The housing density is too damn low

Apr 16, 2014 21:11 UTC

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Your rent really is too damn high.

Kim-Mai Cutler has a long, detailed explainer on San Francisco’s real estate crisis inTechCrunch. To begin with, she says, there’s just not enough supply: “San Francisco has a roughly 35% homeownership rate. Then 172,000 units of the city’s 376,940 housing units are under rent control”, a number equal to a remarkable 75% of the city’s rental units. That doesn’t leave much for the rental market. As a result, any rents which can rise, will rise. (Marc Andreessen notes that tech has been driving up prices in the area for at least 30 years, and population boom cycles have been part of the city’s history since the Gold Rush.)

Tech companies keep creating jobs in San Francisco and Silicon Valley without building more housing to accommodate the extra workers. As computer programmers flood in to the existing housing stock, the working class is pushed out completely. A big part of this problem, says Ryan Avent, is San Francisco’s restrictive zoning requirements. The city’s longtime residents are very good at keeping new construction out of their backyard. “However altruistic they perceive their mission to be, the result is similar to what you’d get if fat cat industrialists lobbied the government to drive their competition out of business”, he writes.

While the tech industry (and San Francisco’s zoning laws) exacerbate the situation in California, it’s really part of a greater trend in urban housing affordability. Urban populations around the country, Cutler points out, have been rising since the 80’s. A report from the real estate website Zillow found that “nationally, renters are spending more of their income on rent than they have at any point in the past 30 years”, especially in urban centers. In quite a few cities, the average person has shot past the generally accepted 30% of income on rent guideline, and is now paying nearly 40% of what they make on housing.

Sheila Dewan at the NYT thinks that, even with new construction, things are unlikely to get better for the middle class. The rental market has bifurcated into affordable and luxury markets:

As long as there are plenty of upper-income renters looking for apartments, there is little incentive to build anything other than expensive units. As a result, there are in effect two separate rental markets that are so far apart in price that they have little impact on each other.

Matt Yglesias (who wrote the book on high rents) finds this argument lacking. “When you increase the number of units — even if the new units are very expensive — you’re making some kind of progress”, he says. Instead, the simple problem is construction of new units since the mid-aughts real estate boom hasn’t kept pace with population growth.

Bill McBride has the numbers. He finds that there should be an increase in multi-family (apartment) building completions in 2014, but the number is still below the number of buildings completed every year in the decade before the crisis. – Shane Ferro 

On to today’s links:

Primary Sources
Janet Yellen’s speech: there’s more slack in the labor market than the unemployment rate suggests - the Fed
Paul Krugman’s CUNY offer letter - Gawker

Ugh
The US tax code fails the childless poor - The New Republic
A billion people could be pushed below the poverty line because of slowing global growth - FT

New Normal
Loads of student debt plus stagnant wages is a pretty good way to stall household formation - The New Republic

Housing
The remarkable productivity stagnation of the US construction sector - Cardiff Garcia

Wonks
The dark side of UK wage growth: mass employment might be here to stay - Chris Dillow

Breaking
Cutting unemployment benefits doesn’t help the people find jobs - Ben Casselman

Headline of the Day
“Goldman Sachs CEO Retains Sense of Childlike Wonder” - Jessica Pressler

Wonderful Screeds
“‘Whatever happened to good?’ asks the white man with graying hair, dad khakis and an alarmingly large face” - Matt Buchanan

Health Care
Health care providers are kind of considering a little bit of price transparency - Wonkblog

Just an FYI
Google reads all of your email - Ars Technica

Billionaire Whimsy
Mike Bloomberg: “I have earned my place in heaven. It’s not even close” - NYT

Remuneration
Coke is pushing the bad idea of stock-option pay to the extreme - Edward Hadas

Many happy returns

Ben Walsh
Apr 15, 2014 22:04 UTC

Happy tax day! Or, selfishly at least, it should be, given how little Americans pay in taxes.

