Great Graphic: Baseball Signs

Check out this great graphic from Edward Tuft. Click here for a better version. Anyone else think the 3rd basemen needs to be kept in the loop better?

 

Basically this is the male version of this:

Short Note on ISM Manufacturing Survey

The Institute for Supply Management reports its January manufacturing survey on February 1.  The Bloomberg consensus expects a small increase to 54.5 from 53.9.  This would be the highest reading since last June.  Yes, as the economy picked up some steam after a dismal first half, the manufacturing ISM trended lower.  

Nevertheless, many cite this data as an important barometer of the economy.  The weaker than expected Chicago survey may prompt some to lower their expectations for the national report.  The Chicago purchasing manager index slipped to 60.2 from 62.2 in December and defied expectations for a small rise to 63.

European Sovereign Supply and LTRO

Currency in Crisis

This is a fairly busy week for European sovereign supply. Roughly 22 bln euros will be raised. This includes the 7.5 bln euros Italy raised yesterday by selling bonds and the 2.5 bln euros raised by Belgium in bills. Germany is seeking to raise 5 bln euros by selling 10 year bonds tomorrow and Portugal will sell bills. France and Spain plan on selling bonds on Thursday, Feb 2.

Often in the market talk, the emphasis is on supply, but investors ignore the maturing issues and coupon payments at their own peril. For example, tomorrow Italy has appears to be the largest maturity of the year. It will return about 26 bln euros to investors. In addition, coupon payments from Italy and Spain will give investors another 16 bln euros.

Summit Concludes, Euro Resilient, Greece Unresolved

Currency in Crisis

The first European Summit of the year ended with a shroud of uncertainty hanging over Greece.  Officials are sounding an optimistic note that an agreement will be struck before the end of the week, but an agreement will l simply shift the focus from the terms to the participation rate and the recognition that even a haircut of some 70% on a net present value basis is insufficient to put Greece's debt n a sustainable path. 

All EU members, save the UK and the Czech Republic agreed in principle on four key elements that form the basis of the scaffolding of what will eventually be a fiscal union.  First is a debt brake, enshrining a balanced budget (0.5% structural deficit maximum) with automatic corrective measures to kick-in on violation.  This was Germany's position.  Second, if the brake law is too soft, the European Court of Justice can impose a 0.1% of GDP fine.   This is softening of Germany's demand that a country that violates the debt agreement could be taken before the ECJ. 

Here's to You Mr. Robinson

Today would have been Jackie Robinson's 92nd Birthday. Now he may not have played for my team (despite my better judgement I am a life long Cubs fan, I wish I could say my son has learned from my mistakes but he is a Mets fan) but I think we can all agree Jackie was a pretty inspirational athlete and a major player in the civil rights movement.

Here's to you Mr. Robinson. Happy Birthday.

Canada and Australia Update

Fitch left the ratings and outlooks of Canadian banks unchanged earlier today, while placing Australia's four largest banks on negative credit watch. The main reason for warning on Australia but not Canada is that Australian banks are more reliant on foreign wholesale funding.

Canadian banks also have a lower loan/deposit ratio and a relatively higher deposits to funding than Australian banks. On the other hand, Australian banks have higher interest margin and return on assets than Canadian banks.

Great Graphic: Energy Expenditures Per Capita & California

This Great Graphic from the US Department of Energy examines 2009 Energy Expenditure per person by state. (You can check out the graphic in more detail at the Department of Energy site here).

In state by state graphics like this one I like to look at California. Not only is it the largest state, but I like to think it serves as a good sample for the rest of the country.

Dollar Comes Back Bid

Currency in Crisis

The dollar has begun the new week bid.   Short-term momentum traders were leaning the wrong way and why not, the euro gained each day last week and one global bank came out with a report over the weekend calling for additional euro gains. 

Key support for the euro is seen near $1.3070-80 and a convincing break is needed to boost confidence that a high is in place.   Sterling, which often leads the euro, is softer, but is showing some resilience.  Key support is seen near $1.56.  With short-term technical readings stretched, the risk is for a more stable tone in the foreign currencies in the North American morning. 

PSI: So What? So Yesterday

Seeking Alpha
Editor's Pick

The market has been focused on the negotiations over the private sector involvement in reducing Greece’s debt burden. The optimism that a deal would be reached shortly was one of the factors that helped the euro gain around 4 cents against the dollar in recent days. Although progress was reported over the weekend, contrary to some expectations, no agreement was reached.

Currency in Crisis



The euro zone finance ministers, recall, had rejected what the IIF said was their last best offer, a 4% coupon on the new bonds. Reports suggest it has come back and is now willing to accept a 3.75% coupon. This still is unlikely to be acceptable as the Eurogroup head Juncker had indicated a desire for a coupon below 3.5%. Moreover, the role of the dissenting private investors (hedge funds) is still unaddressed.

