Thursday, September 15, 2011

Thoughts 9/14/11

We have to try to make the market's volatility our friend.

Today might have been significant (from a constructive basis), as we see what can happen to the U.S. stock market with the slightest bit of good news.

Hedge funds, institutional investors and retail investors -- as previously mentioned -- are all underinvested. Indeed, after the close of trading, ISI's hedge fund survey indicated that for the last week, the net exposure of hedge funds dropped further -- from 45.7% to 44.4%. That's the lowest invested position since April 2009. (Gross exposure also declined).

So we shouldn't be surprised that the slightest bit of "good news" triggers such a profound spark and positive impact on equities.

Facebook IPO delayed until 2012.

Miller Tabak's Peter Boockvar's take on the Greek news:

A Greece spokesperson is saying the following after the call with Merkel and Sarkozy, *GREEK BUDGET DECISIONS WILL SHIELD ECONOMY, STATEMENT SAYS, *GREEK BUDGET DECISIONS IN RECENT DAYS WILL HELP MEET TARGETS, *GREECE DETERMINED TO CARRY OUT ALL ACTS TO MEET BUDGET PLANS. GREECE TO MEET 2012 FISCAL TARGETS, PRIMARY SURPLUS WITH NEW MEASURES. Bottom line, Greece is likely going to get its next 8b euro tranche in 2 weeks but apparently Merkel, Sarkozy and Papandreou still don't like paying attention to the bond market where the 1 yr yield in Greece is yielding 141.8%, the 2 yr is yielding 74.5% and the 10 yr is yielding 25.7%. This says of course that the only lifeline the Greek government has is thru the generosity of its neighbors as they have almost zero chance of paying back in full all that is owed. I mentioned Merkel being in fantasyland yesterday and delusion is the word today that comes to mind after seeing these Greek headlines. One would think at this point that Greece would want a more pronounced debt restructuring in order to slash their debt instead of playing this game of pretend because they're afraid to hurt the feelings of bondholders.

Geithner expressed the view that Europe has the capital to handle the growing sovereign debt crisis. He said that "there was no chance" of a Lehman-type failure of any of the major financial institutions in Europe.

Whether Europe has the political will is another issue, as we must recognize that our Treasury Secretary doesn't hold the strings of eurozone policy.

As to U.S. policy, he underscored the need to find near-term solutions to buoy domestic growth in the face of structural and secular headwinds.


* an added buyback given strong cash flows;
* fiscal-year 2012 guidance will be at least in line with consensus, fueled by strong private loan growth (greater than 2011's $2.5 billion, with potential as high as $3 billion); and
* low valuation.

CoreLogic released second-quarter 2011 negative equity data for U.S. homes yesterday -- it makes for bad reading and suggests a lengthy period will be required before the residential real estate markets recovers.

There are currently 10.9 million homes, which represent 22.5% of all residential properties with mortgages that are in negative equity as of June 30, 2011. This is down only modestly from the 22.7% at first quarter's end.

An additional 2.4 million mortgagees are considered to be "near negative equity," with less than 5% equity.

Combined, negative and "near negative” equity accounts for 27.5% of all residential properties in the U.S.

Over 70% of all homeowners with mortgages that are in a negative equity state pay higher-than-market mortgage rates.

We have a few market-constructive data points that could keep us afloat for a while.

1. The S&P futures act like monsters during the evening and early-morning session but seem to act like dancing fairies during the trading day (when the markets are more populated).

2. The semiconductor index (often seen as a leading market indicator) has made a series of higher highs and appears close to breaking out over its 50-day moving average.

3. In the just-released Investors Intelligence survey, there are now 40.9% bears (up from 37.6% last week and 21.5% in July). This week's bear percentage is at the highest level since the generational low in March 2009 when there were 47% bears.