Wonkblog’s Christopher Ingram looks at the rate people actually pay after credits and deductions. Even taking into account 2013’s tax hikes, effective US rates are near historical lows for pretty much everyone. The one slight exception is the top 1%. Their effective rate has returned to the mid-1990’s and early-1980’s level of about 35%, but is still below historic levels.

US taxes are also low relative to other developed countries. Matt Yglesias points out that the US has the third-lowest tax burden of OECD countries, measured by tax as a percent of GDP. Corporations, being people too, aren’t left out. In fact, they have things even better: an effective 2010 tax rate of 12.6%, Andrew Sorkin writes, thanks to myriad loopholes. Many pay no taxes at all.

Low taxes aren’t without their downsides. US taxes are, you are no doubt aware, annoyingly complicated, and they’re kept that way by the multi-million dollar lobbying efforts of a company that makes billions from your confusion. The IRS, Ezra Klein explains, already knows enough about you to do your taxes for you. But lobbying works,especially for businesses, so your taxes remain far more arduous than necessary. – Ben Walsh

On to today’s links:

Long Reads
San Francisco’s housing crisis, explained - Techcrunch

Wonks
“When I am watching a movie I often think ‘why isn’t the Coase theorem holding here?’” - Tyler Cowen
A great discussion of Capital in the 21st Century with Piketty, Bob Solow, Betsey Stevenson, and more - EPI
Martin Wolf on Piketty: He doesn’t explain why inequality matters - FT
HFT and the social value of price discovery - Joe Stiglitz

Quotable
“Flash Boys is the story of small furry creatures. Some of them are Canadian; one is vegetarian” - Moe Tkacik

EU Mess
Britain hits six straight months of disinflation - the Guardian

Deals
A tick-tock of Facebook’s acquisition of Oculus - Fortune
Google buys drone company to bring internet/surveillance to the world - Guardian

Interesting
For people spurred by emotion, demonstrating that a charity is effective leads to fewer donations - SSRN

Alpha
UK hedge fund manager pays $72,000 fine for 5-year train fare arbitrage - CNBC

Classic Bess
This Cinco de Mayo, Take A Bath With Warren Buffett - Dealbreaker

The great retirement shift

Apr 14, 2014 22:00 UTC

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Last year, Lydia DePillis gathered a group of charts from the Economic Policy Instituteon the rise of the 401(k) and the fall of the pension. In 1980, 38% of workers had pension plans. In 2008, just 20% did. Retirement saving is now predominantly individual, and reflects wider inequality trends. Since 1990, the retirement savings of the top-fifth income earners have increased more than 3.5 times, “while they’ve declined or risen only slightly for most everyone else”, DePillis wrote.

If you can’t rely on a pension, and have to take matters into your own hands, then you have to pay a lot of attention to fees. Matthew O’Brien shows how a 1.25% difference in fees between an actively managed fund and an index fund can make a six-figure difference in retirement funds.

Ron Lieber has an excellent overview of services for people who can’t necessarily afford a financial advisor. The idea is that if enough companies try to disrupt the market by setting fees below 0.5% of assets, the price for financial advice may come down across the board. Already Vanguard is disrupting itself: it’s replacing one product, with fees of 0.7%, with a replacement which charges just 0.3%.

Not everybody takes advice from the New York Times, however, and the Center for American Progress recommends that retirement plan fees should be transparent, to the point of creating a labeling system like the FDA does for food.

None of this will solve all the problems with individual retirement saving. There’s a whole host of behaviors that mean investors invariably see well below market returns. More profoundly still, as Steve Rattner says, young people, as a generation, simply aren’t saving enough on their own. The country as a whole needs to deal with the problem, he says, through “a radical restructuring of our retirement plans, including mandated savings”. He proposes something like Australia’s mandated savings program that automatically diverts 9% of workers’ pay to the country’s superannuation fund.