Commitment of Traders and Other Flows

Confounding expectations, the net speculative short euro position grew over the week to January 24, despite the single currency's three cent advance.   The net speculative short position at the IMM reached a new record of 171.3k contracts.  Thus far over the course of the month, the net short position has grown by 44k contracts, a little more than last month.  

Since January 24, the euro has rallied another three cents, arguably encouraged by the stabilization of the PMI readings (though forward looking new orders measures are still worrisome) and the Federal Reserve statement, pushing out expectations for the first tightening.

Lisbon Woes, Headed on the Road to Athens

Featured On
Business Insider

European officials have insisted that Greece is unique. Many market participants do not believe them. Portugal appears to be headed down that same road. While we have warned in the past of risks that Portugal would need a second aid package, it is only since S&P joined the other major rating agencies in rating Portuguese debt below investment grade on January 13 that more market participants have come over to this view.

Currency in Crisis

Portugal's 10-year yield poked through the 15% level for the first time ever. On January 12th, the eve of the downgrade the yield was about 12.4%. The shorter end of the curve has also been crushed and 2-10 yr is inverted. The 2-year was yielding 12.31% before the S&P downgrade. Now it is approaching 17%.

A Few Thoughts About Q4 US GDP

US Q4 GDP disappointed in the headline at 2.8% instead of 3%, but the real disappointment is in the details.  The key there is inventories, where the preliminary figures showed rose $56 bln at an annual pace, adding 1.9 percentage points to GDP.    This build up may weigh on Q1 12 GDP as inventories are unwound.   Equipment and software spending rose 5.2% vs 16.2% in Q3.  This slowdown is likely to continue as the end of the tax break is felt. 

Another disappointing detail was in inflation and that plunged.  The GDP deflator rose 0.4% after a 2.6% rise in Q3.  The core PCE deflator rose 1.1% down from 23.1% in Q3.  This is important, especially in light of the Fed's statement.  This is not deflation, of course, but if it persists, the risk of QE3 increases. 

Euro at Cross Roads?

Currency in Crisis

A well received Italian bill auction coupled with hopes of a near-term Greek deal has seen the euro recover from the slide in North America yesterday.  The euro came within about 20 points of yesterday's high after slipping to just below $1.3080 in Asia.  Short-term technical indicators warn the euro is over-extended a convincing break of that $1.3080 to boost confidence a near-term top is in place. 

In some ways this is consistent with the recent pattern for the euro to do well in the run-up to a European heads of state summit (Monday) to sell off afterward.  Note too that the balance of European bond maturities and coupon payments falls considerably behind the new anticipated issuance in February.  The return of the Chinese market from the lunar new year celebration may also be a factor, though the directional implication is not clear. 

Deja Vu All Over Again?

Featured On
Business Insider

There is an eerie sense we have been here before.  The dollar rallied following the announcement of QE2 in early November 2010.  The strength continued into early 2011.  Then Trichet began threatening rate hikes.  At first it seem ludicrous--that his tough talk was going to get the market's to do his heavy lifting, though as we know, the ECB did hike rates in April and then again in July.   

In addition, the US economy, which had seemed to be on the mend in Q4 10, noticeably began to weaken at the start of 2011.  At the start of 2011, the US 2-year yield was 20 bp below Germany.  The combination of a hawkish ECB and weak US data pushed the US discount to Germany to 132 bp by early May.  The dollar sold off hard.  The euro rallied from about $1.2850 in January to almost $1.50 in May.

Reuters TV: Fed Watchers See No New Stimulus

FOMC Statement --Pushes Out to Late 2014 First Hike

The FOMC statement (see video from the Fed to the left or here) is slightly more dovish than expected and this has seen a knee jerk drop in the dollar and US equities bounce. These are likely to prove short lived moves. The key change was in the "exceptionally low rate" guidance. It has shifted from mid-2013 to at least late 2014. Many had expected the shift to mid-2014.

Will the ECB Take a Haircut?

It appears that over the past 24 hours or so, the ECB has come under pressure to participate in Greece's PSI. Reports that the IMF were pushing for this has quickly been denied. The ECB has also formally rejected participating. Nevertheless, Dallara, representing private sector creditors, is insisting that all creditors, private and public, share in the adjustment.

We have written about the thorny issues raised by the ECB's bond purchases, leaving aside the objections that led to the resignation of both Weber and Stark. The more the ECB buys, while refusing a haircut, the greater the haircut on the private sector is required to voluntarily take to reduce Greece's overall debt burden to what the IMF says is sustainable, which appears to be 120% in 2020.

Dollar Bid

The dollar's downside momentum has faded since the start of the week and short-term momentum traders have to adjust.  There does not seem to be a precipitating factor.  The German IFO was mostly better than expected and while the UK Q4 GDP was off 0.2% rather -0.1% may could have been a factor, but sterling is holding in better.  Key support is seen for sterling near $1.5520.    Initial euro support is seen near $1.2950 now.    The Fed meeting will be of interest of course, but it is unlikely to a major factor for the dollar. 

