NEW$ & VIEW$ (20 Feb. 2012)

Greek Rescue Close as Ministers Meet to Resolve Disputes

“I don’t think there will be a majority to go down any other avenue” than a Greek bailout, Austrian Finance Minister Maria Fekter told state broadcaster ORF yesterday. Her French counterpart, Francois Baroin, told Europe 1 radio today that “we have all the elements of an agreement.” (…)

The German Finance Ministry is “increasingly optimistic” on agreement, though some points need to be resolved, including a plan for an escrow account to ensure that Greek aid money goes to paying creditors, ministry spokeswoman Marianne Kothe said in Berlin. Euro officials have reached broad agreement with Greece on the account; “at this point it’s down to technical questions,” Kothe told reporters.

Smile   U.S. LEADING INDICATOR KEEPS RISING

The Conference Board Leading Economic Index® (LEI) for the U.S. increased 0.4 percent in January to 94.9 (2004 = 100), following a 0.5 percent increase in December and a 0.3 percent increase in November.

This fourth consecutive gain in the LEI reflected fairly widespread strength among its components, pointing to somewhat more positive economic conditions in early 2012. The LEI’s increase in January was led not only by improving financial and credit indicators, but also rising average workweek in manufacturing. These both offset consumers’ outlook about the economy, which remained pessimistic, though slightly less so.

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CHINA EASING

China cuts banks’ reserve ratios
Move expected to free up about $64bn for new lending

The People’s Bank of China said it would lower the reserve requirement ratio by 50 basis points from February 24. The cut will bring the ratio down to 20.5 per cent for the largest banks, and is expected to free up about Rmb400bn ($64bn) for new lending.

Storm cloud   China home-sale data show prices slumping  Local reports say no new homes sold in Beijing during holiday

Average new home prices were flat or lower across all large and medium-sized Chinese cities in January, compared to levels a month earlier, according to data released over the weekend by the National Bureau of Statistics.

Of 70 cities tracked by the bureau, prices were lower in 48 cities and little changed in 22, while none saw gains from the prior month

Punch   Foxconn lifts China workers pay again

Foxconn Technology Group, the top maker of Apple Inc’s iPhones and iPads whose factories are under scrutiny over labour practices, has raised wages of its Chinese workers by 16-25 percent from this month, the third rise since 2010.

In a statement on Friday, Taiwan-based Foxconn said the pay of a junior level worker in Shenzhen, southern China, had risen to 1,800 yuan per month and could be further raised above 2,200 yuan if the worker passed a technical examination.  It said that pay three years ago was 900 yuan a month.

OIL, THE BIG THREAT

Iran struggles to find new oil customers
Storm cloud    Crude at eight-month high as sanctions bite

Tehran is trying to sell an extra 500,000 barrels a day of oil, or nearly 23 per cent of what it exported last year, to Chinese and Indian refiners, according to two industry executives familiar with the talks. (…)

If it cannot find customers by mid-March for the oil, which is equal to the amount European refiners bought last year, Iran would be forced to put unsold barrels into floating storage in supertankers, or reduce output. Either measure could push oil prices higher.

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Confused smile   Saudi Arabia Cuts Oil Output, Export: Industry Report

The world’s top oil exporter, Saudi Arabia, appears to have cut both its oil production and export in December, according to the latest update by the Joint Organizations Data Initiative (JODI), an official source of oil production, consumption and export data.

The OPEC heavyweight saw production decline by 237,000 barrels per day (bpd) from three-decade highs of 10.047 million bpd in November, the JODI data showed on Sunday.

Pointing up  The draw-down was sharper for the actual amount exported, declining by 440,000 bpd, or 5.6 percent, to come in at 7.364 million bpd, the data also showed. The level would still be similar to exports after a steep ramp-up last June.

FISCAL TIGHTENING

The FT’s Gavyn Davies discusses the global experiment underway which combines progressively tighter fiscal policies with aggressive QEs by the central banks.

This is intended to reduce fiscal deficits while allowing aggregate demand to grow at least as fast as its trend rate. No one can be confident that the strategy will succeed – the evidence from last year is indecisive – but at least it constitutes a clear plan.

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Fingers crossed   China and Japan unite on IMF resources   Support conditional on eurozone increasing bail-out funds

EARNINGS WATCH

S&P data to Feb. 15, covering 88% of S&P 500 companies, show that 60% beat Q4 earnings estimates and 29% missed. The beat rate is unchanged from the previous week but better than the 57% beat rate as of Feb. 2nd when 70% had reported.

Sad smile   imageEstimates keep declining. Q4 estimates are now 23.76, down 0.8% from $23.94 one week ago. Q1’12 estimates edged 0.3% lower to $23.94.

ISI reports encouragingly that, so far this earnings season, reported revenue has beaten expectations 73% of the time and missed 22% of the time.

Pointing up   (Watch for an equity market update today).