In a lengthy thought experiment on the pros and cons of forced savings, Megan McArdleconcludes that while there are really good arguments about forced savings on both sides, there is a larger problem: as people spend more time in school and live longer after the retirement age, it may simply not be possible to save enough during a person’s expected working years. — Shane Ferro and Ben Walsh

On to today’s links:

Charts
“High poverty rates for children in single mother families is a policy choice” - Matt Bruenig
The housing bust killed consumer spending - Atif Mian and Amir Sufi

Bubbly
“Eat when the food is passed”: why startups are taking millions they don’t need -DealBook

Small Victories
Citi earnings get better because fewer bad things happen - Reuters
Citi finds another, much smaller bit of fraud in its Mexican subsidiary - FT

Good Luck With That
Yahoo, with “zero cachet and no discernible way forward”, wants to make great TV -David Carr

Headline of the Day
Stock-Market Jitters Put Investors at Ease - Josh Brown

Oxpeckers
If politics makes us stupid, “then what’s the point of Vox?” - Will Wilkinson

Wonks
HFT: a symbol that America is investing in the wrong infrastructure - Paul Krugman

Legal Arcana
The First Amendment lets companies keep quiet about blood diamonds - Matt Levine

Explanatory journalism

Ben Walsh
Apr 11, 2014 21:45 UTC

Something troubling is happening in the stock market. Not only are markets are down – the Nasdaq and the S&P 500 are down 3.1% and 2.6%, respectively, this week – but no one has come up with a convenient, compelling (and misleading) reason why. Never mind, says Matthew Klein, that US stocks are up 30% since the start of 2013. We need to know why they are down this week, as Barry Ritholz writes, because we crave meaning in a random world.

Perhaps it’s all tech stocks’ fault. They have, FT Alphaville’s Dan McCrum drolly commented, “become a little bit more modestly priced”. The Nasdaq is down 7% in the last month. Over the past two and a half months, Twitter, Facebook, Amazon, and Netflix are down 31%, 7%, 21%, and 16%, respectively.

Maybe biotech stocks are the culprit. They are down 4.5% in the last week, and 16.8% in the last month. But even analysts, people paid to draw conclusions from just about anything, aren’t sure: “Biotech Stocks’ Rout Perplexes Analysts”, the WSJ said on Thursday. The article explains the problem: biotech specialists, who know a lot about specific companies, are bullish, while generalist investors, who think 36 times earnings is worrying, are bearish. But just a day earlier, on Wednesday, tech shares were ‘leading’ stocks higher, as “biotech stocks attracted buyers in search of bargains”.

Maybe, says the WSJ’s Paul Vigna, stocks are falling because they are becoming less correlated with one another. Maybe it’s earnings season: JP Morgan disappointed people. Or maybe there’s an “air pocket” in the market, which is technical-analyst speak for an ‘area on a chart beneath a line that goes up’.

There’s always the taper to blame. But Joe Weisenthal points out that stocks are up 3% since the Fed began its reduction in asset purchases. “This time,” Weisenthal says, “it just seems to be: stocks are falling”. Or as Eddy Elfeinbein said, “Stocks Are Down on Fears of Lower Share Prices”. – Ben Walsh

On to today’s links:

Wonks
Christina Romer: Financial crises may not necessarily lead to economic disaster - Bonnie Kavoussi

Emerging Markets
Central banker fights are the best fights - CNBC

Equals
85% of Washington nonprofits are run by men (who also get paid more than female directors) - National Journal

Long Reads
The seedy side of college sports: free TVs and $200 weekly payments - SB Nation

Beefs
Bill Gross isn’t afraid to call out Mohamed El-Erian as long as Mohamed El-Erian can’t respond - Jenn Ablan
And because no one writes headlines like Bess Levin: “Bill Gross Doesn’t Understand Why El-Erian Won’t Just Be A Man, Defend Himself, And Violate His NDA” - Dealbreaker

JP Morgan
Eventually everything – even JP Morgan’s earnings – will disappoint you - Reuters

Takedowns
Only idiots fear hyperinflation (and therefore many people do) - Martin Wolf
Tom Friedman doesn’t understand hockey, geopolitics - Deadspin

