Ambac to Pay $1 Billion to Settle $3.5 Billion of CDO Contracts

I think this could provide some fuel for the rocket!

http://www.bloomberg.com/apps/news?pid=20601087...

Ambac to Pay $1 Billion to Settle $3.5 Billion of CDO Contracts
By Jody Shenn

Nov. 19 (Bloomberg) -- Ambac Financial Group Inc., the second-largest bond insurer by outstanding guarantees, agreed to pay $1 billion to cancel its default protection on $3.5 billion of collateralized debt obligations.

The settlement will result in positive adjustments to the company's mark-to-market and impairment reserves, according to statement today from the New York-based company.

More friends added

More friends added to the link list on the right

Rate cut... raises rates?!?!

Good rate cut today, eh?

10 year is UP 20 bps, Shorted TLT 2 days ago, and rubbing my hands in glee, now for the VIX to drop... he he he he

Yen rallying, that means risk aversion... that means local bottom?

2Q GDP tough to swallow: Needs a grain of salt or two
The upward revision in second quarter real GDP to a 3.3% annual rate from 1.9%
initially looked impressive, until you dig beneath the headline. Fully 85% of the
revision came from a revised upward estimate to net exports and a lower
estimate for the inventory liquidation than took place last quarter.
Consumer spending remains weak at +1.7% at an annual rate particularly given
stimulus check delivery of an annualized $320 billion (was +1.5% in the advance
GDP report published a month ago); capex was still negative at -3.2% (was -
3.4%), and housing was actually nudged down to -15.7% from -15.6%. In fact,
our estimate of the total private domestic demand guts of the economy, consumer
spending+ capex+ housing + nonresidential construction, actually contracted at a
0.7% annual rate in 2Q, the third decline in a row. Those who think the economy
has managed to skirt a recession should consider that this private domestic
spending metric only embarked on such a losing streak in the past in 1960, 1974,
1980, 1990 and 2001 – all were classic recession years.
The headline GDP figure must be taken with a very large grain of salt because
there was no corroborating evidence from the other segments of the national
accounts data. It does not seem plausible to us that the broad economy
managed to expand at a 3.3% annual rate in the second quarter, and here is why:

Look at the income accounts
We see that wages and salaries, the organic part of personal income, were
revised down in the first half of the year by an additional $20 billion on top of a
previous revision of -$20 billion. We also see that national account corporate
profits declined at a 9.2% annual rate in the second quarter, the fourth
consecutive contraction (and down 7% year-over-year, which again, is completely
consistent with a recessionary macro backdrop and a bear market backdrop).
For domestic industries, profits are down 14.4% year-over-year. But in the profits
section of the report, we see that domestic non-financial profits were actually
down sharply at a 22% annual rate. The reason why the total earnings headline
was held to just a -9.2% pace was because, in Alice-in-Wonderland fashion,
profits in the financial sector were reported to have surged at (get this), a 27%
annual rate. Are you kidding me?

Look at the nonfarm nonfinancial corporate sector
Gross value in nominal terms added was a mere +0.1% annual rate in 2Q on top
of a -0.9% print in the first quarter (again, we only saw such a weak back-to-back
performance in 1960, 1982 and 2001). But in real terms, the headline growth rate
in corporate output was +3.8% at an annual rate. So what is the underlying
assumption here? That the nonfinancial corporate deflator deflated at a 3.8%
annual rate in the second quarter! This last happened in 1949 when the
consumer inflation rate was running at -2%. But we know that CPI inflation is now
running well in excess of 5% and the PPI by nearly 10%, so how can we possibly
have the most pronounced business sector deflation rate in six decades? It
makes no sense. The only way we can possibly get to a +3.3% headline GDP
reality is to buy into the assumption of a corporate deflation fantasy in the second
quarter data.

Gross domestic income pointing to a recession
Many focus myopically on the GDP data, even though 20% is centered in
government and for equity investors, what should matter most are corporate
profits and the trend is still deeply entrenched in negative terrain. Moreover, what
seems to get lost is GDI – Gross Domestic Income, which comprises corporate
income and personal income. Finance 101 tells us that investors are paying for
income, not spending. And, what is interesting from a behind-the-scenes look at
the data is that there is a visible mismatch between the spending and income
accounts in the national accounts database. In real terms, GDI was only up at a
1.9% annual rate in the second quarter, far below the 3.3% headline GDP result.
In fact, real GDI contracted at a 0.5% annual rate in 1Q (GDP was +0.9%) and
also shrank 0.8% in 4Q (when GDP was reported to have declined 0.2%). Note,
once again, that real GDI has only declined for two quarters or more when the
economy was in a technical recession. So again, beneath the veneer of GDP, this
is another nail in the coffin behind the (prolonged, in our view) recession call.
In each of the past six quarters, the growth rate in GDP has come in above that
for GDI – and by an average of 1.5 percentage points. That has no precedent
and the data cover a 60-year time frame. In other words, we have a statistical
discrepancy in the national accounts data that has never been as wide as it is
now, and our concern is that if it is headline GDP that the markets are currently
trading off of, it could well be an error of significant magnitude.


