Markets Live chat transcript for the chat ending at 16:00 on 10 Feb 2012. Participants in this chat were: Cardiff Garcia Joseph Cotterill, FT Lisa Pollack, FT
CG
Hello!
JC
Hi there
JC
Welcome to Greek Far-Right Politicians Live
CG
Morning Paver
LP
Hello
JC
That’s what driving markets I mean.
JC
None of us is a Greek far-right politician.
CG
If anyone from Greenpoint or Williamsburg, Brooklyn are watching, feel free to use Greek Far-Right Politicians Live as your new band name
JC
Cardiff – S&P, Nasdaq and Dow all off 1 per cent
JC
How many days in 2012 has the S&P done that?
JC
(Three)
CG
’tis early
CG
So we’re gonna be honest, people. We’re winging it bigtime today
CG
Suspect JC will have lots to say on Greece, but
JC
Yeah. We’re like the eurozone
CG
how about if we start with a very quick ’round the horn US macro roundup?
LP
(My fault, I’m in NYC, and made Cardiff organise a night out)
JC
Sure. U/Mich numbers just out?
CG
indeed
CG
The preliminary Reuters / University of Michigan consumer sentiment index for February declined to 72.5, down from the January reading of 75.0.
Overall sentiment is still fairly weak, although sentiment has rebounded from the decline last summer. This was below the consensus forecast of a decline to 74.3.
JC
Oh and Philly Fed!
CG
Yep, but first
CG
since I’m sure everyone is so eager for it
CG
trade deficit numbers — quite meh
CG
The total trade deficit widened to $48.8bn from $47.1bn in December, close to our forecast and the consensus ($48.5bn). This reflected a 1.3% m/m gain in imports and a 0.7% increase in exports. The former was driven by gains in imports of consumer goods (2.2%) and capital goods (2.4%), while export growth reflected strength in autos (6.1%) and industrial supplies (2.4%), which offset a decline in consumer goods (-6.4%). On an inflation-adjusted basis, the real goods deficit printed at $47.7bn. This was a smaller deficit than assumed by the BEA in the first estimate of Q4 GDP, and came alongside downward revisions to October and November (the former to $43.9bn from $44.0, and the latter to $47.0bn from $47.5bn). Hence, today’s report suggests less of a widening in the real deficit during Q4 than previously estimated. This lifted our Q4 GDP tracking estimate by two-tenths to 3.2% q/q (saar).
CG
The important bit is at the end — Q4 might have been a bit higher
CG
then again, first estimate always sucks
CG
okay, Philly Fed
CG
The forecasters see real GDP growing at an annual rate of 2.2 percent this quarter, down from the previous estimate of 2.4 percent.
CG
Don’t even ask me about the Philly Fed forecasting track record. My blood pressure is already up this morning
CG
but
CG
as a signal of labour market strengthening
CG
this was at least somewhat hopeful
CG
Unemployment is projected to be an annual average rate of 8.3 percent in 2012, before falling to 7.9 percent in 2013, 7.4 percent in 2014, and 6.7 percent in 2015.
The forecasters have revised upward their estimates of growth in jobs in three out of the next four quarters. They see nonfarm payroll employment growing at a rate of 160,100 jobs per month this quarter and 141,900 jobs per month next quarter.
The forecasters have revised upward their estimates of growth in jobs in three out of the next four quarters. They see nonfarm payroll employment growing at a rate of 160,100 jobs per month this quarter and 141,900 jobs per month next quarter.
CG
of course, unemployment rate is already 8.3
CG
but the general sentiment is obvious
CG
okay then
CG
The Rabble don’t seem too jazzed by all this
CG
so JC, time for me to pass the mic
JC
Actually
CG
GreeceGreeceGreeceGreece
JC
To stay on US macro for a sec
CG
no?
CG
okay
JC
A huuge note just landed from SocGen on…
JC
(drumroll emoticon)
JC
QE3 delayed, but still likely
QE3 delayed, but still likely
LP
What will it be?
JC
SG believes that the current strength of the US economy will prove unsustainable, opening the door to QE3 at the 24-25 April FOMC meeting. During QE3, the Fed is likely to concentrate on mortgage products, providing a support to agency MBS and also, indirectly, to inflation-linked products (mainly US) and to commodities. Gold would be one of the main beneficiaries
LP
(Anticipation building…)
CG
hmmm
JC
Our view that US economic momentum will disappoint implies the risk of at least a 10% consolidation in the S&P500 index by April – some may, therefore, wish to squeeze out the last drop of rally juice after the index’s 16.5% rise since 25 November (110% annualised). We would use this significant correction (which would be the third in the last seven quarters) to increase weightings on risk assets ahead of QE3. Be aware, however, that the market impact
of QE3 should be lower than the previous QEs.
of QE3 should be lower than the previous QEs.
