FT Alphaville » US Markets Live transcript 25 Mar 2011

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US Markets Live transcript 25 Mar 2011

Posted by John McDermott on Mar 25 14:01.

Markets Live chat transcript for the chat ending at 15:03 on 25 Mar 2011. Participants in this chat were: John McDermott Cardiff Garcia Joseph Cotterill, FT Neil Hume, FT

Good morning from New York

Welcome to US Markets Live

The third in a series of experiments

Bringing the full force of an internet chat room against the world

Like a teenager in 1998

John – are you there, or are you busy prepping UK budget primer for next March?

Here, sorry, just trying to find analysis of how the UK budget hit US stocks

Do you even pay taxes around here?

I thought it was unAmerican to pay taxes. GE doesn’t do it

Touche

But don’t mess with me — census says we hispanics are the fastest growing demo

Wait! I found something on how the UK budget can affect US markets

Wait, no, it’s from 1923

Can we get on with US ML please?

The UK has the GDP of Maine after all

(Unconfirmed)

We’ve got stocks, the US economy, and the Middle East to cover

And then there’s that country whose parliament just collapsed the government in a decisive vote

Of course, Portugal

I was thinking Canada but whatever, we can get Joseph to riff on Portugal

Anyways, we do have some fresh data that you may be interested in

yes, consumer sentiment is out

and, to use a technical term, it sucks

fell to 67.5, failed to meet expectations

another big fall, though

US markets look flat so far, not much impact

S&P hovering around 1312

Was it balance out by final Q4 GDP?

well, not sure that had much of an impact either

was back up to 3.1%

nearly the same as the first damn estimate

here’s RQD with some deets

Good work, stattos

This was slightly higher than consensus forecasts and compares to an originally reported 3.2% gain. Real PCE was downwardly revised to 4.0% from 4.1%, while the change in real inventories was revised to $16.2 billion from a previously reported $7.1 billion.

Real business fixed investment was upwardly revised to 7.7% from 5.3% (both equipment spending and structures investment were revised higher) and real residential investment was also stronger than previously reported. Real exports were revised to 8.6% from 9.6%, while real imports were basically unrevised at -12.6% (versus -12.4%).

Bottom line

The new information in this report is the corporate profits data that in turn permit the calculation of GDP growth from the income side. The income data suggest that growth in the fourth quarter was significantly faster (4.6%) than the upwardly revised expenditure estimate (3.1%) and, for the year as a whole, the income estimate was moderately stronger than the expenditure estimate (3.1% versus 2.8%). There is nothing unusual in the degree of divergence between the two estimates of the same concept (real GDP growth) and it is not clear which is telling the more accurate story. Our feeling is that the truth might be a bit closer to the income estimate given the pickup in manufacturing and employment coming into the first quarter. However, the divergence should act as a reminder that it is difficult to assess precisely where the economy was in 2010, let alone get a fix on the underlying pace of growth in early 2011!

Neil’s going nuclear over there

John, any headlines on that

What’s the boss saying

BN 13:59 *JAPANESE WORKERS FAIL TO RESTORE POWER TO FUKUSHIMA, WSJ SAYS BN 13:58 *JAPANESE WORKERS BEGIN DOUSING FUEL RODS WITH WATER: WSJ

That explains why crude futures are off over $1 on the supposed day of rage

Reuters

On the New York Mercantile Exchange, May crude CLK1 fell $1, or 0.95 percent, to $104.60 a barrel by 9:55 a.m. EDT (1355 GMT), trading from $104.50 to $105.88.

could be, yes

could be, no, too

btw, something intersting on the repatriation business from RBS this morning, straight from Japan’s MOF

The latest Ministry of Finance report on foreign bond flows in Japan reveals that there is still net buying of foreign bonds by Yen-based investors. So there is no evidence yet that non-life companies in Japan are repatriating foreign bond holdings back into Yen. Consider too that we’re in the last days of Japan’s fiscal year so that makes it as hard to ‘read’ the Yen flow data as it is to get a grip on where jobless claims are in the US around the turn of the year.

ie, as FTAV’s been saying, the repatriation business is still over-hyped

nice to see our work confirmed by teh pros, or whatever

So what is the latest on Japan anyways?