Mas Kapital
New capital requirements are “pretty good, but also disappointing given what is needed” - Mike Konczal

Niche Markets
Castrated male chickens are becoming obsolete - Modern Farmer

Politicking
OMB director Sylvia Mathews Burwell is Obama’s pick to lead Health and Human Services - WaPo

Meta
“Most stuff worth writing has been written already. Just link to it” - Chris Dillow

Fascinating
Sell the commodities business and run it too: Blythe Masters’ failed JP Morgan exit plan - Bloomberg

MORNING BID – Big Mo, Oh No

Apr 11, 2014 12:51 UTC

The question of whether the market is going into a longer, broader correction is one with a lot of wrinkles.

Whether these high-flying stocks are going to come back is the easier question to answer. Why? Because unlike stocks where most of the embedded value is in existing earnings and existing growth – things a person can cling to, like the utilities or telecom – these stocks ride based on their expected growth for years down the line.

And when the unknown is combined with optimism you get price-to-sales ratios of something like 20. So when they cheapen – that is, sell off – those price-to-sales ratios (just another way of valuing a company) they drop to 15 times sales, which when compared with the S&P 500 is still ridiculous (the whole index tends to run around the 1.7 area of late). Which tells you of course that valuation was never the name of this game to begin with.

So with the valuation not there, and investors no longer getting the gratification from seeing stocks rise as soon as they buy them, there’s a couple strikes against them. A third one is supply. Motivated sellers, knowing they bought the stock at higher prices, are therefore champing at the bit to get out of positions if the market surges to a level they’re satisfied is enough to either lock in profits (if they’ve been in a while), get out at even (if they bought recently) or get out with losses because they know they’re screwed. Because, make no mistake about it, people who bought these high-flyers this year are underwater, sometimes seriously so, and unless sentiment does a complete about-face, these “investments” suddenly don’t look like so much fun to own. Broken momentum stocks are an ugly thing – just ask those who rode shares of Crocs into oblivion.

How are we so sure of this? Using volume-weighted-average price data (and a big tip to Mike O’Rourke of JonesTrading for cluing us in on this). Using Datastream, we found that some of your momentum favorites have been on average purchased at much, much higher prices this year than they stand now.
A group of 24 big-gaining names with most of their value wrapped in future expectations, as identified by Credit Suisse, have disappointed those who jumped in this year hoping for lots of gains.

We won’t go through all 24 here, but here are five favorites, listing the VWAP, or average price investors have paid this year, along with Thursday’s closing price, and the difference between the two:

  • 3D Systems $71.90 $48.78 -32.2%
  • Twitter $56.81 $41.34 -27.2%
  • SolarCity $71.17 $55.13 -22.5%
  • Workday $94.28 $75.62 -19.7%
  • Netflix $385.91 $334.73 -13.2%

Not much to like there at all. On average, investors in Twitter in 2014 are down 27 percent from where they bought the stock, and it’s not even as if a 27 percent gain will get them to break-even - at $41.34, that stock now needs to rise by 37 percent to get back to this break-even VWAP level.
That’s a tall order, especially when sentiment is moving against the shares and hedge funds are correcting themselves from being more overweight in momentum than they were any of the other style factors that strategists measure (which include things like beta, volatility, earnings yield, dividend yield, and a few other metrics).

If there was one area that wasn’t constrained by the hedge fund managers, it was momentum – thanks to a rosy 2013 that many figured would just roll on in 2014. It’s been anything but that. Now, some strategists are warning that earnings are the next point of measurement and sure, that’s true – but that’s more for companies within a small range of where most think they’re valued. These stocks are different – the forecasts for growth over coming years vary wildly, because with names like this, things are just inexact (and even more so with biotechnology names, which are frequently all-or-nothing stocks).

Momentum works two ways – and now it’s working in the wrong direction for the bulls.

