Right, briefly, a quick acknowledgement of Ireland's "Bad Bank" solution: as about everybody knows by now, the primary question regarding the debts being bought (by the taxpayer) is, as with most things: Whatcha payin? Estimates vary on this front, from 30c on the Euro to a whoppingly insane optimistic 85c on the Euro. We'll wait to see the final figures before casting our ultimate judgement but Irish taxpayers (and their children and grandchildren) take note: The money paid to the banks is ultimately your debt and, taking €50 billion as a nice example: if you spent €70,000 every single day since Jesus Christ was crucified you'd only be reaching $50 billion about now... Mull that one over while remembering that the boards of both Bank Of Ireland and A.I.B. survive practically untouched, unmoved, unrepentant.
Markets; we're feeling a bit of pain. As our last post mentioned, we are short IYR as a good proxy for Commercial Real Estate. The position was initially reasonably profitable but has turned negative in the last week. The Real Estate Trusts have been gamed higher despite worsening news but we're in it for the long haul.... well we are now anyway! We're busy financing our position selling derivatives against it but, to steel our resolve, we like to reference charts such as this: Average retail square-footage per person... we realise the average American shopper is more "spacious" than the average Italian but hardly this much:
Nevertheless the sector got a further giddy-up yesterday by virtue of Goldman Sachs upgrading plenty of the stocks to "Buys"... The cynic might thus suspect that Goldman are long the sector and looking to dump their holdings at a loftier price, and when it comes to Goldman, we are fully paid-up cynics... Leading us nicely to the following little chart which has received some internet exposure in the last few days:
This shows the most active "program-trading" firms and how that trading is distributed. Have a particular look at Goldman's ratio of Principal program trading (that's trading for their own benefit) versus their Customer and Agency action; it's over four-times, which is way out of whack with the other firms listed. Taken in conjunction with the fact that the NYSE itself reports program trading to now constitute about 33% of total NYSE trading volume and that the volume of Principal program trading is over 20% higher than the 52-week average and you have "green shoots" not of recovery but conspiracy. It appears to us that Goldman, a dominant liquidity provider in the stock market are now supremely dominant thanks to the meltdown of so many hedge-funds and bank desks last year and that they are using this dominance to trade their own books and trade them very profitably. We further suspect that the recent market move higher has Goldman's fingerprints all over it. But, when these boys decide it's time to take her lower, this submarine is going to diiiiiive.......
Away from market manipulations and machinations the fundamental data continues to disappoint. We've mentioned Credit Cards often in our analyses and they remain a useful indicator for an economy based so heavily on consumer spending. We got some fresh data on Tuesday from Capital One, the credit card specialist, who reported a serious deterioration in their card losses with over a 1% move higher in March. This chart shows the situation very clearly – note that the spike in 2005 was due to people front-running a change in US Bankruptcy laws. Last month's numbers are very clearly an increase in the rate of decline:
One can twin that chart with Wednesday's data showing a decline in Retail Sales. This number initially sent the market down hard, before Goldman investors came in and pumped it higher again. Bullish commentators had thought that the tiny bounce seen in the previous figures (if you squint you can see it) was a sign of a bottom... think again folks (click for a large version):
We're also plum in the middle of earnings season which could be a catalyst for, if not another leg down on the markets, a break in the uptrend. Reports so far have really been dominated by the Banks; Wells Fargo reported mythical numbers based on mythical asset values while Goldman reported strong profits based almost entirely on proprietary trading (hmmm!); JPMorgan report this afternoon and will likely "surprise" too. The banks are, frankly, a bunch of liars though so instead we'll be looking at Google's numbers later today which should be very interesting; Nokia are also worth having a look at. Friday brings two "special" competitors to the table: GE and Citigroup, both should be "entertaining". Here's a handy summary of the big names and when they're reporting (click for a large version):
Ok, we'll have to leave it there for the time being, but we'll let you know what we think of those earnings reports when we get our scrawny mitts on them. A parting note to our local readers; if you have access to Channel 4 then we recommend tuning in at 10PM tonight (Thursday) to catch the second instalment of a new "reality" series starring a long-time friend of Birdsong's, Conor Woodman, as he tries to trade his way around the world, bartering, wheeling & dealing from Sudan to Shanghai. It seems like the briefest of time since we were in our school shorts and Conor's "bartering" was agreeing to not beat us up in return for our lunch money...
we could definitely 'ave him now though...