Asia, integrated in US tech cycle, seemed to have been boosted by Apple news, but he favorable tone did not carry over into Europe.  Ironically, the tech sector is the weakest today in Europe, off more than 3% at pixel time while the overall Stoxx 600 was off about 0.8%.    Ericsson earnings were lower than expected, hitting share prices.  This also appears to have prompted a bout of profit-taking on long Swedish krona positions. 

The Federal Reserve and the New Transparency

At the conclusion of the FOMC meeting, the usual statement will be issued, but what is capturing the attention of the market is that the Fed will also publish the expected path of the Fed funds rate and the expected timing of the first hike.  

The statement itself is important.  It has become largely formulaic.  The FOMC provides an assessment of the recent economic data.  The Fed here will be somewhat more upbeat.  The recent string of data, including employment, housing and output has generally surprised on the upside.  While acknowledging this, the Fed is likely to continue to warn of downside risks.  

Euro Bounce: Now What?

Currency in Crisis

A January 9th post Timing and Magnitude of Euro Bounce warned that the euro was within about 1% of what we expected to be a near-term bottom before staging a recovery. The euro declined almost another half a cent after our note and subsequently rallied 4 cents at today's high.

We suggested that the correction could carry the euro to $1.2950-$1.3050. This has been reached this week. It is therefore worthwhile to look at our arguments and assess the state and outlook for the euro's correction. We argued that the main weights on the euro were the roll-over risk and risk of sovereign downgrades.

Not Too Late for Turn Around Tuesday

The US dollar is turning in a mixed performance today.  It is firmer against the dollar-bloc and is at the highs for the year against the yen.  It is mostly firmer against emerging market currencies, but is modestly softer against the euro and sterling.  

Many observers will  posit the euro's resilience today to the flash PMI reading for January where both the manufacturing and service sector readings were above expectations.  The flash manufacturing diffusion index stood at 48.7 vs 47.3 consensus and 46.9 in December.  The service sector index is at 50.5 vs  49.0 consensus and 48.3 in December.  

He shall from time to time.... State of the Union by Numbers

Tomorrow Obama will give the State of the Union and I (or rather my infinitely wiser webmaster) thought it would be appropriate to share some interesting figures about the annual address.

1790: When the first State of the Union was given by George Washington (shocking, I know) on January 8th.

1,089: Number of words in the shortest (word wise) State of the Union, also was the first State of the Union.

2: Number of presidents (William Henry Harrison and James Garfield) who died before giving an address.

Euro Races Higher

Currency in Crisis

The euro is racing higher after initially gapping lower in Asia on indications that the private sector involvement in Greece had hit another stumbling block ahead of today's EU finance minister summit.  It has moved above the $1.30 area in the European morning, for the first time since January 4.  There are a few consideration prompting the continuation of the short-covering advance that began last week. 

First, there are reports that Germany and France are seeking to relax bank capital rules to avoid worsening the credit crunch.  Second, the Financial Times reports that some money market funds have begun returning to European bank paper.  The report indicates that French and Spanish paper up to a month in duration is being purchased. 

Seven Observations about Commitment of Traders in FX

Featured On
Business Insider

The Commodity Futures Trading Commission requires futures traders to identify whether they have an underlying business interest (commercials) or if they don't (non-commercials). Commercial positions are thought to be banks or businesses hedging. Non-commercials accounts are understood as a proxy for speculators.

Market participants tend to focus what non-commercial account are doing. It is seen to be discretionary and the positioning containing information about expected direction. The report is generally released on Friday afternoons and it cover the period through the previous Tuesday.

Here are seven take-aways from the most recent report that covered the week through January 17th.

Great Graphic: Wind Resource Potential

Since the Solar Energy Potential Map is the most popular post on the blog, I thought we should look at another form of renewable energy: Wind.

This map from the Department of Energy (you can check it out in more detail here) depicts the predicted mean annual wind speeds at 80 meters above ground (a 24 story building). According to the website, Areas with annual average wind speeds around 6.5 m/s (14.5 miles per hour) and greater (the purple, red, and orange areas) are considered suitable for wind development.

Grokking the Canadian Dollar in Three Correlations

Featured On
Business Insider

I have written recently of the euro's correlation with the S&P 500.  I concluded that although the correlation has weakened, it remains elevated.  We vigilantly monitor that relationship because it seems that it is representative of the risk-on/risk-off rubric that still is so influential for both short-term traders and longer term investors.

In this post, I look at the Canadian dollar's correlation with the S&P 500, oil and the euro.  

Marginalization of Western Europe?

