G3 Recap 1-03-11

Main Items:

  • US ISM Manufacturing printed 57 in Dec as expected, vs 56.6 previously. New Orders improved, and inventories dropped, but employment did as well.
  • Bank of America has reached settlement terms with Fannie and Freddie over the putback issues. They’re taking a $2bn charge on home loans and their insurance unit. They are also taking a $3bn provision in the fourth quarter on GSE exposures. The agreement with Freddie and Fannie extinguishes any and all outstanding and potential mortgage putback make-whole claims.
  • Facebook – Goldman and the Russian investor Digital Sky have invested $500MM in Facebook, valuing the internet company at $50B. The deal makes Facebook worth more than EBAY, YHOO, and TWX. NYT

Overseas:

  • Chinese Manufacturing PMI declined to 53.9 in Dec vs 55.0 expected and 55.2 previously.
  • Chinese Non-Manufacturing PMI improved to 56.5 in Dec vs 53.2 previously
  • Italian PMI Manufacturing improved to 54.7 in Dec vs 52.2 expected and 52 previously.
  • The Eurozone PMI Manufacturing for Dec was revised up to 57.1 vs 56.8 previously

Commentary:

  • We got a lot of positive data points last week. Chicago PMI rose to the highest level since 1988 in December, and initial jobless claims fell below 400k for the first time mid 2008. PBoC hiked 25bps, and USDCNY made a new low. And the strong ISM print today. Couple things stood out to me:
    1) Bond market is higher, although this is a bit distorted by auctions and year end.
    2) An overly bullish sentiment in equity markets seem to be pretty widely cited as a reason to be cautious. The lows in the Vix, and the highs in AAII sentiment are commonly noted. This, IMO, is not the right trade. The market is more likely to grind higher over the next month on decent news. The fact that people are talking about this suggests that it is more likely that money has been sitting on the sidelines, waiting for a pullback. We’re probably not going to get a short term top until this money has been committed.
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