There are more and more signs that the economy is mending, including higher airline traffic. Of course, all economic data out in
the first half of the year will enjoy easy comps. Beyond that there is a chance that the economy is trying to climb off the canvass. What is even more
compelling about economic trends in the airlines, and the move in airline stocks, is it's all happening as crude oil prices drift higher. Logically,
this isn't supposed to happen. The fact that it points to an economy that is firm enough to handle higher energy input without recoiling. I've already
written recently that airline tickets are as cheap as they've been since 1995 adjusted for inflation; airlines should really consider hiking prices.
On that note, more leg room is something I would pay extra for in a heartbeat as I can bring my own water and pillow. The following chart compares the
oil index (XOI) and the airline index (XAL).
The notion
that healthcare and financial regulatory reform are either dead or irreparably damaged continues to be reflected in the stock market. On March 3, 2010
Goldman Sachs (GS) was trading at $157.00 a share (today GS is trading just below $172.00), and on February 8 Citigroup shares where changing hands at
$3.18 a share (today C is trading just below $4.00). Yesterday, regional banks were on fire in large part on the resurfaced rumors they were in play
as takeovers. I'm not sure how dumb banks would be to begin a consolidation phase in the midst of rabid despair within the Administration. Then again,
the last thing banks want to do is kowtow to bullying tactics by the White House. It would be something if there were a couple of deals announced in
the midst of protest by the AFL-CIO which is trying to drive a deeper wedge between Main Street and Wall Street by demanding money be taken from
trades and assigned to jobs programs.
While we continue to look for nascent evidence that the U.S. economy is turning the corner there is no
doubt China is off to the races. I continue to hear the doubters. Interestingly, half of the non-believers say the economic data is phooey while the
other half says it's proof of a massive bubble. I'm more inclined to agree with the latter as there is obviously unsustainable growth in the housing
sector in places like Beijing. But China is the real deal, in my opinion. Instead of belittling the nation we need to find a way to capitalize on its
strength. Of course, we must come from strength, which might be happening as the government goes from nuisance protectionist stuff to calling out
China as a currency manipulator and taking firm action. Inflation is running at 2.5% in China, the fastest in 16 months, and commercial and
residential real estate leaped another 10.7% in February (in a survey of 70 cities).
I think that the big difference between China and the United States
should they have to deal with a major
economic hiccup is they are a nation of savers sitting on damn near $800.0 billion in U.S. government bonds and $2.0 trillion in stone cold
cash...U.S. dollars. It's a nation of savers and also a hungry nation, too. The country is still poor and ranked 130th in per captia income in 2008
according to the World Bank. But that $2,500 in annual income will become $45,000 by 2030, and we need to ride that wave. In the meantime, there could
be pressure on the Chinese stock market as speculation grows concerning Central Bank actions coming to stem the speed of this locomotive.
We
should be so lucky.
Foreclosure Programs Sweep Away Evidence, We're Gonna Need a Bigger Rug
By: David Urani, Research
Analyst
February foreclosure data from RealtyTrac showed the third monthly decrease in overall foreclosure activity in a row, but in the
end, cannot be taken with much optimism as filings remained at 308,524. This represents the 12th month in a row foreclosures have been above the
300,000 mark, and continues to be reflective of the fact that the number of struggling homeowners is hardly improving.
Total default notices were up 3% from January, indicating a slight increase
of newly troubled borrowers. Meanwhile, foreclosure auction activity decreased by 1% and bank repossessions decreased by 10%. Areas like California,
Florida, and Michigan remain a high proportion of the foreclosure filings, while Nevada is still squarely the worst state for foreclosures per
capita.
All in all, it's always good to see a slight decrease in foreclosures but it, like so many other housing data points these days, has to
be taken with a grain of salt. As we all know, the housing market is being kept on life support by several government programs, and the Home
Affordable Modification Program (HAMP) in particular is designed to stall the foreclosure process. The efforts to delay people from foreclosing are
evident in the decreases in repossessions and foreclosure options and the work by banks with borrowers on modifying mortgages and/or other
alternatives. However, with new notices of default rising, we still worry that the pipeline of delayed foreclosures is only growing. With total
filings still firmly above 300,000 one could conclude that the troubled homeowner problem is not actually improving to any significant degree, but
instead various programs are just putting a ceiling on the amount of foreclosures or just delaying the inevitable.
By my observation, it seems
apparent that mortgage modifications and other programs are mostly temporary fixes. In particular, I have my concerns about the roughly 1,000,000
people in the three month trial period for HAMP, and the small proportion of which are actually being approved for the full program. My concern is how
long it will take before these hundreds of thousands of homeowners receiving aid under the trial period eventually do get rejected, buckle under, and
go back into foreclosure anyway. Certainly, the Obama Administration is still worried, and that's why they've started the discussion for yet another
new program for housing. This time, homeowners going into foreclosure, and their lenders, would be given incentives to short sell (sell them off for
less than the mortgage is worth) the homes instead of putting them into foreclosure.
Economic Data
Initial Jobless
Claims
There may be some letdown in the jobless claims data out this morning in that there wasn't a strong week to week improvement. All
the talk following the non-farm payrolls data last week was that underlying job growth existed in February, but was masked by storm activty. Since the
report, numerous forecasts have called out job growth in excess of 100,000 for this month; some forecasts are around 300,000. This morning's data
suggests, at the moment, those may be far reaching targets. Jobless claims totaled 462,000, roughly in line to consensus at 460,000. Continuing claims
rose by 37,000 week to week. Despite the postive economic trends we are seeing in the hard hit housing markets of California and Florida, there was a
noticeable jump in claims from those two states last week. Interesting to say the very least.
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