Featured On
Business Insider

Sentiment toward the euro appears as negative as it has been since the joint intervention a little more than eleven years ago, even if the exchange rate is considerably higher. The net speculative position at the IMM is record short the euro.

US money markets have dramatically cut their exposure to European bank paper. This has been widely reported and has intensified the dollar funding needs of some European, especially French and Italian banks.

Currency in Crisis



When we talk about European banks needing to secure dollar funding, where are they getting those dollars? The recent flow of funds data shows US entities have increased their euro exposure. This does not contradict the bearish stance as US banks were paid handsomely to take on euro risk.

The Importance of the Mario Brothers

Featured On
Business Insider

They are not really brothers, but Mario Draghi and Mario Monti are countrymen and are doing a great deal to respond to the European debt crisis in ways that were unimaginable until very recently.



Draghi’s accomplishments are of more recognizable. He is the unlikely head of the ECB. The job was supposed to go to a German’s Weber, who in a huff, took resigned because the ECB decided by an overwhelming majority to buy European sovereign bonds (in a limited way and sterilize the impact on money supply). At nearly the last minute, Weber’s exit left Germany with no other suitable candidate allowing Draghi to fill the vacuum.



Currency in Crisis

Draghi has achieved a great deal in a little less than 100 days in office. He has led the ECB to completely reverse the rate hikes Trichet had overseen in April and July 2011. He has creatively offered a three year financing facility, which following its introduction has seen peripheral sovereign yield curves steepen, with short-term bond yields falling. Pressure on Euribor has eased.

Great Graphic: EU Unemployment

This is a pretty cool infographic (I had to make it small on the blog, but it's big once you click) about unemployment in the EU. For clarification (via another Infographic) of which countries are in the Euro Zone vs. European Union vs. European Economic Area check out this post.

Not surprisingly, Greece and Spain have the highest unemployment levels. Except for Germany and Ireland women have higher rates of unemployment than men. I find this interesting because in the US women generally have lower rates of unemployment than men (See chart below). This is because  females dominated fields (i.e. nursing and education for example) are generally not as susceptible to layoffs in recessions when compared to male dominated fields (i.e. construction).

What is also interesting to note is that in every country the youth (18 - 24) unemployment rate is very high, while in the US our youth unemployment rate is lower than the rate for older individuals. (See second chart)

Not Groundhog Day in FX, but..

North American players sold into yesterday's Europe-led euro rally and today European operators drove the euro back above the $1.28 level and managed to take out yesterday's highs to reach almost $1.2850 near pixel time.   The ostensible driver were reports that the IMF is considering boosting its resources with $1 trillion cited as a possibility.  With Europe still struggling to boost the capacity of the EFSF/ESM and all the more pressing given the EFSF loss of its triple A rating by S&P, more resources at the IMF is one way the potential funding cap can close.  

Currency in Crisis



We correctly anticipated yesterday's euro decline, but today may prove a bit trickier.  The euro has scope now to test the $1.2875-$1.2900, before coming back off.    Note that the euro has not closed above its 20-day moving average against the dollar since Oct 31.  It comes in today near $1.2875.  The $1.29 area corresponds to a 61.8% retracement of the euro's losses since Jan 4.

The key issue is whether North American players will sell into the euro bounce as they did yesterday, frustrating the euro bottom pickers, especially on the crosses.

Great Graphic: Made in China...or Not?

Featured On
Business Insider

Came across this graph in an article published on The Big Picture on the U.S. Content of "Made in China". They say: "Although globalization is widely recognized these days, the U.S. economy actually remains relatively closed. The vast majority of goods and services sold inthe United States is produced here. In 2010, imports were about 16% of U.S. GDP. Imports from China amounted to 2.5% of GDP."

As I've always felt that trade and current account are among the two most misunderstood metrics, I found this very interesting.

Great Graphic: Government Debt in Europe

My wise beyond her years webmaster just told me about Google Public Data Explorer, which allows you to build interactive charts of public data. This is no doubt going to be my new favorite toy. Check out the below graphic which shows General Goverment Deficit/Surplus as % of GDP on the Y axis, Goverment Debt as % of GDP on the X axis, and the Goverment Debt in Euros as the size of the bubble. Pretty cool!

Euro and S&P 500 Correlations Revisited

Over the course of 2011, I had often posted on the correlation with between the euro and the S&P 500.   My last note was mid-December. While recognizing that the 60 day rolling correlation (based on percent change) was still firm near record highs (set Dec 2 near 0.85) we noted that the 30-day correlation had begun slipping. We suggested that the 30-day was providing a lead indicator of what was going to happen to the 60-day correlation.

It is a month later. As of yesterday the 60-day correlation stands near 0.78 and the 30-day correlation has fallen from 0.81 in the middle of last month to 0.65. This gives additional evidence of some fracturing of the risk-on/risk-off rubric that has been such an important characteristic of the investment climate.

