Market Talk

From News Hub host and colleague Simon Constable:

Just in time for Earth Day, New York City Mayor Michael Bloomberg announced yesterday he wants phase out the very filthiest furnaces that are used to heat apartments. Under the plan, in two decades in New York City there would be no boilers that use the two dirtiest types of fuel – No.4 and No. 6 heating oil.

Last night I heard a commentator on the radio suggest that it wasn’t fair to introduce such a measure as the cost of switching out the boiler equipment would be disproportionately fall on the poor. The truth is the cost of changing heating equipment would fall on the richest residents of the city: Those living on the fashionable Upper West Side and Upper East Side of Manhattan.

Here’s a column I wrote last year:

NEW YORK (Dow Jones)–Manhattan’s expensive Upper West Side, often criticized as the bastion of northeastern liberal “elites,” is also the home to the highest concentration of the filthiest home-heating furnaces in New York City.

That’s according to a recently published report titled, “The Bottom of the Barrel,” that pinpoints the location of furnaces by fuel-type through the whole of the Big Apple. It was commissioned by the Environmental Defense Fund and the U.S. Green Building Council, both respected organizations in the green arena.

It isn’t just the UWS that is pumping smog from the basement. Not far behind on the dirty-list is the so-called “billionaires’ row” on the Upper East Side.

How so?

It is in those locations in New York, the Upper West Side and the Upper East Side, that you’ll find the highest count of furnaces fueled using a black sludge that kicks off high concentrations of sulfur-dioxide and nitrous-oxide.

Known as No. 6 heating oil, it emits a far higher level of those pollutants than other commonly used heating fuels such as natural gas, and No. 2 and No. 4 oils.

As a result of this sludge use, a mere 1% of structures citywide contribute 87% of soot pollution that is linked to heating oil, the report says.

It gets worse.

“Overall…heating systems release 50% more soot (PM) and 17 times more sulfur dioxides (SO2) than cars and trucks on New York City’s roads,” the report states.

When I mentioned this smog outrage to colleagues who live in the Upper West Side, they pointed to the age of the buildings–quite old–as the likely reason for the use of these pollution-pumping furnaces.

If only it were that simple. The truth is that furnaces need to be replaced every few decades so that a century-old apartment building will likely have seen a number of replacement furnace installations.

Money may be a more likely reason. Turns out that burning black sludge is economic if dirty. No. 6 oil costs $15.14 per million British thermal units, compared with $20.49 for the less polluting No. 2 oil, according to the report.

How about that.

Stocks had a strong week, bolting higher in a stout rebound after the sell-off instigated by Japan’s earthquake/tsunami/nuclear crisis nightmare. A nightmare that’s still ongoing, by the way.

Oil didn’t move much today, but energy stocks led the way, along with the material and industrial sectors. IBM, CAT, Chevron and Exxon Mobil account for almost 80% of the DJIA’s advance. DJIA rises 50 to 12220, Nasdaq Comp adds about 6 to 2743 and S&P 500 grinds out 4 to 1313.80.

What’s most impressive about the week’s gains is that they came amid a cascade of unpleasant headlines. Leaking radiation; European debt problems flaring up again; horrendous housing data; weak durable goods orders; another commitment by US military forces as civil war rages in Libya; spreading unrest in Middle East and North Africa; and oil prices marching higher. And of course, that air-traffic controller sound asleep in the DC tower. Horrifying. Continue reading…

February’s new home sales were an utter disaster, falling to a record low. Mizuho USA economist Steve Ricchiuto may’ve put it best: “Nothing good can be said about the February report on new home sales.” Nothing good should be said of these abysmal numbers, but that didn’t stop some economists from straining to find the silver lining.

RBS economists accurately noted no sign of recovery, but suggested other data, like a slight uptick in the monthly home-builders’ sentiment index, showed the picture wasn’t “nearly so dire,” so “we are hesitant to read too much into this one report.”