Winking smile   THE AMERICAN BULL

(…) since 1978, whenever an American graced the Sports Illustrated swimsuit cover, the total return for the S&P 500 averaged an annual gain of 14.3% and was on the plus side 88.2% of the time, while during those years when no American was on the cover, the index averaged a total return of 10.8% and was positive 76.5% during that span.

THE INDIAN BULL

 

EUROZONE BANKING

High five   European banks: lost decade looms

Europe’s banks are a spurned lot: eurozone lenders now trade on just 0.4 times book value, less than half their US peers. Widen the net to Europe as a whole and it only rises to 0.6 times. That there are so many lonely hearts should not be a surprise though: few European banks are in mint condition after the last crisis and most are now preoccupied with the latest one. There are also European Banking Authority capital rules to comply with. The combination of having to boost equity and shrink assets amid a regional slowdown has slashed average returns on equity to just 2.4 per cent, according to Datastream data. If investors have been leery, global rivals have not. Banks from the US and Japan are eating European banks’ lunch – and some are cherry-picking for dessert. (FT Lex)

Lightning   But also lost deposits (chart from Henderson Asset Management). Pretty dangerous when you depend on wholesale markets for funding…

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Pointing up   COPPER

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U.S. HOUSING

FT Alphaville has a good piece on the apparent decline of U.S. housing inventory.

Depending on how you look at it, you would probably be justified in reacting to this chart from SocGen with either optimism or pessimism:

Optimism because the decline in overall inventory has recently fallen fast, pessimism because it is still higher than at any time since the late 1980s and there remains a big gap between visible and total inventory.

Credit Suisse expresses conventional wisdom:

The U.S. housing sector has been cheap by most measures for some time, but excess supply, driven by a steady stream of distressed homes, will continue to put downward pressure on home prices for the time being.

I generally try to fight conventional wisdom. A few thoughts:

  • Total visible inventory is at a 10-year low. This means that the actual supply of occupied and well maintained houses is very limited and has been falling rapidly.
  • Shadow inventory remains high but is also declining. It might increase following the recent deal with banks but the quality of those homes is most likely inferior.
  • Keep in mind that the bulk of foreclosures is situated in just a few states. Florida and California carry 35% of the foreclosed housing stock. The rest of the U.S. may be facing a shortage of available houses pretty soon.

foreclosures

  • With so little offering in mots states, house prices could start rising rapidly if demand picks up. We have had many signs of increasing demand recently (HOUSING WATCH) 

Also, consider this:

Pointing up   Shadow inventory: now you see it, now you don’t

Florida is one of the worst housing markets in the U.S. and boasts the largest shadow inventory which bearish economists use to maintain their negative views. Here’s a way this inventory can change rapidly:

345 South Beach Condo Units Trade In Bulk For $124 Million

Nearly 350 South Beach residential and commercial condo units in a pair of projects – the Paradiso and Roney Palace – on the ocean side of Collins Avenue have traded for nearly $124 million, according to a new report from CondoVultures.com.

The buyers – 2377 Collins Resort LP and Roney 3 Investors LP both with Eric Franklin of Rinaldi, Finkelstein & Franklin of Greenwich, Conn. as contact – acquired the condo units in the first week of February 2012, according to an analysis of Miami-Dade County records. 

The condos are part of a series of transactions totaling nearly $230 million that includes 340 hotel rooms in the former Gansevoort Miami Beach Hotel and more than 50,000 square feet of developable land on the west side of Collins Avenue, according to government records. 

A consortium of investment funds comprised of Starwood Capital Group, the LeFrak Organization, and Invesco Limited has issued a joint statement claiming credit for the deal but declining to disclose the purchase price. 

The consortium did state it intends to invest “$100 million in an extensive renovation of the overall property” in hopes of repositioning the project into being one of Miami Beach “premier” destinations. 

“This bulk deal will have an immeasurable impact on the South Beach condo market,” said Peter Zalewski, a principal with the Bal Harbour, Fla.-based real estate consultancy Condo Vultures® LLC. “Prior to this bulk deal, there were nearly 1,000 developer units still unsold in the South Beach market from the South Florida real estate boom that began in 2003. After this bulk deal, the anxiety level – and price – to acquire unsold developer inventory in South Beach is likely to change.”

Just kidding   Americans Judge Reagan, Clinton Best of Recent Presidents

Americans believe history will judge Ronald Reagan and Bill Clinton as the best among recent U.S. presidents, with at least 6 in 10 saying each will go down in history as an above-average or outstanding president. Only about 1 in 10 say each will be remembered as below average or poor. Three years into Barack Obama’s presidency, Americans are divided in their views of how he will be regarded, with 38% guessing he will be remembered as above average or outstanding and 35% as below average or poor.

How do you think each of the following presidents will go down in history -- as an outstanding president, above average, average, below average, or poor?

Open-mouthed smile   THE CANDY MAN: (tks Terry)

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