Correction Tuesday?

China's slew of economic data came in better than expected this coupled with successful bill auctions by Spain, Greece and Belgium and a very strong German ZEW (-21 v -53.8) is rekindling the appetite for risk today.  The euro is up over a cent and is running into resistance near $1.28.  More generally, major and emerging market currencies are trading broadly higher against the greenback.  Equities and commodities are higher. 

The euro is over-extended on short-term momentum indicators.  The euro has been stopped at $1.28 in the European morning.  Initial support now is seen near $1.2740 and a break of there would likely be seen as yet another failure to rally, with record net short IMM positions.  On the upside, a move above $1.28 would bring the next retracement target into view in the $1.2880-$1.2900 area. 

I Have A Dream Speech

This is all over the news today and for good reason. Happy MLK day everyone.

More Thoughts on the Greece's PSI

Most accounts suggest that the talks over the private sector involvement in Greece's second aid package broke down, but rarely has a break down been coupled with immediate plans to resume negotiations.  What is really better characterized as a pause will last two business days and negotiations are expected to resume Wednesday, January 18.  

Currency in Crisis

As we have pointed out, Greece needs a resolution of the PSI to allow the second aid package to be finalized.  It is important to finalize the second aid package to allow the continued pay out of the first aid package.  This is needed by March 20, when Greece has a 14.5 bln euro bond maturing.  The point in reiterating this chain of events is to illustrate the brinkmanship "game" has more room to run. 

Nervous Consolildation, Waiting for Other Shoe to Drop

The US dollar is trading within the ranges that were seen prior to the weekend as the market awaits fresh developments. The market remains apprehensive as additional rating fallout is expected, ahead of a resumption of Greek PSI talks and this week's European sovereign supply (estimated 17 bln euros of bonds).

Global equities are mostly lower. MSCI Asia-Pacific Index fell 1.2%, the largest in a month, led by financials. The re-election of Ma Ying-jeous in Taiwan was widely anticipated, but failed to bring relief to local shares which fell 1.1%. The Shanghai Composite fell 1.7%, the most in the region and now has given back almost 61.8% of the rally from Jan 6. China reports retail sales, investment and industrial production figures tomorrow.

Need some entertainment when the markets are closed?

May I suggest the "Stuff You Missed in History Class" podcast? I found the episode on D.B. Cooper particularly interesting.

CNBC: France Downgrades More to Come

Great Graphic: Big Mac Index

The Economist has come out with an updated version of the popular Big Mac Index, which is based on the theory of Purchasing Power Parity.

This theory states that in the long run, exchange rates will adjust so that a basket of goods costs the same in each country. The "real exchange rate" is then equivalent to the nominal exchange rate adjusted for differences in price levels.

You can check it out here.

PSI, Weekend Meetings in Athens, New Savings Potential?

The negotiations over the private sector involvement (PSI) in Greece are reportedly making progress. The resolution of this issue is essential for the second Greek aid package and that in turn is important to secure the next aid tranche from the first package. The tranche is needed before late March when Greece has a large (14.5 bln euro bond maturity).

The broad outlines of the agreement do not appear to have changed substantially. Private sector holders of Greek bonds will voluntarily accept a 50% haircut on notional value and including the lower coupon are looking at something on the magnitude of 60-65% on NPV terms.

Rumor Bought, Fact Sold, and Other FX Developments

The euro extended its recovery in early Europe but reversed course after the lukewarm Italian bond auction.  Italy raised the funds it sought and yields did fall at the shorter term auction, but increase at the longer term and the bid-covers were on the low side.   

In some ways, this is the best Italy might be able to hope for given that the market has been warned by Fitch to expect a multiple step downgrade before the end of the month.  Given the drop in yields yesterday. Italy's Treasury cannot be disappointed either. 

Great Graphic: Solar Beats the Bank

Here is another great graphic. It shows the payoff of putting $20,000 in a savings account with 4% interest or investing in solar panels for ones home over 18 years (aka the amount of time it takes to raise a child to college aged) in various states (with different amounts of sun and state incentives). You can check it out here.

Brief Thoughts about Friday's US Trade Report

The US reports November trade figures on Friday. The consensus expects a modest widening of the deficit to $45 bln from $43.5 bln in Oct. The risk is that there is greater deterioration than the market anticipates.

On the broadest level, growth differentials warn of deterioration. The US economy appears to have grown at its fastest clip of the 2011 in the final quarter, while the euro zone may have contracted, following this week's preliminary indication from the German stats office that the euro zone's largest economy may have contracted by 0.25% in the quarter. Other major US trading partners, including Canada, Japan and China also appear to have slowed in Q4.

