Friday, December 05, 2008

Features of the week

Commodities, the latest jobs report, a "bubble" in US Treasuries, and more food for thought; all in our latest, "Features of the week".

1. Stocks drop after weak jobs report (NY Times).

"...stocks fell sharply on news that the American economy had shed 533,000 jobs in November, its worst monthly losses in 34 years. The unemployment rate rose to 6.7 percent from 6.5 percent, and economists said the number of Americans without work would continue to swell as the recession spreads like an oil spill."

2. iTraxx Crossover index points to high risk of corporate default.

"The Markit iTraxx Crossover index rose above 1,000 basis points for the first time since it was created in 2004, implying a record number of companies are on the verge of default because of deepening financial problems...

...The index, which measures the cost of protecting junk-grade companies against default, has risen sharply in the past month as sentiment has worsened because of gloomy numbers on the global economy and worries over whether companies will be able to refinance their debt."

3. Treasuries in bubble phase, Merrill's Rosenberg says (Bloomberg).

"Demand for Treasuries has reached the ‘bubble” phase seen among technology stocks in 2000 and real estate six years later, according to David Rosenberg, chief North American economist at Merrill Lynch & Co.

“The 10-year note yield is now firmly below the 3 percent threshold and this next leg down in yield will undoubtedly represent the classic mania-turn-to-bubble phase that quite plausibly sees an overshoot to or even through the April 1954 lows of 2.3 percent,” New York-based Rosenberg said in a research note today."

4. The CRB commodities index falls to a 6 year low, reflecting plunging oil, corn, and copper prices. Excerpt from Bloomberg:

"The CRB lost as much as 3.3 percent today to 210.78, the lowest since Aug. 9, 2002. Traders sold commodities after U.S. companies slashed payrolls last month at the fastest pace in 34 years. Crude oil fell to the lowest price in four years, copper dropped to its lowest since May 2005 and corn was the cheapest since October 2006."

5. Report: negative outlook for all shipping sectors.

"A new report by Moody’s says that the global economic downturn, tightening bank credit, increased volatility in currencies and financial markets have aggravated the already surplus shipping capacity amid a sharp drop-off in demand for shipments of containerised goods, oil, and bulk commodities."

6. In Dubai, lending drought bursts desert bubble.

"The property bubble in the desert emirate, home to the world’s tallest building, most expensive hotel suite and largest manmade islands, is bursting as scarce credit and slumping oil prices have international investors scurrying to dump assets.

That may shatter Dubai’s goal of creating a sustainable economy by building the Persian Gulf hub for finance and tourism, forcing it to depend on oil-rich neighbor Abu Dhabi for financing."

7. Quantitative easing: printing money like mad to ward off deflation.

"In economic circles, there has been a lot of buzz about Quantitative Easing of late.

Basically, the U.S. Federal Reserve has lowered interest rates to near zero percent and the fear is that these cuts will not have enough effect on the willingness to lend in order to reflate the U.S. economy. Therefore, the Fed has decided to take more draconian measures, one of which is Quantitative Easing, flooding the economy with money."

8. Howard Lindzon and Luke Johnson on why failure and bankruptcy are needed elements of a working capitalist system.

Excerpt from Luke Johnson's FT piece:

"Unfortunately, state rescue is not available for smaller companies. It seems they do not cause enough trouble when they go bankrupt. This is a shame for the owners, but exactly as it should be.

The cold heart of capitalism is the principle of the survival of the fittest: the private sector can be efficient because it eliminates those businesses that cannot cope with the rigours of the market. You need to lose money in companies that sink, as I have on too many occasions, to understand equity risk. Only by such mistakes do you get better, and do you learn."

9. Michael Lewis on "The End of Wall Street's Boom":

"When I sat down to write my account of the experience in 1989—Liar’s Poker, it was called—it was in the spirit of a young man who thought he was getting out while the getting was good. I was merely scribbling down a message on my way out and stuffing it into a bottle for those who would pass through these parts in the far distant future.

Unless some insider got all of this down on paper, I figured, no future human would believe that it happened.

I thought I was writing a period piece about the 1980s in America. Not for a moment did I suspect that the financial 1980s would last two full decades longer or that the difference in degree between Wall Street and ordinary life would swell into a difference in kind."

10. John Rubino compiles the "Best Quotes of November 2008". Economic and investing commentary from Richard Russell, Nouriel Roubini, Kevin Depew, Ron Paul, and many more.

11. Friedrich von Hayek on "Meet the Press" in 1975. A very interesting and highly relevant audio clip in which Hayek fields questions and challenges from reporters on economic policy in America and the United Kingdom.

Know of an interesting article or blog post that should be included in our Features post? Email us, or add your favorite items to the comments section.

Thanks for reading Finance Trends Matter. Enjoy your weekend.