The Credit Crisis Financial Stocks Short Journal

Rents are already going down, maybe not the BLS Owner Equivalent Rent(which is basically a survey of people who dont rent)
But the guy on calculatedrisk seem bearish on rents due rising vacancies

http://www.calculatedriskblog.com/2009/08/bre-properties-rents-to-decline-well.html
http://www.calculatedriskblog.com/2009/02/what-if-rents-cliff-dive.html
http://www.calculatedriskblog.com/2009/02/falling-rents.html
http://www.calculatedriskblog.com/2009/01/nyc-rents-falling-fast.html

Also with rising unemployment, the homeless should rise. Pricing power for raising rents decline. As the UK experience shows rents can nosedive quickly if supply of homes for rent rises. So it seems a safe bet that rents will decline or stay flatish. This makes a negative yoy print on core CPI possible, this might very well spook the bond market(to the upside)
 
Another divergence is on the commodity markets. Both the CRB and and the Rogers Indices are well off their short-term highs from May-June
With the exception of oil, commodities have been showing tons of weakness, specially the agricultural ones(RJA bellow 200MA)
 
Quote from ralph00:

Stock market rising is of a part w/devaluation of the dollar. The relative value of equities is not changing.

http://blog.atimes.net/?p=1136

Seen in this light, I can better accept rising equities and rising bond prices.
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I have a hard time accepting this argument. A declining currency doesnt necessarily means the stock market will rise, why?Because things can get cheap in PPP basis, it happens routinely, those things are not arbed instantly

Matter of fact the Brazilian currency is up something like 50% from the lows, and the stock market is above Lehman levels(up almost 100%). This has been a global rally, equities have been rising regardless of which currency they have been priced in
Its about risk taking surging, so I'm in the other side of your chicken and egg argument, I'd argue the US stock market is driving the dollar down not the other way around(they dont necessarily need to have that correlation, its simply the way global capital is moving right now as the dollar is becoming a funding currency)

I dont doubt there is some kind of dollar devaluation going on but so far it has been mostly a promise and a intention by the fed, actually results have been pretty miserable, there is simply no consumer price inflation. The actual domestic purchasing power of the dollar has been rising(CPI/GDP deflator negative) or modestly declining(Core CPI)
 
I believe Goldman is talking about 'tradeable' goods. CPI in the US is more or less a function of domestic labor costs, which are falling. You could have a falling CPI at the same time that internationally traded goods - oil, metals, fertilizers, ... - are rising in dollar terms.

Thiel talks about the same thing - he foresees a future in which the prices of things we have (assets) fall at the same time in which prices of things we need (oil, food, metals) rise.
 
Quote from ralph00:

I believe Goldman is talking about 'tradeable' goods. CPI in the US is more or less a function of domestic labor costs, which are falling. You could have a falling CPI at the same time that internationally traded goods - oil, metals, fertilizers, ... - are rising in dollar terms.

Thiel talks about the same thing - he foresees a future in which the prices of things we have (assets) fall at the same time in which prices of things we need (oil, food, metals) rise.
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I agree with all of this. Since stocks and comm are more global and liquid you would except the arb to be faster(specially in cases of universal and storable goods such as oil). But if the US stock market is really being arb in PPP basis, you would expect the TIC inflows in the equity market to be huge as foreigners take advantage of their newly increased purchasing power to buy stocks. This is not occuring, they are still buying bonds
http://www.newyorkfed.org/research/directors_charts/us18chart.pdf
One can argue domestic arbing is antecipating the foreign inflow so the TIC data doesnt show because the arb was closed before they bought. But I'm not aware of a single hedge fund or investment bank who runs a 'arbitrage' fund that buys stocks globally everytime the currency goes down(and these guys controls a good chunck of the liqudity, specially in the arb world)

DX only down 15% from Mar, yet SPX is up 50%+
Arent equities in the end just the expected long-term stream of cashflows that the business will generate?The dollar devaluation(so far) havent made it clear those cashflows will explode as pricing power is still very weak as revenues are dropping
IMO this has been 2nd derivative rally, which then trigged faith inducing folks to fear missing a rally creating this speculative boom
 
What seems to be an increasinly a total 'shoot fish in the barrel' trade is a bet on a jobless recovery

From Rosenberg:

"Yes, initial jobless claims did come down 26k (from yet another upwardly revised figure — the 23rd in a row) to 550k in the September 5th week. But claims are basically range-bound and at 550k are clearly still consistent with net job loss — they need to break below 500k to stop the bleeding in the U.S. labour market altogether and below 400k to start the process of reversing the uptrend in the unemployment rate. At this stage of the 2002 decline in claims from the peak, they were hovering just above 400k, not 550k, and that turned out to be a huge jobless recovery. This will make a mockery out of that one and the prospect that we see the spread between the U6 and the official unemployment rate measures mean revert will imply an unhappy meeting in the middle at around 12%. Just in time for the mid-term elections; tell us that we will not see a U.S. dollar depreciation as the next rabbit out of the hat (a la FDR circa October 1933).

The problem in the U.S. job market is not so much with firings any more; it’s more about a lack of new hiring
The problem is not so much with firings any more; it’s more about a complete lack of new hiring. The NFIB index that measures job openings fell again in August — from 9.0 to a 27-year low of 8.0. Challenger hiring plans collapsed 24% in August to a three-month low. Someone obviously forgot to tell the folks at Manpower that the recession was over because its employment plan index for the U.S. just broke below the worst levels of the last three economic downturns. The JOLTS data from the Bureau of Labor Statistics also showed that job openings plunged 121,000 in July and we now officially, for the first time on record, have six unemployed people competing for every possible job opening out there. No wonder organic wages and salaries are deflating a record YoY rate of nearly 5%."

When Greenspan said the recovery from 90-91 credit crunch was one of the most sluggish on record he was referring to the job market as GDP didnt do badly. I'd argue JPM at $42 is almost certaintly not priced for a jobless recovery(to put it mildly), so havent a number of other financial assets
 
from the August letter regarding the UK:

Consider the UK interest rate market. The Bank of England seems to concur with our caution. We mentioned our trading last time. But in the swaps market we can buy more time to await our predicted outcome. We recently purchased the right, but not the obligation, to receive a rate of 2.5% on one year money starting in two years time.

Now that is a lot of time. However when you listen to the musings of the central bank and consider everything that has happened over the last year it is not outrageous to suggest that rates may actually remain on hold in the UK.

To be rewarded with ten times your money for rates on hold seems untypically generous when the alternative is to chase a stock market that has already climbed 50%. Let others fret about their investment franchise risk from not being in the market, we are going to stick to where the profit opportunities seem most attractive.


from the August letter regarding Australia:

The world of Australian interest rate expectations offers perhaps even greater upside. Australia has one of the most financially leveraged private sectors in the world with private debt 238% of GDP vs. just 65% back in 1929.

Overnight rates at 3% are high by the standards of Europe, Japan and the US. But owing to its ability to sell iron ore and other commodities to the Chinese the market believes that in two years time the authorities will have to raise rates to 6%. I say, bring it on.

If on the other hand they remain at 3% then we make 5x our money. But, in the event that the China surge fails, and it dooms its local industry to a glut of overcapacity and poorly conceived infrastructure projects, the trade becomes profoundly rewarding.

Without China's heady accumulation of commodities I am sure that the Australian economy would falter. And under such straightened circumstances I could imagine that the monetary authorities might even reduce rates to British or European levels; the pay-off would be at least 25x.
 
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