Draghi Fans Euro Short Covering

Encouraged by the better than expected sovereign auctions today (Spain and Italy), softer than expected US data (weekly jobless claims and retail sales) and a comments from ECB's Draghi, the euro has recovered yesterday's losses and is testing resistance in near $1.2820 (that extends toward $1.2850). A failure to convincingly break this area while reinforce the consolidative nature of the price action rather than an upside correction that we expect.

There were some economists who had expected an ECB rate cut today, but on balance most, like ourselves did not. We argued that the cuts in the past two months were simply reversing the April and July rate hikes, but that with the deposit rate already at 25 bp, the next cut has greater implications. We also noted that the full extent of the ECB's past measures, like collateral liberalization, have not been fully implemented.

RT Capital Account: Outlook for the Dollar, Euro, and Yen in 2012

Successful Auctions Lift Tone, but...

Better than expected reception to Spain's bond auction and Italy's bill sale have spurred "risk-on" with the euro moving into the range that appeared to have been broken yesterday and equity and emerging markets trading higher, though as discussed below, the gains may not be sustained through North America today.   It is too early to expect more action from the BOE or ECB.  

Spain in fact too advantage of unexpectedly strong demand to raise twice the upper end of its intended 4-5 bln euros and in doing so has completed a bit more than 10% of this year's projected funding needs.  Demand for Italy's bills were never really in doubt as retail may see them as an alternative to bank deposits.  The yield on the one-year bill sales fell to 2.73% from 5.95% last month.  Risk lies with the bond sale tomorrow, especially with the large increase in Italian bond prices today as the 5-year yield is off 60 bp and the 10-year yield has dropped about 40 bp.  

In Defense of Renewable Energy

Featured On
Business Insider

Last week I did a Great Graphic post on the Potential of Solar Energy in the United States. As with all my posts it got picked up over at Business Insider and ignited quite a slew of comments. (You can check out the graphic at the Department of Energy's website.)

While most of the comments were in favor of solar, some were not. In response to them I quote the always brilliant Jed Bartlett, "If we wait until the alternatives are perfect, it's all going to be too late."

Of course solar and other sources of renewable energy aren't ideal. Nothing is at first. But we have to be open to the possibility.

Thoughts Ahead of Spanish and Italian Bond Auctions

Featured On
Business Insider

Spain and Italy begin this year's funding operations with bond auctions tomorrow and Friday. Although the euro is bouncing along its recent trough against not only the dollar, but against many of the other major currencies as well, there has been a modest improvement in some of the measures the market has focused on as metric of stress.

The 3-month cross currency basis swap, which is what banks pay to swap euros into dollars is at it lowest level in three months and the Euribor-ois swap is the lowest in almost two months. Three-month LIBOR itself has not risen since Jan 3. Although the decline has been very small, it has been rising nearly non-stop since the end of last July.

Of course there are other signs that still show a high level of paralysis, including the fact that overnight deposits at the ECB continue to set record levels and are approaching 500 bln euros.

Euro Slides Ahead of BOE and ECB Meetings

The euro was recovering in early Europe, moving back toward the upper end of its recent narrow range and it reversed course sharply, triggering stops along the way as it dropped nearly a cent to $1.2695.  The technical failure yesterday at $1.2820 may also have been more telling.  Despite the extend positioning and sentiment, what could have turned into a upside correction in the euro has not really gone beyond the consolidation (in the trough). 

Previously support in the $1.2720-40 area should now act as resistance.  The euro needs to move above there to stabilize the tone.  Barring that the multi-month low set on Monday near $1.2666 look vulnerable. 

Surprising International Comparison of Average Hours Worked

Featured on
WSJ

The conventional narrative about the European debt crisis largely accepts the contention that the periphery of Europe have different work habits and these account to a large extent the economic and financial problems. Yet often time the discussion takes on such ethnocentric dimensions that sometimes it is difficult to see what is real.

This chart: to the right illustrates what many will find to be counter-intuitive. The most recent data from the OECD covers 2008 and shows that in that year, Greek workers on average worked 48% more than their industrious German neighbors. The OECD data shows the average Greek worker spent 2120 hours at work compared with 1429 hours in Germany. Moreover, Greece is one of the only OECD countries in which workers were working longer in 2008 than in 1998. With 1802 hours at work, the average Italian employee spent more than 25% more time at work than the average German worker.

Brief Note on Big Surge in US Consumer Credit

Late yesterday the US reported the biggest jump in consumer credit a decade. It reinforces the signal of the gradual healing of the labor market and the resilience of the US consumer. The report increases the risk that the November personal consumption expenditures are revised higher from the initial 0.1% estimate.

Consumer credit jumped $20.4 bln in November, nearly three times larger than the consensus expected. The recent string of US economic data has surprised the market to the upside by such a magnitude and for a sufficient duration that economists will likely make an adjustment in their forecasts, possibly just in time for the January data to show some moderation after what appears to be the strongest quarterly growth in over a year.

