Housing Starts

LBO's and MBO's---- liquidity , liquidity , liquidity

CDO's

In explaining the huge explosion of Subprime Mortgages , you need to follow the instrument that has fueled the surge . That is the CDO ( Collateralized Debt Obligation ) , a derivative constructed from a variety of debt instruments , in this case mortgages ( RMBS--- Residential Mortgage Backed Security ) . The instruments are packaged , through "financial engineering " , into a tradeable security which banks , brokers and hedge funds can use to invest and/or hedge their debt portfolios . The more profit these instruments make the brokerages and investment banks , the more were sold to investors .
It's not just Mortgages which are packaged into CDO's , so are the debt tranches of the LBO's and MBO's so prevelant in the Private Equity world . Without such innovative instruments , there wouldn't be as much merger activity as we are now witnessing . For better or worse , these instruments will be here to stay

Volatility

Credit Spreads

Stock Buybacks

Net issuance of equities (new issues minus buybacks) by non-farm US corporations has reached a record -$602 billion, a fourteen-fold increase in net corporate buybacks since 2003, financed by a record assumption of $437 billion in new debt. Is it any wonder that the S&P 500 bottomed out in 2003 and has been rising since ?

Subprime Loan Implosion

Fed Governor Susan Bies says sub-prime defaults are "the beginning of the wave"

$55.6 Trillion

Return of the Yen , and the unwinding of the Yen-Carry Trade

After the Bank of Japan raised overnight rates 25bp's , from 0.25% to 0.50% , we should have figured that there would be some rally in the Yen , and with it an unwinding of the "Yen-carry trade" . As the "carry" currency for hedge funds and proprietary trading desks , any change in rates and/or the underlying currency , would bring on some unwinding of " funding " positions .... and didn't it do a job on the markets this week !!!!
Japan's Nikkei 225 Stock Average lost 5.3 percent in the past five days, its worst weekly performance since June . Hong Kong's Hang Seng fell 7 percent , its longest losing streak in 17 months . China's Shanghai and Shenzhen 300 Index fell 9% Tuesday .
European stocks had the worst week since the beginning of the four-year bull market in October of 2002 . The Dow Jones Stoxx 600 Index , a basket of 600 European stocks , fell 5.2% for the week .
In the US , the S&P 500 fell 4.4 % , the Dow lost 4.2%, and the Nasdaq dropped 5.9%.
In Latin America , the Morgan Stanley Capital International index of Latin American shares fell 8.5 percent for the week .
Emerging market debt , measured by the Emerging Market Bond Index , widened to 189 bps above US Treasurys vs. the all-time record low 154 bp's set just a week ago on February 22 .
In the commodity world , Gold fell $45 to $644/oz. and Silver fell $1.45 to $13.28/oz. So much for their "safe haven" status ....

CRB Continuous Futures

Corn --- off to the races ?

Corn is in the grips of the same investment fund-driven speculative mania that has engulfed many other commodities over the last few years. While the mania looks to continue in the short run, I suspect a major top in corn will occur this year , as I sense the frenzy nears a crescendo

Vietnam -- The next Bubble to burst ???

The Vietnam Opportunity Fund provides an interesting glimpse into the rising interest in Emerging Market equities. The massive uptick in volume over the past few months, has accompanied both a strong rise in the underlying equities, and also in the currency , the dong ..... the Vietnamese Stock Index(VNINDEX) is up 227% over the past 12 months , and is up 40% so far in 2007 .

Other Emerging Markets are on a tear as well ----- an index of 22 so-called frontier countries rose 12% in January, the fastest-ever start to a year. Five of them, including Vietnam, Ukraine and Croatia, are among this year’s top 10 markets

Copper revisited

Treasury Yields --- 2-Year vs. 30-Year

Crude Oil --- Nears 200-day m.a.

Crude Oil -- Last 2 years

S&P500 Returns : During earnings season , earnings off-season

Commodity Currencies

In the last 9 months we've seen some very sharp drops in two major commodities, oil and copper . Oil has fallen from $78/bbl to $56/bbl. , and Copper has dropped from $4.05/lb. to $2.60/lb. . One of the ramifications of a commodity drop is the influence that it holds on a Commodity-based economy's currency . As commodity prices rise , more currency is needed to buy it and in turn the currency rises ..... and as the commodity's price falls , less currency is needed , thus putting downward pressure on that "commodity currency " . A great example of this is the Canadian Dollar which has seen its value fall from 91-cents to 85-cents in the last five months . Examinations of the Australian Dollar , New Zealand Dollar and South African Rand have also exhibited the same negative action

TLT --- Head and Shoulders ???

TLT .... the 10-year Treasury Note ETF ( proxy for debt markets) looks as if it may be setting up for a Head-and-Shoulders pattern with yields rising ( and thus prices falling )

Housing Starts and Permits

For a good idea of what's happening in Real Estate , we can see the demand destruction brought about by over-building over the last 5 years