CG
“consolidation”, I love it
JC
There are 19 or so trade ideas which I won’t bore you with.
LP
And “rally juice”.
JC
Just noting it, given US GDP upgrades starting to trickle in at other banks
JC
(UBS today)
CG
interesting, we’ll see about this. it’s pretty clear that Bernanke doesn’t wanna take his foot off the gas
JC
And also contrasts with WSJ piece today on 30-yrs
CG
so I’d say that on balance, yes, QE3 still more likely than not, but
JC
…which WSJ piece I can’t find.
CG
if we get a few more payrolls like January’s, well, the debate will be interesting. of course, socgen’s assumption could be right, and i’m still just
CG
suspicious enough of recent economic improvement
CG
to allow for the possibility
JC
On that cliffhanger
JC
We should probably move to Greece
CG
I missed the WSJ article this morning, too, a direct consequence of the boot-sized mugs of beer I had last night
JC
Where there are 100s of cliffhangers
CG
yes indeed
JC
CG
so, deal, no deal, deal, no deal
JC
Banks coming in Europe….
JC
Which lets me test out whether quotes are back working on here
JC
The answer seems to be… no. Grr
JC
SocGen off 5 per cent though. RBS off 3.5%
CG
oy. Oil getting wacked this morning too, btw
CG
mutant, ALU up nearly 15% on this
CG
Alcatel-Lucent SA said Friday it swung to an annual profit for the first time since in six years and posted positive cash flow in the fourth quarter, causing shares to soar in early trade.
The Franco-U.S. telecommunications company also announced a licensing deal under which it will offer access to its patent portfolio to companies through a syndicate, a move welcomed by analysts.
The telecommunications company said net profit rose to €1.1 billion ($1.46 billion) in 2011 from a €334 million loss in 2010. But the bottom line was buoyed by exceptional gains, notably deferred tax assets in the U.S.
JC
Amazing Greek crack-up
CG
yeah, sorry for the interruption
JC
LAOS – Greek right-wing party, pretty small – leaving the coalition govt there
JC
Cabinet talks on the bailout deal deferred to weekend now…
JC
Anyone familiar with the prisoner’s dilemma?
JC
That’s what this is.
JC
Not rational for any one Greek politician to vote for austerity
CG
Ah yes, classic game theory, but
JC
But collectively, it is, to keep official cash flowing
CG
btw, I once wrote something about this kind of multi-prisoner dilemma in the context of gangsters: http://ftalphaville.ft.com/blog/2011/01/25/466181/goodfella-game-theory/
CG
I’ll leave you to make the parallels here
CG
but I digress
CG
JC, a question
JC
…
CG
it seems like there’s been more and more talk lately that the possibility of a Greek exit (Grexit, whatever) is less worrisome than it used to be. I wonder if this has changed everyone’s incnetives enough to the point
CG
where now the attitude is “It’s up to the Greeks at this point; they can call us when they’ve reached a deal and are ready, but we’re not budging anymore”
JC
Well…
JC
a) ECB can shower (non-Greek) banks in euro liquidity, if Greece leaves.
JC
That’s one theory.
JC
b) The idea that Greek economy isn’t big enough to matter
JC
Which I find, weird. Not exactly European unity’s finest hour if a whole OECD economy is cut off overnight.
CG
Heh, yes, that one’s always been your favourite
JC
Ultimately we’re all forgetting that there’s no treaty that allows euro exit.
LP
I have a bit from IFR on this
LP
If you like…
JC
It would be disorderly be definition, all contracts in doubt etc
JC
Fire away, Lisa
LP
From Divyang Shah, of course
JC
I’m just off to check if Kim Jong Un has died.
LP
Ha! Do let us know about that!
CG
let’s hear it
LP
The political winds have already shifted outside of the eurozone as a Greek exit is no longer a taboo but a threat that many are openly willing to make should Greece show an unwillingness to play by the austerity rules. The uncertainty over Greece has persisted for so long that should Greece exit the financial contagion seems increasingly manageable
LP
The problem comes from the fact that the ripples that shook financial markets after Lehmans highlighted the difficulty in accurately forecasting such risks, even if this is no longer classed as tail risk. All that portfolio managers can do is to make sure that positions on Portugal and Ireland are kept to a minimum (or even zero) as in the words of a European official quoted last year by Reuters said: “If you get 17 minus one, you’ll end up with 17 minus four, five, six or eight.”