Feel like it’s been hidden somewhat with Libya etc this week

Citi’s lowered it full-year growth forecast to 1.3%, but

what’s aastonishing to see is the range of opinion on this

consider

The level of GDP this year, next year and the following year will be lower than it otherwise would have been by five percentage points in total. This is a dead-weight loss… it is gone forever. Resources are working to rebuild the economy quickly, but these same resources would have been working to expand the economy’s productive capacity had there been no disaster.

That’s from High Frequency Economics

On the other hand

here’s Alan Zafran of Luminous Capital

I’m not trying to downplay the unfathomable losses that have already transpired in Japan. Nor am I trying to sugarcoat some the deep structural problems (high levels of government debt, chronic oversaving, import dependency) that have persisted in Japan for years. Rather, I want to let you know that Japan’s two-decade refusal to effectively acknowledge shareholder rights led to a methodical, slow-draining of capital out of its equity markets. And now, after 20 long years, the tide is about to turn for the better. Ironically, a long-time investor in Japanese equities might conclude that the earthquake, tsunami and threat of a nuclear meltdown are collectively the straw that has broken the back of Japan. I beg to differ. These tragic circumstances are actually the seminal event that will trigger the steps leading to a rekindling of Japanese spirit, productivity and profits for those willing to bet on the Land of the Rising Sun.

From 5% GDP deadweight loss to rekindling somethiong or other

So to summarise…

Japanese GDP will dip in the next quarter or two

And then rebound at some point

But we don’t know by how much

Because this is an unprecedented natural disaster

And we’re only just coming to terms with the supply-chain and other shocks

exactly

@CFMcG — indeed

forecasts are difficult, especially about the future, etc

coming across the wires

RTRS-BP SAYS HALTS BUSINESS WITH LIBYAN-CONTROLLED TAMOIL

RTRS-BP SAYS DECLARES FORCE MAJEURE ON ALL TAMOIL CRUDE AND PRODUCT DELIVERIES

Moving from the US to Japan to the other area of certainty, the Middle East

hang on, Joseph Cotterill’s lurking around

Joseph, you’ve got some background for us?

Hello – actually Bryce has just pointed out this news emerged yesterday

Hello

http://www.foxbusiness.com/industries/2011/03/24/bp-declares-force-majeure-supplies-libyas-tamoil/

LONDON -(Dow Jones)- BP PLC (BP, BP.LN) said Thursday it has declared force majeure on supplies to Libya-owned refiner Tamoil Group and that the latter is challenging the move in a German court.

OK – background

Tamoil is a Swiss refiner 100 per cent owned by the Libyans

You can find its product in German petrol (sorry, gas) stations I think

Has been Libyan-owned for a long time

The ambiguity is that Tamoil per se does not come under current sanctions

But its owners (eg the Libyan Investment Authority) do

Plus, while Tamoil obviously used to source crude from Libya, it’s been trying to source alternative supplies I think

Anyway – cautious BP considering the US has been most aggressive in applying sanctions to Libyan oil and gas assets

And, we’re in a situation regardless where the Platts Window allows for the legal uncertainties over Libyan oil at the moment

Worth watching, at any rate.

Still, have we got any more on the oil price gyrations lately?

Seems a bit more exciting

(If Izzi is around, I’ll see if she could add anything about counterparty risk in the oil market right now)

Cardiff getting some prices but this note from BarCap yesterday raised an eyebrow

All eyes on 2020…

We are revising our 2011 average oil price forecasts to $106 for WTI and $112 for Brent. We are also introducing a 2020 forecast of $185 WTI and $184 Brent. Our 2012 forecast are unchanged at $105 for both WTI and Brent, and our 2015 forecasts are unchanged at $137 WTI and $135 Brent.

Why?

right, WTI for May at 105.10, but seems flat on the day

The forecast revisions reflect four main changes since our previous revisions in December. First, stronger fundamentals and a continued demand shock. Second, a downwards revision in baseline spare capacity this year. Third, a Libyan outage that we expect to be prolonged including permanent damage to some fields. Finally, a mixture of other potentially potent and long-running geopolitical situations.

WTI brent for May at 115.84

What’s with everybody giving four reasons for movements in oil? Here’s Citi

But they think it’s alllll good

Rising demand for oil has been the main driver this time around; a rise in prices does not destroy aggregate spending power but rather redistributes it; in some countries fiscal offsets will be used; and the effect on oil-intensive processes is slow moving.