Gross behavior

Apr 10, 2014 21:21 UTC

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Sheelah Kolhatkar has a long profile of Pimco’s Bill Gross, in which Gross makes an attempt to rationalize his somewhat erratic behavior over the last few months. (The front cover of the magazine uses the headline, “Am I really such a jerk?”) Gross’s strange behavior has been chronicled since Pimco CEO and co-chief investment officer Mohamed El-Erian, the heir to Gross’s throne at the company, announced he was resigning from his post back in January.

Then, in February, a devastating article in the WSJ painted Gross as a terrifying and brutal manager who referred to himself as Secretariat. Not long after the WSJ article came out, Gross told Reuters’ Jenn Ablan, “I’m so sick of Mohamed trying to undermine me”. He also “indicated he had been monitoring El-Erian’s phone calls”. Last week, Gross devoted much of his Investment Outlook letter to remembering his dead cat, Bob.

The “Bond King” has been faltering of late. Gross’s Total Return Fund, which fell 1.9%last year – its first down year since 1999 – trailed 95% of its peers and saw $3.1 billionof outflows in March. Which makes 11 straight months of outflows. In total, investors have pulled $52.1 billion from the fund since May. In recent months, Mercer, ING, and Columbia Management have all terminated relationships with Pimco.

Behavior that is tolerated as eccentric when returns are good quickly becomes unacceptable when performance is poor. The problem, write Mark DeCambre and Matt Phillips, isn’t Gross’s behavior, but his returns: if they improve “any questions about Gross’ personality quirks will almost certainly disappear”.

Felix says that Pimco’s clients are overwhelmingly conservative fixed-income investors. While they like outperformance, “they’re not shooting for the stars, and they hate taking unnecessary risks. Like, for instance, the risk that they’ve placed their billions in the hands of a cantankerous old man who always thinks that he’s right and that everybody else is wrong”.

If assets do continue to leave Pimco, it would be great if the exodus continued on its current measured pace. In a recent speech, the Bank of England’s Andy Haldaneworried about the effect on the markets if investors all decided that they wanted to pull out their money at the same time. One problem, he said, is that investors are “becoming more fickle and run-prone”.

Shops like Pimco are what regulators like Haldane call “NBNI G-SIFIs”: non-bank, non-insurer globally systemically important financial institutions. And they’re operating, he says, in “a world of less liquid assets and runnier liabilities”. – Shane Ferro

On to today’s links:

Regulators
The SEC colluded with banks over CDO prosecutions - American Lawyer
“We can assume that the same nod-and-a-wink deal was struck with all the other one-and-only-one CDO bank prosecutions” - Felix

The Fed
The paradox of transparency in monetary policy - Piera

Charts
The history of global wealth - Vox

Yikes
“Heartbleed is as bad as it is possible for a security flaw to be” - Rusty Foster

Wonks
Thinking about Rawls in a Pickettian world - Chris Bertram
Paul Krugman’s excellent review of Picketty - New York Review of Books

Headline of the Day
“Live blog: Jeffrey Gundlach speaks about the market at yacht club” - Marketwatch

Tax Arcana
Nobody can use this tax loophole anymore. It’s too popular - WSJ

Politicking
Paul Ryan’s budgets cuts, and his problem with nominal dollars - Robert Greenstein

Your Daily Outrage
Exorbitant fees cost low-income Americans up to a quarter of their tax refunds - NYT

Profiles in Capital
New rules only succeed in shifting, not reducing, junior bankers’ hours - DealBook

MORNING BID – Dot Matrix

Apr 10, 2014 12:52 UTC

The Federal Reserve did it again, giving back to the markets at a time when it wasn’t expected, and showing once again that the early months of a new Fed chair’s tenure are fraught ones, in terms of interpreting monetary policy.

Janet Yellen probably didn’t mean to suggest rate hikes could come as soon as six months after the bond-buying program ends for good. And the release of the Fed minutes also demonstrated that the Fed – even in discussing projections – worried about how it would all look, specifically the “dot matrix” that showed several Fed members saw higher rates before long, and really, that it was all just kind of overstated. (Yellen even said this at her press conference – that the dots did not mean what you thought they meant).

