Dec 4. Unbalanced, slow growth

–ISM, expected 51.5, slipped below 50 to 49.5 yesterday, which spurred a stock sell off. SPs had an outside day and closed slightly lower (though Nasdaq and Russell didn’t quite take out Friday’s lows). Australia cut rates to 3% today.
–Fed’s Bullard says new QE shouldn’t be dollar for dollar with expiring twist, since new QE will expand the balance sheet and have a larger effect. A Reuters article says Bullard expects growth of around 3.5% in 2013. I have to think that was a mistake; at zero rates how could one possibly argue for an increase in QE with 3.5% growth expectation? I think consensus is for 1-1.5% growth next year, and if the latest data indicating a mfg slowdown with inventory build-up and lack of capital spending is combined with a negative outcome on fiscal cliff, then recession looms. Eurodollar spreads lean heavily toward a forecast of marginal growth, for example the spread between the 2nd and 3rd year contracts (reds/greens) is only 19 bps.
–Interest rate trading extremely quiet. Regular quarterly eurodollar calls have all but ceased trading, from EDM13 to EDU15 only 1900 calls traded yesterday, (because 1500 EDZ3 straddles were sold).
–Gold down 14 this morning, and is below last Tuesday’s spike low. Gold turned up in early November, before stocks, and now may portend further equity weakness.
–Note on Huff Post citing Morgan Stanley says that 88% of 2012 SP500 earnings growth came from just 10 companies. AAPL of course was tops, but of the remaining 9, 7 were financial firms (if you count GE as finance).
“A striking chart from Morgan Stanley’s Adam Parker shows that 2012 earnings growth among S&P 500 companies was highly concentrated, with 88 percent of it coming from the top 10 firms. I was even more struck by the inequality within the top 10. Just four companies—Apple, AIG, Goldman Sachs, and Bank of America—together provided a majority of overall earnings growth among large-cap companies.”

So is this the country’s (Fed’s) goal? To create ‘growth’ through the financial industry? Isn’t that what caused problems in the first place?

Posted on December 4, 2012 at 5:33 am by alexmanzara · Permalink
In: Eurodollar Options

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