For Joseph — BarCap note also says the legal and technical problems in Libya are set to run and run even after any settlement.

Currency interlude, if I may

yes

from Bryce: Aussie just hit a record against $

Bryce just mentioned the Aussie dollar

Currently $1.027

Quite a spike in the last few minutes

Any thoughts on why? Return of risk appetite surely not enough?

(Past a 29-year peak too)

Dunno if it’s the lovely weather we’re having or not

But today is just a risk-on day today (viz., copper) and I have no idea why

Some background here from interactive brokers

The MSCI Asia Pacific stock index rose by 0.6% overnight as investors crept back into riskier plays dragging the Aussie higher in its wake. The unit rose to $1.0250 as stock market implied volatility sank as fears that the Japanese news flow might worsen deteriorated.

From Wednesday

“The situation in the Middle East is putting upward pressure on the price of gold and oil, and that in isolation benefits commodity-bloc currencies,” said Tim Waterer, a foreign-exchange dealer with CMC Markets in Sydney. “The stock market reaction to the Libyan actions over the past few days has been quite positive as there’s a hope there will be a quick resolution.”

So, um, Japan not falling apart = back to risk… gotta love it

for now

don’t sleep

Back to the start for a sec, what has the consumer sent done?

looked at the report, not pretty

fifth straight monthly decline, although

While the data clearly indicate that the rate of real consumer spending will diminish, the data do not indicate a renewed downturn is now on the horizon

and yes, as @NiceButDim says, lowest in nearly two years

Before we turn to the Euro, some kiwi fruit from Neil

oy, yellow

NZDUSD has pushed further through the daily resistance around 0.7515 on the back of a new historic high in AUDUSD. Next level would appear to be close by at 0.7560, which is the 61.8% retracement of the move from 0.7825 to 0.7125.

All going up down under

well said

Hooray. The carry trade’s back on.

Only days after the yen carry trade exploded. Oh well.

now then, apparently there’s stuff happening on the other side of the pond, or so I’ve heard

i don’t read newspapers

So what’s the latest JC?

Well, I kind of wonder how the Portugal debt crisis is being received on your side

“debt crisis?”

Um, what debt crisis?

Everyone seems perfectly happy a third western european country in a year might go to the IMF for a bailout

Anyway, ‘spose I’d better start with the bond yields

I was supposed to be on CBS radio yesterday talking about it and they just asked me questions about precious metals. Disaster.

Wanna raise Joseph’s hackles? insinuate that b/c Portugal’s GDP rel to EU is tiny, it’s unimportant

Portugal 10-year: 8 per cent. That should raise hackles.

The five-year yield’s through 8.5 per cent.

In that case, we’re not pricing in a bailout…

We’re pricing in a debt maturity swap, if the yield curve;s getting this inverted

And I should add, as per the point made by CFMcG – this is a really, really, really illiquid market by now.

So why should anyone in the US care?

I just think – and call me crazy – that the closer one of the small peripherals gets to restructuring its debt

you tell me: i’m too busy bidding for the Fed’s MBS to care

Guys

when you have a moment

The closer we all get to a sudden jump in risk premia for government bonds, everywhere

I’d like to step in with something

for the gold bugs

looks like you already have….

only if you promise to buy us another American flag for the next ML

let me know when

gold! yellow card! okay go for it Neil

(JC — agree, esp with QE2 end date approaching)

don’t want to break your flow

it’s from Dylan Grice

Uh-oh

Full of sunshine?

Albert Edwards’ young apprentice

something of a history lesson

with an interesting conclusion

here goes

In the hard sciences knowledge builds cumulatively. It propels the relentless growth in man’s
ability to do more with less, which makes commodities such a lousy investment in the long
term. Yet in the realm of social decision-making mankind is a fool, unable to learn the wisdom
of posterity and doomed to repeat its mistakes: the first credit crunch occurred in the Rome of
33AD and the ancient Greeks lived with high inflation

Confidence in central bankers’ ability to
learn from past inflation is as likely to be misplaced as it was in their ability to learn from past
credit booms. Gold remains the cleanest insurance against such overconfidence.

buy gold!