So let’s get the picture straight:
To believe in yesterday’s revised GDP data, we have to believe that …
1. We are seeing near-record deflation in the nonfarm nonfinancial corporate
sector.
2. We are seeing double-digit earnings growth in the financial arena.
3. Productivity growth is running at a near-3.5% pace and as such, “potential”
GDP growth is close to 5% (we’d like to believe that, but it can’t be true).
4. Unit labor costs in the nonfarm nonfinancial sector were actually declining at
a 2.2% annual rate in the second quarter (again, being bond bulls, nothing
would make us happier if this were all true),
5. Somehow, in a quarter which saw the CPI rise at a 5% annual rate and PPI
up by more than a 10% annual rate – both accelerating over the 1Q runup –
the GDP price deflator managed to decelerate from a 2.6% annual rate in 1Q
to a 1.2% annual rate in 2Q, the softest economy-wide inflation print in a
decade (and recall, the 2Q ends in June when the commodity bubble was
just about to reach its climax).
So, we have to say that we are non-believers
But if we are wrong, then the GDP data would certainly be suggesting that the
downturn in financials is over but the profit recession spreading to the industrial
sectors. And, if we are wrong, then the data are doubly-bullish for Treasuries
because of the implications for productivity, potential growth, unit labor costs and
inflation. After all, if you buy into yesterday’s GDP revision, then all you have to
know is that the chain deflator has slowed from 2.6% year-on-year in 4Q to 2.3%
in 1Q to now 2.0% in 2Q, which is the lowest economy-wide inflation rate since
the fourth quarter of 2002 when the funds rate was cut to 1.25% and the 10-year
note was on its way to testing the 3% threshold.

On the money

Currently telling a young couple how to access money in retirement accounts so they can get an 8% down payment on a home they are thinking of buying... in LA!!!

Negative GDP

Notice how Q4 GDP went negative...

See my prior post

Investment Banks Admit to Negative GDP Likely

http://bloomberg.com/apps/news?pid=20601109&sid=aspyu0OPzV1M&refer=home

Merrill Cuts 2009 U.S. GDP Forecast: Chart of the Day (Update1)

By Mark Gilbert

July 22 (Bloomberg) -- Merrill Lynch & Co. economists clipped their forecasts for U.S. growth, making revisions that they described as ``adjusting to the new reality.''

``Just like consumers, who are insulating their windows and making fewer trips to the malls, we are adjusting our economic forecasts to the new high-oil-price reality, not to mention the latest round of trauma in the mortgage markets,'' New York-based economists Sheryl King and Drew Matus wrote in a report.

The chart of the day shows the quarterly change in U.S. gross domestic product in green, with the annualized figure in red. Merrill now expects the economy to contract by 0.5 percent in 2009, after previously forecasting growth of 0.5 percent.

``We expect GDP to plummet 2.5 percent in the fourth quarter, and see a similar decline in the first quarter'' of 2009, wrote King and Matus. ``With the consumer likely to remain under duress into 2009 and inflation fears likely to abate, we continue to expect the Federal Reserve to cut interest rates early next year.''

Figures scheduled for release on July 31 are expected to show that the U.S. economy grew at an annualized 1.8 percent in the second quarter, according to the average forecast of 23 economists surveyed by Bloomberg News, up from 1 percent in the first three months of the year.

To contact the reporter on this story: Mark Gilbert in London at magilbert@bloomberg.net

David Rosenberg wrote:


"We are still astounded over all the inflation calls out there

And, as the latest ML fund manager survey showed, not one investor is bullish on
bonds: Many investors are confusing absolute with relative price shifts and
believe that commodities are the only source of the inflation process. This is pure
bunk, in our view. We had plenty of cyclical bear markets in bonds (early and late
1980s; 1994 and 1999) when commodities were still in their secular bear markets.
Those periods cited in parentheses were notable for booming domestic demand
and tightening labor and product markets. Clearly that is not the case today. And
then there are those that claim that the CPI is being understated. No, no, no. It is
actually overstated.
Look at the real world – the owners’ equivalent rent index is running at +2.6%, but
anyone who follows KB Homes knows that home prices are actually down 17%
(and net orders have collapsed 42%). The Manheim index of auto prices sank
0.8% MoM in May and is down 6.3% YoY – the most negative trend in five years.
But in the official CPI data, auto pricing is shown to be just -0.3% on a YoY basis.
So guess what? If we substitute the KB home price print and the Manheim auto
transaction price index for what the BLS uses, the headline inflation rate is
running at -4% as opposed to +4%. Add to that the department store inventory
price index which is now running at -0.6% YoY – is that a well publicized retail
sector deflationary statistic?"


