By Isobel Kennedy
NEW YORK, Nov 15 (MNI) – The Treasury market did better Thursday but prices
remain in a very well-worn and, frankly, boring range.
I don’t know about you, but I sometimes feel we have all been in the
Twilight Zone for a very long time. In the rare instance that a problem gets
solved here or abroad, the nervous nellies out there immediately dredge up a new
topic to stew about.
The rhetoric on both sides of any topic never changes. Some people are die-hard
optimists; others are died-in-the-wool pessimists. Clearly there are more of the
latter.
In a sad way, Hurricane Sandy was a blessing because it gave people on the
East Coast of America something real, immediate, and very serious to talk about.
It forced people to turn attention back to their own families and homes and to
the losses being suffered by their friends and neighbors.
Renewed trouble in the Middle East also grabbed the attention of the
markets. But it is hard to follow the action when one side said it lobbed a
rocket at Tel Aviv and Israel responded that no rocket hit the ground.
Let’s hope that there is more than just rhetoric when President Barack
Obama meets with congressional leaders on Friday.
The American people know the score, and they want action. Both sides have
to give some ground on the revenue and spending sides. The debate has gone on
for years. Committee after committee have crunched the numbers. We all know the
answer. We are just waiting for the politicians to agree to what everyone else
already knows.
For the financial markets, it would be great if there are hints on Friday
that progress is being made on both sides. If not, it will likely drag on to the
bitter end, holding families, investors and corporations hostage for much, much
longer.
In the meantime, the treasury market clings to its recent range. People are
too fearful to sell. They are also too cynical to believe that progress on the
fiscal cliff can be achieved.
Stocks, on the other hand, have sold off about 5% since the election.
People want to blame in on lots of things. But it’s seems pretty simple: why not
take capital gains now before taxes go up in 2013?
The agency mortgage-backed securities market is the one market that has
seen some real action in the last few days. Prices and spreads have been hit
down over the last few days because everyone was long. Hence, when the sellers
came into the market, there was no one left to buy.
The selling has come from three groups: money managers that were already
overweight, traders who were loathe to take on new risk as year-end looms, and
real-estate-investment trusts.
The Treasury market benefitted from some of the MBS selling as players sold
that market and parked it into safer securities for safekeeping.
Longer-term, most believe MBS will be fine because people still need yield
and the Federal Reserve is still buying enormous amounts of MBS.
It is interesting that most people are on the same side of the fence right
now: the global economy will still struggle, the Federal Reserve will remain
accommodative for years to come, and the U.S. politicians can’t get it together.
On the other hand, there are a handful of people who are trying to shake
off the shackles of Twilight Zone and they could end up being right.
If both sides compromise on the fiscal cliff soon, it could be a tremendous
boon to confidence in America. The lifting of the uncertainty could have far
reaching effects on housing and employment. Banks might realize there is money
to be made on broader credit extension and corporations might decide to move off
the sidelines.
There has been lots of damage from Sandy, but the rebuilding efforts will
be huge. The outpouring of support has been massive.
It is unclear how much of the damage will be covered by private insurance
companies or by the Federal Emergency Management Agency.
But in talking to friends and in listening to the media coverage, ordinary
people and businesses are not giving up. They are making plans to buy or rent
new cars. All automobile manufacturers are offering special deals to the storm
victims.
People are also beginning to rent temporary housing space. FEMA is offering
immediate help in paying for this temporary housing, some affected homeowners
tell us. But we have also heard that FEMA will not settle larger claims until
the individual homeowners have received settlements from their insurance
companies.
That could take time, of course. But some people are already dipping into
their savings and trying to borrow from their pension and 401k plans right away.
It’s a known fact that you should not bet against America. Off the soapbox,
so now let’s take a look at Thursday’s data some of which clearly showed the
impact of Hurricane Sandy.
Initial unemployment claims spiked to 78,000 to 439,000 in the Nov 10 week,
reflecting the hurricane effects in several states.
Claims could dip ahead and the November 11 holiday also prevented three
states from reporting this week.
The November Philadelphia Fed index came in at -10.7 after a 5.7 reading in
October. New orders printed at a -4.6 vs. a -0.1.
The Bloomberg Consumer Comfort index dropped to a -33.1 in the November 11
week versus a -34.4 in the previous week.
The New York Empire index fell to 5.22 in November vs. 6.16 in October.
The Philly Fed said: “Firms responding to the November Business Outlook
Survey reported declines in business activity this month following the
disruptive effects of Hurricane Sandy on the region. The survey’s indicators for
general activity, which had shown improvement in October, fell back into
negative territory this month. Firms reported slight declines in shipments,
employment, and hours worked. Indicators for the firms’ expectations over the
next six months were near their levels in the previous month, but expectations
for future employment and capital spending have weakened in the last two
months.”
NOTE: Talk From the Trenches is a daily compendium of chatter from Treasury
trading rooms, as well as some sister market trading rooms, and is offered as a
gauge of the mood in the financial markets. It is not necessarily hard, verified
news.
** MNI New York Newsroom: 212-669-6430 **
–email: ikennedy@mni-news.com
[TOPICS: M$U$$$,MC$$$$,MBU$$$,MFU$$$,MGU$$$]