I recently showed that the long-term real return on commodities since the 1870s has
been zero (Popular Delusions, 15 December 2010), and so I am sceptical of long-only
commodity investing. The history of our species has been one of adaptability and
innovation, and I argued that to buy commodities was to go short human ingenuity. But
some thoughtful observers – see Sean Corrigan profiled on zero hedge for a good example -
questioned exactly how “ingenious” humanity really is. They suggest that shorting human
ingenuity might not actually be such a bad idea!

short humans!

This is a valid point and one that I want to explore in more detail this week. In the original
note I explicitly excluded gold from my analysis, as I have done in subsequent writing. But I
have never properly explained what, on the surface at least, appears to be a stark
contradiction: how can such a commodity-sceptic as I be so comfortable owning physical
gold? What follows is such an explanation. I’ll let you decide whether it’s any more than an
elaborate attempt to relieve a particularly nasty case of cognitive dissonance.

pretty sure the Babylonians had a credit crisis

Gold is not like other commodities, and other commodities are not like gold. That
difference is central to the reconciliation to come. But it is actually much more. It lies at the
heart of the absurd contradiction innate to the human condition: how can a species as
capable of the creative resourcefulness embedded in space travel, wireless communication,
genome mapping, edible underwear, be, at the same time, so hopelessly incapable of
learning past wisdom, and apparently doomed to repeat past follies?

sorry got to go

it’s just before 3.00pm

and that means

will call

with his crap Friday rumour

always good for a laugh

cya next week rabble

2:52PM

bye Neil, thanks for breaking the golden rule

well, we have to be going soon

but, there’s some news out of Syria this morning

JM, whatchagot?

yes, another friday, another bout of violence, this time in Syria

RTRS-HEAVY GUNFIRE HEAD FROM DERAA SQUARE WHERE THOUSANDS OF SYRIAN PROTESTERS GATHERED, PEOPLE SEEN FLEEING SCENE-REUTERS WITNESS

RTRS-DERAA SQUARE PROTESTERS BURN STATUE OF LATE SYRIAN PRESIDENT HAFEZ AL-ASSAD-REUTERS WITNESS

RTRS-SYRIAN SECURITY FORCES KILL AT LEAST 20 PEOPLE IN TOWN OF SANAMEIN, NEAR DERAA – WITNESS TELLS AL JAZEERA

wow, no signs of this slowing down then

(Rain – I loved that analogy too. Paul Mason calls it the currency with ‘two souls’. Nope. It’s cruddy supermarket vinaigrette.)

we’ll keep watching, analysts are saying that this is unlikely to lead to the toppling of assad, but with the US distancing itself that might not be a 100% safe bet

Eurasia Group

Protests in Syria are geographically limited and do not pose a serious risk to the regime. Many Syrians in major population centers do not oppose President Bashar al Assad and he still retains elite support. Nonetheless, in preemptive move, Assad today introduced a political and economic reform package. In the short term is unlikely that these reforms will fundamentally change power dynamics within Syria, but they will most likely help the government contain the Daraa demonstrations. If reforms fail to quell protests, the government will be inclined to use more force.

okay, let’s bring it back home to finish

and John? Home is NEW YORK!

(Deletes Scottish GDP analysis)

S&P up 0.61%, Dow similar

looks like markets aren’t bothered by consumer sentiment, though

maybe they’d be higher given recent earnings data

Oracle up 3.8% today at last check btw

Smashed earnings reports yesterday

yep

Saw 12 upgrades last night

Unlike RIM which is taking a tanking

Some company with the terrifying name of Body Central Acquisition Corporation is up 18.35%, no idea what that’s about

Analysts worrying about lack of new devices

and new bodies?

anyways, tech and transportation sectors leading the way

but sectors all up across the board

it’s 11am folks, and you’ve been great, but it’s time to wrap things up

feels like we’ve covered nearly all four corners of the world

but, shoot, Canada! we forgot!

yeah, that happens a lot to them, i think

ah well, thanks everyone, and see you next week

bye everyone, have a great weekend

This entry was posted by John McDermott on Friday, March 25th, 2011 at 14:01 and is filed under Uncategorized. Edit this entry.

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US Markets Live transcript 25 Mar 2011

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