Either way, that’s wreaked some havoc on expectations for policy, with the market shifting back towards thinking this is all going to come down a bit later than expected. This comes just after the most recent Reuters primary dealers’ poll that suggested major strategists were finally getting comfortable with the idea of possible rate hikes in the first half of 2015 rather than later – there were 8 who saw that happening out of 18, compared with just 4 in the previous poll. CME Fedwatch data shows now the chances of a rate increase before July at 42 percent, down from 52 percent on Tuesday.

“The latest round of minutes highlighted a Fed that in the interest of being ever-more transparent really continues to muddy the waters even more,” wrote Tom Porcelli, fixed income strategist at RBC. But honestly? Early in a Fed chair’s run, that’s just not unusual, and difficult for the market to take after spending several years getting used to someone’s tendencies.

So that happened. Really, on some level we’re still talking about developments scheduled to take place more than a year from now, and markets can only discount so much.
Either way, it helped unwind some of the selling that the market had seen in the short end of the curve, steepening the curve once again and reducing some concern about the front end and the effects of the higher short-term rates and the flattening of the yield curve. It also sparked some life in the biotech and other momentum names as well, though for how long is another question.

Markets will keep an eye on the 30-year bond sale later today, the last of three auctions in the quarterly refunding. Lately, Treasury auctions have been a complete wild card, with bidding by direct bidders – those who aren’t going through the 22 primary dealers in Treasury securities who directly deal with the Treasury and New York Federal Reserve – all over the map.
Direct bidding was high in some recent auctions, especially in the three-year auction on Tuesday, and then fell off again on Wednesday. Coupled with the recent spike in bank buys of five- and seven-year paper, there are a lot of questions around the dynamics in the Treasury market right now.

We’ll be looking at this phenomena later in the day and the market gets the third of its three auctions this week, the 30-year bond sale that shapes up to be relatively attractive given the release of Fed minutes that showed the Fed’s whole deal about being more aggressive in rate cuts? Never mind all that stuff or what not, we’re going at the same pace that we’d been going.
Concern over what was to happen with the Fed minutes (just one hour after the auction) may have kept buyers cooling their heels with the 10-year note sale on Wednesday. Still, much remains unclear about activity in the Treasury market where long-dated yields remain at relatively attractive levels and the short end saw yields drop to their lowest in weeks as prices rallied after the Fed minutes.

Capital raise

Ben Walsh
Apr 9, 2014 21:59 UTC

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US banks need $95 billion more capital by 2018. A new federal rule will raise the leverage ratio – a bank’s capital versus its total assets – to a minimum of 5%, while all FDIC-insured banks will see their ratio rise to 6%.

When the rule takes effect, the US will have a higher capital requirement than theinternational Basel III agreement’s 3%. Dealbook’s Peter Eavis says the leverage ratio is a “more straightforward tool that will be harder to evade and easier to enforce than many of the new regulations covering the sprawling, complex businesses of banking”. The FT’s Gina Chon and Tom Braithwaite point out that the rule “does not allow banks to use their own models” (cough, risk-weighted rules, cough).

Matt Levine digs into the method for calculating leverage ratio and finds it’s actually more than just capital divided by total assets. But he thinks that’s a good thing, because bankers should be continuously confronted and terrified by the inchoate, contingent businesses they are trying to manage.

Tim Pawlenty, head of bank trade group the Financial Services Roundtable, isn’t happyabout new divergence between US and international rules: “This rule puts American financial institutions at a clear disadvantage against overseas competitors”.

Jim Pethokoukis thinks banks and their lobbyists should stop complaining. The rule change, he says, isn’t that drastic – “megabanks could borrow only 95% of money they lend versus 97% under Basel” – and could lead to a virtuous cycle where better-capitalized banks are less risky, less risk leads to lower return expectations from shareholders, and lower return expectations from shareholders makes bank take fewer risks.

