The Debts of the Spenders: FDIC Considers Granting AAA Status to Mortgage Bonds

*Credit Gato.chan

Take special note of the last line in this article. Is this going to shape up as yet another "extend and pretend" solution to the credit crisis?

Or will this be a juicy opportunity for arbitrage traders to take advantage of the yield between low interest treasuries and higher yielding assets.

Do I hear another Bill Gross play on MBS?

“The FDIC is going to be a big issuer in the securitisation markets this year,” said Christopher Whalen, managing director of Institutional Risk Analytics. “This could lead the way in terms of recreating the securitisation market, as the FDIC deals could end up being the new template.”

http://www.ft.com/cms/s/0/e139b872-0939-11df-ba88-00144feabdc0.html?nclick_check=1

The Debts of the Lenders: Why China Cut Bank Lending

Very informative. Please watch the whole video. A city built for 1 million people. And virtually unoccupied.

This is the most (in)famous project. But multiply similar projects like these all throughout the country and you will begin to get an understanding of the scale of the problem. Macro-economic slack has resulted in the government force-feeding the low wage light manufacturing and infrastructure sectors.

This is great news for exporters but poor news for consumers - few of which can afford the shiny new things in their midst. Until China focuses on building its consumer class and relying on low wage serf labor, there is no way that the country can pick up the global slack from the West.

http://www.youtube.com/watch?v=0h7V3Twb-Qk

The Debts of the Lenders: China Allows Short Selling

Although it is only a trial run, the Chinese authorities have taken a much needed step in the right direction by allowing freedom of capital to migrate in both directions instead of only up. The move is aimed at increasing arbitrage opportunities between the mainland A shares market vs the H shares in Hong Kong.

Short sellers add much needed breadth and scrutiny to a market by increasing liquidity. Lower brokerage fees and commissions are just one byproduct. Most importantly, short sellers act as an external check on corporate malfeasance and weakness by exposing dark deeds to sunlight.

http://www.ft.com/cms/s/0/5690a3a8-ff1a-11de-a677-00144feab49a.html

The Debts of the Spenders: Bernanke vs the Taylor Rule

Was the Fed too accomodative? Not enough? Have no idea what I'm talking about?

Read here:

A bit wonkish but a good read nonetheless.

http://www.econbrowser.com/archives/2010/01/guest_contribut_6.html

The Debts of the Spenders: How the USA is Becoming More Like the Eurozone

The number of US government employees has grown steadily over the past 70 years since the end of the Great Depression. The same cannot be said of the private sector. Another way to examine the situation is to realize that as private productivity increases, the workers in those respective industries inevitably pave the way forward for their own eventual layoffs.


http://www.businessinsider.com/chart-of-the-day-goods-producing-wrokers-vs-government-payroll-2010-1

http://themessthatgreenspanmade.blogspot.com/2010/01/goods-producing-vs-government-jobs.html

The Debts of the Spenders: 50 States of Disunion?

*With credit to Jeff Bernstein of Urban Digs.

I have added a few of my own comments below in the last section.

So, just how bad are individual state finances in the USA? See for yourself here and here.

According to the National Conference of State Legislatures "Ironically, a contributing factor to future state budget gaps is the end of federal stimulus funds provided by the American Recovery and Reinvestment Act (ARRA). Those additional funds supported state budgets in FY 2009 and, to an even greater extent, in FY 2010. That money recedes in FY 2011 and, when it is gone, will leave big holes in state budgets—what many state officials are calling the “cliff effect.”"

Despite this bearish data ISM data is improving. And the numbers have been growing steadily for the past few months of 2009. In fact, we are already back to 2006 levels!

I am going to say a few heretical things here. Long time readers will note a departure from the traditional bearish tone on unemployment and personal consumption which are lagging indicators. But we've got bullish data coming in from inventory re-stocking. Of course a lot of this is federal money but it looks like Keynesian spending may work - short term at least. Let us also not forget the Census 2010 hiring spree ongoing. It's going to give a big bump to NFP in Q2.

The Debts of the Lenders: 2 Year Note Recovers in Mid-Week

I went in too early and got hit - still underwater - but this was a nice rally in bonds (yield is inverse to price).

Bloomberg covers the story here. The short trade got too crowded.

http://www.bloomberg.com/apps/news?pid=20601009&sid=aR.TaoURgHpI

A JPMorganChase & Co. survey showed that investors who are short the Treasury market was at its highest level since March 2007. The pending home sales data show housing may be at risk of weakening when homebuyer incentives, which were extended in November, expire later this year. Unemployment close to a 26-year high and weaker consumer finances remain hurdles to a sustained acceleration in home sales that would help fuel the economy.