Mild Corrective Forces Unfold

The light news stream, adequate bill auction receptions and comments from Fitch suggesting France's AAA rating is secure this year encouraged short-term players to take profits.  However, sentiment is still wholly euro negative and a large investment bank was out today with new calls to sell the euro. Resolution of credit watch decisions are still awaited from Moody's and S&P. 

Separately France defied expectations and contradicted poor PMI readings by posting a 1.1% jump in November industrial output.  The consensus was for a 0.1-0.2% gain.  The October series was revised higher to 0.1% form flat.  The gians were broad based and give up that the economic slowdown is brief and shallow.  Last month, the French stats office warned that the country's GDP was likely to contract in Q4 11 and Q1 2012.  The risk is that the increased output will find its way into inventories, changing the shape of the economic downturn.

Yahoo Finance: 2012 Year of the Dollar

Better late than never, here is an interview I did late last year on the Dollar in 2012.

Timing and Magnitude of Euro Bounce

Sentiment is as extreme as imaginable toward the euro, where many still expect it not to survive in its current configuration. The net speculative position at the IMM is record short euros. The single currency's five week losing streak against the dollar is the longest in a year and a half and pushed the euro to sixteen month lows earlier today. The euro fell to record lows against the Australian dollar, eleven year lows against the yen and 15 month lows against sterling.

Talk in the market and the IMM data suggests that even as the market extended its short euro positions in recent weeks, it has reduced short sterling positions and extended long Australian dollar and yen positions.

The extreme one sided and one direction of the market is reaching a point that medium term investors may consider resisting the temptation to chase the market and instead look for a upside correction that will provide a better selling opportunity in anticipation of our mid-year euro forecast of $1.20.

Euro Pops to Start Week

In a Tokyo-less Asian session, the dollar had begun the week bid, but quickly reversed in early Europe, which saw the euro rise more than a cent off the $1.2666 low.  It was largely a short-covering bounce, but as North American players take their posts, it is running out of steam, unable to take out the $1.28 level , which would and trigger another round of short covering.  Sentiment toward the single currency is still overwhelmingly bearish, but there seems to be a growing sense that it may have come too far too fast. 

Given the extended positioning and sentiment, the market is vulnerable to a larger correction.  Support for the euro is seen in the $1.2720-40, provided this area holds, short-term momentum traders may begin trimming positions.   The euro has not taken out the previous day's high since Jan 3 (and that might say more about the fact that markets were largely closed on Jan 2).  Friday's high was near $1.2813. 

Korea

Last month marked the 20th anniversary of the collapse of the Soviet Union. It also marked Russia’s ascension to the World Trade Organization. Its recent aspirations had been frustrated largely by a single country in recent years—Georgia. There is a sense that a new era is at hand.

The end of the Cold War, the rise of China, and the collapse of the House of Finance and the deregulation and financial liberalization associated with the political success of both Thatcher and Reagan, have contributed to a sense of this new era. This is true even if the dimensions and contours of this new period have not yet ossified, making them unclear and still malleable.

European Bond Supply and Greece's Trojan Horse

Currency in Crisis

European sovereigns return to the capital markets more substantially next week as 2012 issuance gets under way. Between bills and bonds, around 35-40 bln euros will be sold. Maturing issues and coupon payments will cover about three-quarters of the bond issuance.

The market's focus is on the Spanish and Italian bond offerings in the second half of the week. Not to be overlooked though is the Austrian bond sales on Tuesday. Austria has come under pressure in recent days in good part due to its linkages with Hungary. After Greece and Spain, Austrian 10-year yields have risen the most this week, rising 55 bp. And even today, with some relief in Hungary, given the change in tone and tactics of the Orban government, the Austrian 10-year yield is up 9 bp at pixel time, the most in Europe today. Its saving grace next week may be that it may seek to raise only around a modest 1.3 bln euros.

Beyond Jobs

The US jobs report is the main economic release today.  In recent months, better than expected employment reports have spurred risk on trading and this has been dollar negative.  Given the ADP report, despite the December skew in that time series, market expectations appear to have crept higher and it will take a stronger than expected number of give the dollar much of a lift.  However, with Spanish and Italian bond auctions next week, the extent of a relief rally in the euro may be constrained. 

The employment report will prompt economists to harden their Q4 GDP forecasts and the risk is on the upside of the consensus of around 2.5% especially in light of yesterday's data from Boeing.  In New Zealand, the milk consortium accounts for about 14% of GDP (and milk prices have incidentally been falling sharply for the past two months).  The US is a larger and more diversified economy, yet Boeing, with its big ticket items can single handily impact various time series for the world's largest economy. 

Why Spain may be More Worrisome than Italy

Featured On
Business Insider

Most market participants are more concerned about Italy's debt burden than Spain's. Since July '11, Italy's benchmark 10-year yield has risen through Spain's. In August '11 the price of Italy's 5-year CDS surpassed Spain's. The rating agencies agree and all three of the main agencies give Spain a higher credit rating than Italy.