LP
Interesting thought about a Greek exit not being a tail risk anymore.
LP
And another thing is the bit about Ireland
JC
Yeah. More brown duck than black swan
LP
Should Ireland be lumped with Portugal anymore?
CG
exactly as I suspected — being used as a stick
LP
Bit about BAML on that one..
LP
Sorry, bit *from* BAML
LP
Ireland: The positive bailout story so far… While concerns about Greece
have continued to intensify, Ireland has made significant progress towards
restoring fiscal sustainability, recapitalising and deleveraging its banking
sector, and improving prospects for economic recovery over the last few
quarters. Indeed, Ireland has generally outperformed its targets set by the
Troika (Chart 1). Correspondingly, market sentiment has improved notably,
for example with Irish 10yr yields falling from peaks of around 14% in
Summer 2011 to around 7% most recently.
have continued to intensify, Ireland has made significant progress towards
restoring fiscal sustainability, recapitalising and deleveraging its banking
sector, and improving prospects for economic recovery over the last few
quarters. Indeed, Ireland has generally outperformed its targets set by the
Troika (Chart 1). Correspondingly, market sentiment has improved notably,
for example with Irish 10yr yields falling from peaks of around 14% in
Summer 2011 to around 7% most recently.
JC
Franklin Templeton’s star bet that – Irish bonds
LP
Bit more from BAML
LP
While there are clearly significant risks ahead, we think that under the current
outlook, Ireland could plausibly exit its support package from the Troika at the end
of 2013, as planned;
outlook, Ireland could plausibly exit its support package from the Troika at the end
of 2013, as planned;
LP
Irish GDP fell around 11% from peak to trough through 2008 and
2009. But there have been some modest gains more recently – more
than accounted for by net exports contributing an average +3.5pps to
GDP growth since late-2008. Large improvements in competitiveness
have been made: since 2008, unit labour costs in the manufacturing
sector have fallen by around 30% relative to the Euro area average.
Looking ahead, we expect Ireland to grow around 0.6% this year,
strengthening somewhat to around 2.2% in 2013.
2009. But there have been some modest gains more recently – more
than accounted for by net exports contributing an average +3.5pps to
GDP growth since late-2008. Large improvements in competitiveness
have been made: since 2008, unit labour costs in the manufacturing
sector have fallen by around 30% relative to the Euro area average.
Looking ahead, we expect Ireland to grow around 0.6% this year,
strengthening somewhat to around 2.2% in 2013.
LP
Around 65% of the fiscal tightening measures due to be implemented
by 2015 are already in place. So the drag on GDP growth from fiscal
austerity will fade going forwards.
by 2015 are already in place. So the drag on GDP growth from fiscal
austerity will fade going forwards.
LP
Supporting the banking sector has directly cost Ireland around 40pps
of GDP. But average Core Tier 1 capital to Risk Weighted Assets for
the domestically-owned Irish banks is now just below 20%, and total
leverage is down to around 10x. Many of the banks’ worst assets
have already been written down considerably and transferred to a
“bad bank” set up by the Government.
of GDP. But average Core Tier 1 capital to Risk Weighted Assets for
the domestically-owned Irish banks is now just below 20%, and total
leverage is down to around 10x. Many of the banks’ worst assets
have already been written down considerably and transferred to a
“bad bank” set up by the Government.
LP
Quite a bit that.
JC
Interesting, though.
LP
But worth highlighting. I’m also not convinced anymore that Ireland should be lumped with Portugal.
JC
US money loooves Ireland
LP
The CDS spreads have been parting
LP
Ireland tightening while Portugal goes mental
LP
And I guess the real test
LP
Will be if they manage to access financial markets
LP
later in the year as planned
JC
A Reader – yeah. Loading up the key word there. Franklin Templeton’s holdings so big that it makes others betting the same way a bit nervous.
LP
Cornering or psychological more than anything?
JC
A big long in a small market can be a problem, if they suddenly sell. Essentially.
JC
Kim Jong Un update!
LP
Do tell!
JC
He’s not dead. Or not dead yet. Or not dead, pending news of a higher quality than rumours on Chinese twitter.
JC
No reax in relevant markets, needless to say.
JC
What an odd piece of Friday RAW that was.
3:38PM
CG
oooooh
JC
Greece update!
JC
LAOS ministers resigning but some will vote for the bailout anyway.
JC
At any rate it’s more the risk of defections from Pasok, the main party, that the Troika seems worried about.
