Dec 14. Flow of funds thoughts

Dec 14.  Stronger than expected Retail Sales and Consumer Sentiment sent eurodollars tumbling.  The curve steepened again to a new high with 2/10 treasury spread out to 272.  Red/gold pack spread was up over 3.5 bps (rolled to March). Ten year rose over 5 bps and closed at 3.53%.

–Implied vol was better bid in treasuries, giving additional weight to the bearish move.  

–The dollar continued to strengthen.  The long dollar ETF, UUP traded over 15 million shares on the day, which appears to be the highest volume ever for the product.  In spite of dollar strength and higher rates, stocks were surprisingly resilient.

–This week brings the FOMC, which probably has added importance as the market preemptively probes for clues about the “exit strategy”. 

 –Last Thursday the Fed released Q3 Flow of Funds report.  Some puzzling aspects…. Since 2007 Household growth rates for mortgage debt and consumer credit have slowed, going into negative territory in late 2008, with latest readings in Q3 of -3.6% for mortgage debt and -3.2% for Consumer Credit. (Fed’l Gov’t is+20.6%). In 2007, Consumption as % of GDP was 69.8%.  In 2008, 70.1%, and in Q3, 71%.  So Consumption as % of GDP has risen even as debt levels have fallen? 

–Compensation of employees was $7856 (Bln) in 2007, $8037 in 2008 and latest annualized $7838 in Q3.  In 2007, GDP was 14078, in 2008 14441, and in Q3 14266.  How can consumption as % of GDP be increasing unless it is through direct government transfers to individuals?

–Now I see on page 18…Personal taxes as % of Personal Income were 12.5% in 2007, 11.7% in 2008, and 9% in Q3.  So, amazingly enough, Disposable Personal Income gained throughout the crisis, from $10403 in 2007 to $10806 in 2008, to $10999.6 in Q3.  It really doesn’t make any sense to me how this would be the case, except through massive government transfer payments, and I guess the fact that 1 of 8 is on food stamps is a partial example.  And on page 23, Gov’t Social Benefits, 2007 was $1267, 1404 in 2008, and 1652 in Q3.  Other transfer payments, 2007 421, 2008 436 and Q3 539. 

–So while the Fed has to consider an exit strategy, the Fed’l gov’t also appears to be on an unsustainable path.

–This from USA Today   For feds, more get 6-figure salaries

Average pay $30,000 over private sector

By Dennis Cauchon
USA TODAY 

The number of federal workers earning six-figure salaries has exploded during the recession, according to a USA TODAY analysis of federal salary data.

Federal employees making salaries of $100,000 or more jumped from 14% to 19% of civil servants during the recession’s first 18 months — and that’s before overtime pay and bonuses are counted.

Posted on December 14, 2009 at 6:12 am by alexmanzara · Permalink
In: Eurodollar Options

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