Finding more over the next four years probably won’t be too hard, says Matthew Klein. He points out that the banks in question had about $80 billion in profits in 2013. Retaining one out of every four dollars earned between now and 2018 would make up the capital gap without any new equity raises.

Bloomberg View’s editors – approvingly linking to Anat Admati and Martin Hellwig’s call for equity in the range of 20% to 30% of assets – think more equity is good, but even more would have been better: “Erring on the high side would be prudent. The point isn’t that banks should avoid taking risks; taking risks is their business”. When all loans are risky loans, and banks seem to have a problem knowing exactly how risky, having more capital is the most effective way to avoid a blowup. – Ben Walsh

On to today’s links:

The Fed
FOMC meeting minutes from March 18-19th - The Federal Reserve

Alpha
The MLM lobbying fight isn’t one-sided: Herbalife is millions of dollars and years ahead of Ackman - The Verge
Analyst sets new, low bar for bullish anecdotes - BI

Politicking
The political preferences of the rich are 15x more important than average people - The Monkey Cage

Niche Markets
A 50-year history of Slurpee marketing prowess - Priceonomics

Mas Kapital
“The enormous trade deficit makes the U.S. a massive net importer of capital. And the world loves this” - Frances Coppola

Surprisingly Difficult Questions
What is fair? - Josh Hendrickson

Please Update Your Records
London is “a clean, dull city populated by clean, dull rich people and clean, dull old people” - Alex Proud

Housing
“You don’t get 30% of tenants to move out without harassing them and committing some type of fraud” - Mother Jones

Tech
The Secret app as bubble-burster for Silicon Valley positivity - Kevin Roose

Leaders
“Bush painted his portraits from the top search result on Google Images” - Greg Allen

Servicey
This is what an infographic should look like - WaPo

Study Says
Telling workers how much their colleagues make increases productivity by 10% - The Atlantic

Oxpeckers
The Labor Department just got serious about unpaid (media) internships - ProPublica

MORNING BID – The same-store situation

Apr 9, 2014 13:36 UTC

Same-store sales figures may be enough to inspire some investors to resume paring portfolios of some consumer discretionary stocks that have underperformed in the last five or six weeks.

Equities rebounded on Tuesday, but the overall feeling is that the market hasn’t yet finished with the bout of selling infecting the high-volatility, high-beta names that dominate conversations.
Most consumer names aren’t in this rarefied air (they don’t trade at price-to-sales ratios of a gajillion) but they’ve still been a target for some time on bad news.

The ones to watch are the likes of Costco, expected to come in strongly, while teen apparel retailers face some pressure, even with easy comparisons to a year ago. Gap, Zumiez and Buckle all look to post worse year-over-year results for March, and Shoppertrak data has shown how mall visits have changed over time. People no longer wander the mall for hours, but find deals online, shop at a few stores, and get outta there. That’s not a weather thing, that’s a “how I run my life” thing.

This data is likely to be bad news. Excluding the drug store sector, same-store sales are expected to have grown at a 1.5 percent rate for March, down from the 2.7 percent growth rate for the ex-drug sector last year, according to the Thomson Reuters outlook.

Investors hope retailers see a pickup in the next few weeks and that the group’s earnings reports point to underlying demand that was at least seen in the car-sales figures and some signs of home-buying activity. That might revive some demand for that sector, which is down 5.4 percent since March 7.

Hedge funds seem to be still reducing positions in this area even as they don’t drop out of the market entirely; ETF flows this past week show more reduction in buying in consumer cyclical shares, according to Credit Suisse, though it hasn’t been terribly pronounced.

BUYING WHAT AND WHERE?
There’s been a bit of strange activity here and there in some of the official Fed and Treasury data.
First, a number of weeks ago, someone either sells or moves about $100 billion in holdings that had been custodied with the Federal Reserve – the biggest ever such move.

