Nov 27. Capital vs Labor

–Light volume in financial futures, slightly flatter curve yesterday, red/gold fell nearly 3 bps to 117. Implied vol in interest rates continues to ease.
–Today’s data includes Durables expected -0.8 from +9.9 and Consumer Confidence, expected at multi year high of 72.8. The contrast between consumer confidence/spending and other measures of economic health is brought into sharp relief when looking at yesterday’s Chicago Fed Nat’l Activity Index, which was -0.56, (as was 3 month avg). This index is the lowest it has been since late 2009, when Consumer Confidence was 50ish, and you could probably say it’s in recession territory. Capital spending growth has stopped. It’s ironic that in the grand struggle between capital and labor, consumer confidence (a “labor” measure?) seems to be correlated to the stock market, once the ultimate symbol of “capital”, while US business capital expenditures and plans reflect extreme caution. I’m probably grasping, but the Shanghai Comp Index fell below 2000 today, nearing 2008 lows, while manufacturing laborers in China have recently seen wage gains. Perhaps the Chinese stock market is actually a barometer for forward business prospects while the US and eurozone seem overly dependent on CB liquidity and restructuring, on finance. In an Asian comparison the Nikkei jumped as the liquidity-juiced fight against deflation and a high yen went into high gear.
–I don’t know if this story has broader implications, but I found it interesting that GM, still 32% owned by the US Gov’t after its bailout, is buying Ally’s (74% owned by US Gov’t) Europe and LatAm financing businesses to expand sales. I’d infer that in-house financing embraces more lenient lending standards than the outside market. The deal was announced late last week and didn’t need gov’t approval, but is it a small sign of drug dependency on cheap credit? Maybe a boost to sales due to financing will lead to a double in GM shares and let the US Gov’t get out even on its investment? (Now 25, breakeven at 53).
–Speaking of GM, Rob’t Reich had a good post on HuffPo noting that 50 years ago GM was the nation’s largest private employer, and now it’s Walmart. He thinks unions are [part of] the answer to wage inequality. Of course the reality is that frenzied shoppers trampled the Walmart labor protesters; I guess you could say the vision of the masses hasn’t exactly come into focus yet.
–In the same way the Greek deal seems to make some Olympian assumptions about future growth. It all works out if enough is lent at lenient terms.

Posted on November 27, 2012 at 5:31 am by alexmanzara · Permalink
In: Eurodollar Options

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