There are several reasons why Spain may ultimately be more worrisome than Italy. Spain, unlike Italy, has a housing and real estate bubble. The full magnitude of the cost of this is still unclear. Investors and policy makers have a greater sense of Italy's financial burdens than Spain's.

Bloomberg Surveillance Radio: Indian Rupee

Better late than never, figured out (or rather my wonderful webmaster figured out) how to get mp3 files on the site. Here is an interview I did late last year on the Indian rupee, it connects well with this piece.

Refunding Fears Take Toll on Europe

One of the key factors behind the poor sentiment toward the euro, which was pressed to new 13 month lows in Europe today, is the challenge posed by the sovereign and bank refunding needed this year, while rating downgrades loom around the corner.  Euro zone sovereigns have an estimated 800 bln euros of debt servicing and spending to fund this year, while the banks have a little bit more. 

On the sovereign side, the French bond auction today seemed to adequate; the funds raised were in the upper end of the 7-8 bln euro sought and yields were mostly lower.  Bid-covers were not quite as good as recent auctions, but none were uncovered.  Italy's bond sales next week may be a more significant challenge. Spain also will sell bonds next week.   

Great Graphic: Visual Guide to Spending of US Tax Revenue

Click Here for Larger Version

I'm not sure if I agree with the politcal sentiment, but this is a great info graphic detailing the spending of US Tax Revenue.

Dollar Comes Back Bid

The US dollar has come back bid today after yesterday's rather shallow correction.  Euro sellers re-emerged as the single currency approached its 20-day moving average for the first time in a couple of weeks.  Although the PMIs are a bit better, it does not change the underlying economic picture.  Nor does it impact the real concern about the sovereign and bank debt roll-over. 

In fact, a report citing unnamed people claims that Spain is considering applying of EU and IMF funds to finance the restructuring its banking sector.  The report has yet to be confirmed, but after the late last year admission that the 2011 deficit will be 8% if not above, compared to 6% target has already weighed on sentiment.  Spanish bonds and credit default swaps are the worst performing in Europe today. 

Is the Fed Going to Ease Policy Later in January?

Featured On
Business Insider

The minutes from the December FOMC meeting reveal how the Federal Reserve is going to change the content of its communication to give greater guidance to the market.  As Marshal McLuhan recognized, the medium is the message and in the current context, the change in the FOMC's communication may be tantamount to an easing of the policy stance.  

In terms of the process, the minutes indicate that going the committee members will provide view of the appropriate level for the Fed funds target for the Q4 of this year and the news few years.   They will also provide a longer-term or neutral Fed funds target.  As in the other economic forecasts, the Fed is likely to provide a range, central tendency and distribution of the FOMC members' forecasts.  

2011 Superlatives

Now that we are a few days into the New Year and everyone has presumably sobered up I thought it would be a good time to reflect on 2011 for Marc to Market.

Most Dead Wrong: Be Prepared to Buy into Potential Dollar Decline

Best Timing: Look to Fade Relief Rally

Most Popular: Japan and China, Small Beer

Great Graphic: Potential of Solar Energy in the United States

Featured On
Business Insider

This interactive graphic from the US Department of Energy shows the Solar energy potential in different areas of the country. Even in the most overcast regions of the country (aka Twilight territory) 100,000 square feet of solar panels (that's about one baseball field) can power over 850 homes. In most areas of the country it's well over 1,000. Now some people may say solar panels are ugly, but I'd take them over polution any day of the week.

Ten Observations About Q3 COFER Data: Updated and Corrected

Featured On
Business Insider

At the end of the quarter, the IMF reports the currency composition of official foreign exchange reserves (COFER) data for the proceeding quarter.  On December 30th, the IMF reported Q3 figures.   Here are the ten take-aways.

1.  The pace of reserve accumulation slowed in Q3, rising 0.9% or $95 bln from Q2, when officials reserves rose 3.9% or $380 bln.  In Q1 the value of reserves rose 4.8% or $442 bln.  From the end of Q3 2010, reserves rose $1.185 trillion and as of the end of Q3 11 stood at $10.176 trillion.

A Quiet Putsch in Hungary?

Featured On
Business Insider

A putsch, as any dictionary will tell you, refers to the violent overthrow of a government.  Hungary has not been subject to that kind of action per se, but rather a more insidious grab for power.  Its new constitution goes into effect today, and while perfectly legal, marks the end of Hungary's flirtation with liberalism (meant in the classical sense of "liberty" and not the modern partisan sense).  

On December 30, the Hungarian parliament approved the latest measures ("base laws") to support the constitution and the centralization and consolidation of power that it entails.  This latest measure is what has particularly annoyed the EU and the IMF.