Huh? Don’t want to “read too much” into a record low? Yeah, wouldn’t want to misread the fewest number of new homes ever sold in a month. Credit Suisse economist Jonathan Basile points out that the number of new homes for sale — 186,000, not annualized — was the lowest level since November 1967. Maybe we shouldn’t read too much into that either.

Kidding aside, the small number for sale isn’t a bad sign, as it shows builders being disciplined enough to just try to sell what’s on hand before they ramp up more new construction.

RBS wasn’t alone in reaching for a positive spin. RDQ Economics also cites NAHB’s sentiment index (which rose to 17 from 16; it hit 72 in June ’05 and recently as high as 22 last May). Firm says survey suggests “underlying conditions are improving slightly,” and the firm expects a bounce “over the next two months.” Not exactly a heroic call, expecting a “bounce” off an all-time low.

Mizuho’s Ricchiuto doesn’t sound as optimistic. “The sharp decline in prices also suggests that consumer wealth may be taking another hit even though equity valuations have risen,” he writes. “This report and the existing home sales data released yesterday confirm that the housing market is still in free fall.”

Investors may or may not be looking for a silver lining, but they apparently see home-builders as a sort of “why not?” proposition. One of the best sectors on the day was consumer discretionary, which includes the home builders. PulteGroup (3.6%) and Lennar (1.2%) rose, although DR Horton (0.5%) fell.

After all, how much worse can it get?

Treasury Department will begin unloading its $142 billion stash of mortgage-backed securities in an “orderly wind down” beginning this month, which raises an interesting question: Will these sales shed any light on the valuations of MBS that commercial banks are still sitting on?

Banks have not been eager sellers of their inventory of troubled MBS and other non-performing real-estate loans, as bids for the stuff have generally been well below what the banks are willing to accept. And as long as FASB isn’t forcing banks to mark these securities to market, then there’s no strong incentive to sell.

But the Treasury has incentive to sell, noting in its Q&A on the wind-down that its “mission does not typically include managing a large mortgage portfolio.” At least Treasury’s willing to admit it now. The Fed hasn’t yet reached that conclusion.

As of now, Treasury plans to sell $10 billion in MBS per month until it’s all gone, but could suspend sales “if market conditions become less favorable.” Any suspensions or slow pace of sales should offer some gauge on whether bidders continue to low ball, or if Treasury — like banks — is still asking too high a price for the debt.

Treasury says it’ll post its portfolio holdings at the end of each month,  including any sales that were completed, broken down by coupon and agency here.

It’s no secret that banks are parked over a mother lode of bad loans, mainly residential and commercial mortgages, and they prefer to not publicly acknowledge (by marking to market) what those loans are really worth. That tactic has helped banks recuperate and appear healthy, but it’s a stance that’s also costing at least of few jobs, in a roundabout way.

We’re a little late to this story, but our new-found fascination with state WARN notices led us to find one from a California company called Kondaur Capital, which said about a month ago that it plans to lay off 161 workers by April 18. A little searching brought up an article last month by the accomplished Paul Muolo at National Mortgage News.

Seems Kondaur buys nonperforming loans, and finds itself needing to layoff workers because there aren’t enough bad loans available to buy.

Come again? Aren’t banks still sitting on mountains of toxic debt? Can’t find enough to buy? Continue reading…

Stocks see selling with some conviction (NYSE listed volume more than 5.7 billion shares)  for the second day in a row, spurred on by fear that soaring oil prices will derail the fragile economic recovery.

Nymex crude briefly hit $100/barrel for first time in more than two years, sending shivers through industrial stocks, and stocks of companies most sensitive to discretionary consumer spending, like Tiffany and Coach.

H-P shares tumble almost 10% after disappointing earnings and outlook, and drop accounts for roughly 35 points of Dow Industrials’ decline.

First back-to-back triple-digit drop for DJIA since early June, average falls 107.01 to 12105.78, and Nasdaq Comp slides 33.43 to 2722.99. S&P 500 ends 8.04 lower at 1307.40.

