Tower Private Advisors
- BP et al
- Slow week in economics, but positive stuff, largely
- Next week is chock full
Capital Markets Recap
[Insert clever prose before market recap here]
Top Stories (all but the first one from Bloomberg)
- We think we’re the only investment shop in town where a Bloomberg terminal sits on each investment guy’s desk. That happened this week, and we’re convinced it’s going to result in more productivity, more requests for additional flat panels, and more time wasted watching Bloomberg TV.
BP et al news
We continue to think the selling has been overdone–in both the stock and the bonds. There is increasing talk over the dividend being cut, and Madame Speaker Pelosi is attempting to dictate to a foreign company that it pay damages–which are likely to be determined over years, not months–before it pays the dividend. We’ve bought some of the short-term bonds of the company, as well as those of Anadarko Petroleum and Transocean. Mind you, these are short-term bonds–as short as eight months–but with monster yields between 6 – 9%, and the first bullet point below speaks to the financial condition of BP.
- BP has “Unlimited Flexibility” to Incur Debt, Credit Firm Says – the story says that BP’s existing debt obligations don’t have covenants that would restrict its ability to issue more bonds. It goes on to say that any of the company’s $240 billion of assets could be pledged as security for new bonds. Market participants couldn’t care less based on Credit Default Swap pricing, which is shown at right. Our top-notch Gimme Credit bond service agrees (“We nearly drove off the road this morning when CBS cited a NY Times article saying that bankers and lawyers are “sizing up potential deals” to sell off BP in conjunction with a prepackaged bankruptcy.”)
- Shale Gas Well Blowout Raises Specter of New BP – one way or another, we’re looking at higher energy prices. The leakage in the Gulf is a drop in the bucket of daily global demand (~80 million barrels), but its effects (i.e. regulation) is going to dwarf the impact of the spill.
- Hercules, Shallow-water Drillers Lobby to Ward Off U.S. Curbs
- BP Default Risk Rises Amid Increased Estimate for Size of Leak
- BP Chairman Svenberg to Meet With Obama on Oil Spill
- Senate’s Graham Says Spill Not Obama’s Fault - uh, duh?
- Spill May Cost Homeowners $4.3 Billion in Property Values Along Gulf Coast – uh, isn’t this sort of like building along a golf course? Lemme guess, they’ll want paid.
- Texas Instruments Increases Second-Quarter Forecast
- National Semiconductor Shares up After 4Q Profit
- Honda Extends China Factory Shutdowns as Worker Unrest Widens – this one bears watching. Companies in China are throwing around raises you and I can only dream of. A Taiwanese supplier of Apple components, Foxconn, which has factories in China, are offering raises of 70% and more, in an effort to head off worker unrest. Eleven Foxconn workers have committed suicide, by pitching themselves off buildings, allegedly over working conditions. I am not making this up: the company responded by–in addition to the raises–installing safety nets in buildings. If only at the margin, moves like this decrease the competitiveness of Chinese-made products. The flipside of that is that higher wages for Chinese workers should induce them to become bigger spenders. Our Williams Inference Center (update coming soon) sees this as one part of a global normalizing of wages. Guess who they see coming down. The U.S.
- SEC Approves Halts for S & P 500 Stocks That Move 10% – In an effort to head off days like the flash-crash Thursday of a few weeks ago, the circuit breaker will pause trading for five minutes when an S & P 500 stock rises or falls by more than 10% in five minutes or less. The test will last through December 10. Why just a test? Why just December 10? Why just S & P 500 stocks?
- Cemetery Luring Brides Lets Indonesians Land Helicopter at Plot
- Why Beer Can Shortage Means Brazil Will Boost Rate
There wasn’t much going on this week in the land of economics. Of three releases that I highlight here two were positive, one negative. The downer was Initial Jobless Claims, which rose by 3,000 instead of falling by 3,000, which the dismal scientists expected. To be fair, 3,000 jobs in a multi-million count workforce is a drop in the labor pool. Still, the figure got us a week closer to resolving the trend ambiguity, as manifested in the chart at right. We’ll watch for a break through one of the trend lines to determine its direction, but the 4-week moving average (inset) is moving up. Simple stuff, but this is Fort Wayne.
On the postive side were the NFIB‘s survey of Small Business Optimism and University of Michigan Consumer Confidence. The former has almost recouped all of the deterioration that ensued following Lehman Brothers’ shuttering. What’s more, the 3- and 12-month moving averages are heading up, and the decline in the 5-year moving average is flattening out. The University of Michigan survey has reached a new, post-2007 high. With stocks rallying hard last year, it eclipsed the Lehman Brothers’ high in June 2009. We’re hearing increasing chatter about fears of the dreaded double-dip recession, but from a look at these series, there doesn’t seem to be much overt fear of it.
In contrast to this week, next week is chock full of economics fun.
Key indicators to watch
- Initial Jobless Claims – Thursday – it’ll be in this section for a long, long time, and it’s especially important for the near term given the trend issue mentioned above.
One our services has suggested that, with the first-time homebuyer credit, a lot of 2011 sales were pulled into 2010, and that is likely to lead to a double-dip in housing prices, so we’re not out of the subdivision yet. Like jobs, housing indicators will be key for several more years.
- NAHB Housing Market Index
- Mortgage Applications
- Housing Starts
- Building Permits
- Empire State Manufacturing
- Philly Fed
- Producer Price Index
- Consumer Price Index
- Industrial Production
- Capacity Utilization
Graig Stettner, CFA, CMT
Vice President & Portfolio Manager
Tower Private Advisors
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