 12 2009, 10:15 AM
by
Andrew Horowitz
Rating:
Money Blog: Top Stocks Blog - MSN Money
 For some time, there have been questions about the veracity and the ability for the market to sustain a prolonged rally. Questions have been asked such as: Is it real? Is it safe? Will it turn down again?
Many of the concerns were due to several meaningful components that made up the rally from the devilishly low point in March of 666, reached by the S&P 500 index. Since then, stocks have been on fire and recovered all of the 2009 losses and more. But why so many questions?
For one, volume has always been suspect. Traditionally, a market rally would start slowly and then grow as more participants believed they could put their hard earned money to work to earn a rate of return greater than money market funds or other competing assets. As the rally progresses, more investors become desirous of investing and volume begins to swell. That has not happened this time around, just as it hadn't during the past few bear-market rallies. As a matter of fact, most of the high volume days came when the markets were down. This is not a sign of a healthy market rally
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Posted
May 11 2009, 09:10 AM
by
Todd Harrison
Money Blog: Top Stocks Blog - MSN Money
During my days as a convertible hedge-fund manager, one of the humorous, though important, regular events was the pricing of a new deal. I say humorous because a remarkably small amount of the time spent discussing the new deal went into the deal’s actual merits.
Far more important -- if you were a convertible manager -- was how the deal was going.
“Oh, it’s three times oversubscribed already, let me put you in for $100 million if you really want $10 million." That was the mantra of the convertible salesman.
“But I don’t want $100 million. I only want $10 million.”
“Everybody else is going in for 10 times what they really want.”
“Not me.”
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Posted
May 08 2009, 09:29 AM
by
Todd Harrison
Rating:
Money Blog: Top Stocks Blog - MSN Money
This post was written by Minyanville Executive Editor Kevin Depew.
1. For banks, a stress-free stress test
The much-anticipated (though widely leaked in advance) bank “stress test” results have finally been disclosed. The verdict? The government projected the 19 banks tested could lose up to $599 billion through the end of 2010 if the economy performs according to its most adverse projections.
As a result, 10 of the 19 banks, including Wells Fargo (WFC), Bank of America (BAC) and Citigroup (C), were ordered to raise $75 billion in more capital. Nine others, including JP Morgan (JPM) and Goldman Sachs (GS), were viewed as having adequate capital. The market, for the most part, shrugged off the news. After all, what’s a mere $75 billion among friends?
2. What does it mean?
The real question is what do the results of these stress tests mean for the market? In order to understand that, we have to pretty much ignore what the government said and look a bit closer at what “stress” was actually “tested.”
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