CG
From a bit earlier
CG
Ministers from a far-right party in Greece’s coalition government have offered their resignation to Prime Minister Lucas Papademos, the semi-official Athens News Agency (ANA) said on Friday. It is now up to Papademos to decide whether he will accept them, ANA said, without citing a source. The far-right LAOS party, which has refused to vote in favour of a bailout agreement needed to avert a messy default, has four members in Papademos’ cabinet.
JC
Remember this was the great technocratic hope, folks.
JC
Right – I sense we’re going to be in stasis on Greece for a while.
JC
(Stasis, original Greek etymology: “civil war”. Almost appropriate somehow)
JC
So we may as well move on
CG
yep, the question is to what? however
JC
Foreclosures!
CG
I’ve just been reading Gary Silverman’s column on Lucas Van Praag
JC
How are the US banks doing, post settlement
CG
oh, right, we can talk about that too, but first
CG
In the entire history of western civilisation, there have been very few people who have become widely known by their first names. If you exclude saints, singers and Brazilian soccer stars, there’s Michelangelo, Galileo, Rembrandt, Napoleon, Fidel and not that many more. In the world unto itself that is Wall Street, the list is even smaller. But there are people in our financial community who have achieved such a stature on a local level – and I would like to mention one of them before he leaves the scene.
CG
Pause for dramatic efffect
CG
I speak of Lucas.
CG
Okay, whatever, let’s talk about the foreclosure settlement
CG
Captain B, the consensus has been
CG
that house prices would bottom out this year
CG
by a number of ratios, but especially the price-to-rent, we’re back at “normal” levels
CG
doesn’t mean it can’t undershoot, of course
CG
but the thinking is that the construction downturn went too far, and as the labour market steadily improves and more people are ready to buy again
CG
the housing market and economy will fee themselves in a virtuous cycle
CG
as to where the foreclosure settlement comes in, it should lead to marginally more
CG
refinancings and principal reductions
CG
the Mers lawsuit is still a go
CG
Mutant
CG
New York AG still can pursue it. that bit was taken out of the settlement as a condition of his signing on
CG
so the banks still have some issues to work through
CG
also
JC
Did you see Charlie Gasbag’s foreclosures oped?
JC
In the NY Post
CG
there were recent changes to Hamp that might help, but the estimates for both Hamp and Harp have always been too optimistic
CG
let me guess what he said
CG
(I didn’t see it)
CG
“this is a travesty, people who pay their bills on time are getting hosed, etc…” ???
JC
It’s hard to imagine a less-deserving group of victims: people who gambled during the housing bubble by purchasing homes with borrowed money that they knew or should have known they couldn’t afford, but who are now able to stay in the homes they should have never bought because of what amounts to paperwork errors on the part of the nation’s big banks.
JC
points to you Cardiff
points to you CardiffCG
(mutant_dog, very true, the dispersion complicates things a lot)
JC
Problem is, almost all of the “logic” behind the deal isn’t logic, but a combination of half truths and outright lies. Even worse, the settlement will likely prolong the housing slump and set the stage for it to happen again.
Take the “victims,” who faced eviction from their homes because of the banks’ supposedly corrupt foreclosure practices. These home-owners didn’t really own their homes; many, in fact, barely plunked down a downpayment for a mortgage.
JC
Or as banking analyst Dick Bove put it: “What this settlement did was to help 1 million people who were deadbeats.”
CG
nah, that dude is super-predictable. everything seen through the prism of his pre-existing biases
JC
CG
jesus, “deadbeats”. Unbelievable.
JC
And on that bilous note – on a rather gaseous day in markets in general – we’d probably best wrap up. Anything else, Cardiff?
CG
well, capt B et al, if you guys want a long-ish overview of current housing policy (there’s a lot of moving parts) i’ll send you to my post from yesterday
CG
JC, ha! excellent above
JC
RTRS-GREEK DEPUTY FOREIGN MINISTER XENOGIANNAKOPOULOU RESIGNS STATE TV
JC
Can I just point out btw
CG
yep, go for it
JC
There are about 100 people in the Greek cabinet
JC
Well, more like 45, but still loads
JC
So prob best if every single one isn’t treated like a tape bomb.
JC
Cabinet numbers being a possible indicator of Greek govt. efficiency…
JC
That’s all from me though.
CG
very good point
CG
well gang, it’s been fun
CG
let’s wrap this up
CG
Have a great weekend everybody
LP
Bye!
JC
See you next week rabble
CG
Bye everyone!