No real sign that the source of the market’s current angst — unrest in North Africa and Middle East — is about to abate, so oil prices (instead of the Fed) may be calling the shots here for a bit.

Weekly jobless claims, January durable goods orders and new home sales will be tomorrow’s economic reports of interest. On the earnings calendar, GM, Target, Sears and Kohl’s all report before the open; AIG reports after the close.

Here’s a press release from JPMorgan so soaked in sanctimony, we feel damp just reading it. Here’s the headline: JPMorgan Chase Announces New Programs for Military and Veterans.

Bottomline, JPM made some foreclosure “mistakes” with military customers for which it “deeply apologizes” and pledges to make amends. How heroic.

It’s a great thing to be helping veterans and military families. They deserve it all the time, and PR stunts “initiatives” like this shouldn’t happen just because a big bank gets called out for bum foreclosures.

Before an afternoon pullback today, the Dow Industrials tapped their highest intraday level since before the anxious days prior to Lehman’s collapse.

Of course, markets were descending back then as storm clouds continued to darken, rather than ascending as they are now. While the financial system certainly appears to be on firmer footing than it was more than two years ago, two enormous burdens on the economy — unemployment and the weak housing sector — are actually in much worse shape. And don’t tell us the market is pricing in better times for housing and employment, because neither one shows much sign of any meaningful turnaround.

Consider this: Back in Sept ’08, the unemployment rate was an enviable (by today’s standards) 6.2%, with roughly 9.6 million people unemployed. There’s now 15.1 million jobless, up 57% — in a little more than two years. Forty-two percent of the jobless now — or 6.3 million — have been out of work for 27 weeks or more; back in Sept ’08 there were only two million out of work for that long, or 21% of those unemployed.

Now for some housing stats to consider — September 2008 existing home sales were originally reported at a 5.18M annual pace; the latest data from NAR showed October at 4.43M pace, down 14% from the pre-Lehman days. Meanwhile, housing starts for Sept 2008 ran at a 828,000 annual pace; in October this year, the pace was off 37% from back then, at 519,000.

Stocks are back to where they were 27 months ago, but the two most crucial pieces of a lasting economic expansion still in the dirt.

Make sure you listen closely for a hissing sound, citizens.

It’s getting harder and harder to find bears lately, with major stock averages forging two-year highs. And even one consistent, well-known bear — Gluskin Sheff’s David Rosenberg — is a shade less bearish.

Rosenberg in his daily morning “musings” today carries just a hint of submission, though he’s quick to say he’s not changing his views –  he remains a secular bond bull, sees GDP growth only around 2% next year and “core inflation will remain in a declining trend.”

But while he sees some European countries needing to undergo debt restructuring, which would raise risk premia in general, “this will likely take more time to play out than I had thought before,” Rosenberg writes. For now, “expect upward revisions to Q4 and by extension Q1 2011 GDP and hence earnings; therefore, over the near-term, it may not be a bad idea, tactically, to lighten up on the bearishness,” Rosenberg says.

It’s not a big change, just “think of it as a company lifting the bottom of its revenue forecasts,” he adds. Continue reading…

We’re not tough enough to take the pain.

That’s why it’s come down to this, citizens — the Fed priming more QE, doing “whatever it takes” to alleviate the hardship. The ceaseless efforts to artificially prop up asset prices. The extraordinary amount of Americans’ monthly personal income now derived directly from Uncle Sam.

It should be much more expedient and ultimately less costly for the government to simply step back and let the economic chips fall where they may. But it’ll hurt, and the nation’s leadership doesn’t think we citizens can handle the sting.

Indeed, we often come across like a society of coddled whiners who can’t stand to even be the slightest bit inconvenienced, never mind subjected to any degree of physical or psychological travail. We can’t handle bad reception on our iPhones, why should the government expect us to deal with the hardship that would come with allowing home prices to reach their natural level, to finally unleash market-clearing prices and probably the failure of more big banks and other institutions? Continue reading…