Thoughts

So Long, Raj


Let his downfall be a lesson to others.

Frankly, I say good riddance, and I am of the strong belief that the authorities should throw the keys away, in order to set an example to others.

Unfortunately the temptation to cheat in the investment business -- and the rewards it generates -- make the Raj case all too common.


Good Results in Treasury Auction


Yield on the 10-year falls to 3.21%.

The results of the 10-year U.S. note auction were good, with a bid-to-cover ratio of 3.00, indirects taking down 47.2% and directs taking down 8.4%.

The yield, at 3.21%, was 2 basis points below the when-issued and the lowest yield in six or seven months.

Commodities are getting crushed.


With homeowners drowning in negative equity, the outlook is grim for the next few years, as a high level of foreclosures will expand the shadow inventory of unsold homes that will continue to haunt the industry.

"Well, I hope it's a long ceremony, 'cause it's gonna be a short honeymoon."

-- Dark Helmet, Spaceballs

Housing is an important driver to economic growth -- in the last cycle, it was the most important driver (as the real estate market contributed to over 40% of the growth in jobs in the early 2000s). After the fall, the diminished ranks of realtors, mortgage bankers, title insurance agents and the like became part of our country's structural unemployment problem.

Importantly, housing has a broad multiplier effect on the domestic economy. Think appliances, floor covering, paint and so on. And the memory of a 30%-plus drop in home prices -- housing is the consumer's most important financial asset -- impacts overall consumer confidence and spending plans.

The continued weakness in residential real estate helps to explain the underperformance of many regional and money center banks (and their inability to generate incremental top-line and bottom-line growth), a continuing reminder of the excesses of the last lending cycle of the early 2000s.

A rising stock market and improving sector performance in retail does not necessarily equate to an improving economy.

It remains my view that economic indicators are, at best, offering a mixed view and, at worse, are flashing caution. The latter view is best expressed in a deteriorating housing market, a multiyear low in the Baltic Dry Index, a weak household jobs survey, the ISM nonmanufacturing index falling to the lowest level in nine months, an eight-month low in small business confidence and, for the fourth straight week, we an initial jobless claim print above 400,000.