The question is does the retail idea that inflation is uncontrollable become a self fulfilling prophecy?

Vincent at Ticker Forum

One of the better posters on Tickerforum.org is Vincent.

http://www.tickerforum.org/cgi-ticker/akcs-www?post=49549

Inflation Scare - Overdone?

The markets were awash with speculation over the inflation ogre waking up from its slumber after remaining under wraps for a while. Fed speakers added fuel to the fire by reinforcing their tough stance in their crusade against inflation. An extended period of sub-trend growth that followed the onset of the subprime mortgage market and credit crises had transitorily wiped away fears over inflation, which has shown signs of a pick up of late. Lehman Brothers is of the view that import price inflation along with a rise in commodity prices is offsetting the disinflationary effects of sluggish growth, thereby keeping inflation uncomfortably high.

http://www.rttnews.com/ArticleView.aspx?Id=630949

Fear Inflation

Gridlocked cities, empty shelves and bloodshed as fury at soaring costs spreads around the world

http://www.thisislondon.co.uk/news/article-23494001-details/Gridlocked+cities%2C+empty+shelves+and+bloodshed+as+fury+at+soaring+costs+spreads+around+the+world/article.do

SUPRISE!!!!!!

Maybe mtgspy is right, and the FED will do a surprise raise?

11:31 Fed's Kohn says oil prices raising consumer inflation expectations this year

11:31 Fed's Kohn says policy may temporarily allow prices, joblessness to rise

Kohn says inflationary impact of oil is less than two decades ago.

11:31 Fed's Kohn says rising inflation expectations would be 'troublesome'

11:30 Fed's Kohn says anchoring inflation expectations 'is critical'

The Sarcasm Oooooozes

"It's good to know we're in a strong economy with no inflation, as as the government says."

"We're in a rip roaring economy as far as the government goes."

Both said by the white male host on Squawk Box on CNBC this morning. I'll post the link later if I can find it.

U.S. Housing Starts: When Good News Is Bad

U.S. Housing Starts: When Good News Is Bad

U.S. housing starts unexpectedly rose 8.2% in April, retracing more than half the prior month’s decline. Starts rose in three of four major geographical zones. Moreover, the first upturn in building permits in five months signals potentially higher starts ahead. But that’s where the good news ends. All of the gain in starts stemmed from the volatile multiple-units section, while the steadier detached segment extended a year-long slide to a new 17-year low. Multiples are actually up in the past year, as homeowners downsize or morph into renters. But the truly bad news is that the surge in condo/townhouse construction adds to an already bloated stock of unsold homes. Sales of single-detached new homes sank 8.5% in March and are down 37% in the past year, falling nearly as fast as the 42% plunge in single starts in April. Unless sales spiked higher in April, which is highly unlikely given recent grim reports from homebuilders, the overhang of new detached homes likely stayed at a 27-year high of 11 months (at the current sales rate), almost double the norm. Meantime, the months’ supply of resale condos has topped a year. This can only mean that builders will need to slash prices further to stoke demand, after median prices slid the fastest in 38 years (13.3% y/y) in March. But who wants to buy when prices are falling this quickly and the bottom is nowhere in sight?

The Bottom Line: Despite the surprising upturn in starts and permits in April, the underlying trend in homebuilding remains downwards. Starts may need to fall towards 800,000, as in previous housing downturns, before the inventory glut is absorbed and prices stabilize. While residential construction might not slice another full percentage point from GDP growth in Q2, it may well do so in the second half of the year.

BMO Capital Markets Economics - Sal Guatieri

Bullish on earnings?

Bullish on earnings?
Call it human nature, but it is fascinating to see how everyone loves to strip financials out of the earnings pie to declare that the rest of the profit picture is running at +7.4% YoY; not nearly as scary as the -17.2% overall trend. But nobody ever stripped out financials during the 2003-06 boom. And nobody seems willing to strip energy sector earnings out of the 1Q profit results – on
score, earnings have plunged 24%. Maybe the best way to portray the situation is to look at corporate earnings without the two bookends – financials and energy – and what we get is a +3% earnings growth rate. Not bullish; not bearish.

- ML Research, David Rosenberg

First

First post... will post ideas about trades up here, time permitting.

Best luck to all you traders out there.