It has since been restored, and yet it remains a mystery; speculation had focused on Russia as the culprit, but no proof is there. Monday, new data showing who the buyers were of the most recent Treasury auctions (two weeks ago) showed a big buy by banks and other similar institutions of five- and seven-year notes. They accounted for about 15 percent of the auction, compared with about 0.11 percent of the February auctions of five- and seven-year paper.

Again, there’s not much in the real facts here and a lot of speculation – quarter-end positioning wouldn’t seem to make sense, as banks looking to shore up their balance sheets could just buy lots and lots of bills. Is it mortgages? Unclear.

Who’s afraid of rising prices?

Apr 8, 2014 20:56 UTC

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Minneapolis Fed chief Narayana Kocherlakota — the only FOMC member to vote against the taper last month — said in a speech in Buffalo today that inflation is likely to stay under the Fed’s 2% target for another four years. Further, he said, that fact “tells us that resources are being wasted” because “demand for goods and services is too low to fully use the available resources in society”.

Paul Krugman agrees that inflation is too low, and blames bad policy for keeping it that way. The problem, he says, is that the very wealthy, who have more assets than income, have a lot of influence over policy decisions. “Modestly higher inflation, say 4%, would be good for the vast majority of people, but it would be bad for the superelite”, he writes.

Brad DeLong disagrees with Krugman’s premise, arguing that the wealthy misunderstand how inflation in a post-2008 economy would affect them. He says that what the rich have gained from low interest rates is less than what they have lost in lower profits due to a depressed economy —even after accounting for the fact that they can get away with paying lower wages as a result.

Tyler Cowen thinks Krugman is totally off-base, and that labor is the real loser in a high inflation environment. The rich, he says, “have the greatest ability to hedge against inflation using derivatives and commodities, if they do desire”. Meanwhile, “the middle class in protected service sector jobs is more vulnerable than is usually recognized”.

Cowen links to an old Ezra Klein post explaining why Americans hate inflation so much. It’s partially because we’re bad at detecting how much inflation there really is (more about more recent research on that here). But Klein thinks it comes from America’s inflation problem in the 1970s: “people tend to remember problems they had previously”, he says.

Joe Weisenthal’s theory is similar, though more Freudian. Old men (like, say, policymakers) are worried about inflation because it takes them back to the last time it was a real problem — when they were 35 years younger. “Worrying about inflation is like buying a Lamborghini or marrying a young wife. It makes them feel good and young again”. – Shane Ferro

On to today’s links:

Legitimately Good News
Greece’s astonishing financial rebound - Hugo Dixon

Everyone Freak Out!
“Tech stocks have become a little bit more modestly priced” - Dan McCrum

Regulations
The Fed decides to give banks a few extra years to comply fully with the Volcker Rule -WSJ
SEC lawyer uses his retirement party to say what everyone suspected: the agency isn’t a tough regulator - Bloomberg

Primary Sources
“What an amazing car! How can you afford this?” The investor responds, “My Virtual Concierge” - SEC
Job openings rise in February; hires and separations are unchanged - BLS
The quits rate for accommodation and food services hits October 2008 levels - FRED

Jobs
Is the temp economy permanent? No one is quite sure - Jim Pethokoukis
1 out of 10 jobs created since 2009 have been temporary - WSJ

Wonks
The portion of income families spend on food has fallen. Why hasn’t the poverty line risen? - Cathy O’Neil
The shortish guide to Capital in the 21st Century - Matt Yglesias
“We don’t have proof that austerity works. It’s dangerous for policy-makers to pretend otherwise” - Royal Economic Society

Oxpeckers
“Isn’t the Times supposed to be the deluxe version of the Times in the first place?” -Jack Shafer

Financial Arcana
Citi was counting on a share buyback to boost return-on-tangible-equity - WSJ

Awful But Informative
Barbara Corcoran fires 25% of her sales force every year - LinkedIn

Profiles
Monograms and a $15 minimum wage: a former JP Morgan banker runs for office -Max Abelson

Data Points
The average lifespan of an S&P 500 company is just 18 years - HBR

Servicey
Twitter is pretty good at predicting initial unemployment claims - Wonkblog

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