Nov 20. Bernanke speaks to Economics club today, think he’ll mention rate hikes?

–Moody’s strips France of AAA, the market yawned. It’s almost as if there was widespread suspicion that France shouldn’t have a top credit rating. Existing Home Sales rose yesterday. Is that a surprise as well? Credit standards ease and the Fed targets lower mortgage rates to make owning as inexpensive as renting… and if it doesn’t work out then Treasury can bail out the FHA. Yes, housing is recovering.

–Stocks continued a strong rebound. Gold also had a $20 move up and looks constructive. And of course oil is responding to mideast tensions, with Crude one-yr spread Jan’13/Jan’14 moving from -382 a week ago to -65 yesterday as demand for the front contract surged (noted by Gartman).

–Bernanke speaks at the Economics Club of NY, followed by Q&A. No drama, we already know from Fed minutes that most participants favor endless easing. Even though the worst of the fiscal cliff may be averted, there is still likely to be a drag associated with the compromise agreement (and the Fed can address it).

–Interestingly, rate futures were only slightly lower in spite of the rally in risk assets, though option trades lean to the bearish side. Of course, Moody’s downgrade of France didn’t affect rates the other way either; low volatility through year end?

–Rosenberg cites an article in the Financial Times with Blackrock’s CIO with this interesting quote: “We have never seen in history the population ageing and living longer in such a fashion, not just in the U.S. but around the world, and that raises the question of how high growth can go…. we are in the midst of a major deleveraging in the entire developed world, which is going to continue in 2013 and 2014.” This from the firm that says “it’s time to be an investor again.” To be fair, the Blackrock website could be construed as downright dour, with this quote from the home page: “In recent years, the increase in cost of life’s essentials has dwarfed the growth of familiar investment vehicles. And it’s only likely to get worse – as retirement lasts longer and costs even more.” Wow. That’s from the firm that optimistically says it’s time to be an investor?! How about we just put it all on black and spin the wheel? As one of my friends constantly reminds me, it costs more for the things you NEED, less for the things you don’t. I personally think inflation data should be more reflective of life’s essentials, rather than the current biased lower blend.

–NY Times Krugman, reminiscing about the innocent era of twinkies, suggests that the high tax rates of the 1950’s should be revisited to help income inequality, and that economic performance isn’t likely to suffer. http://www.nytimes.com/2012/11/19/opinion/krugman-the-twinkie-manifesto.html “… in the 1950s incomes in the top bracket faced a marginal tax rate of 91, that’s right, 91 percent, while taxes on corporate profits were twice as large, relative to national income, as in recent years.” “And the high-tax, strong-union decades after World War II were in fact marked by spectacular, widely shared economic growth…” In the era he mentions, the US had just proven itself the geopolitical superpower. US GDP as a % of the world was 30% or greater, now around 25%, while Asia has gone from less than 15% to 25% currently. It simply isn’t the same world now, as low wage, low regulation China/Asia has ascended as an economic competitor in a global market. To opine that the high tax rates of our formerly insulated world would have clear benefits and no downside is simply disingenuous. He’s feeding his fans twinkies instead of vegetables.

–An item in Reuters says bankrupt San Bernadino, CA wants to negotiate fees it owes to CALPERS, the public retirement fund for CA. http://www.reuters.com/article/2012/11/20/us-sanbernardino-bankruptcy-plan-idUSBRE8AJ07Y20121120 The city says it has unfunded pension liabilities of $143 million, CALPERS puts the figure at more than DOUBLE $319 million. In the grand scheme of things, this story might not be important, but it does have an echoing ring relating to Europe, where one cash strapped public entity after another tries to restructure with other public entities, revealing large fissures in the entire system.

Posted on November 20, 2012 at 5:43 am by alexmanzara · Permalink
In: Eurodollar Options

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