Recap 1-9-12

Main Items:

  • S&P500 earnings growth forecasts have been cut in half for Q4, from ~14.5% back in Oct to now 7.2%. The preannouncement season has been one of the busiest on record w/most companies trimming their outlooks. Q4 is expected to break an 8-Q streak of the S&P having posted double digit earnings growth. Rates could be even lower in Q1 (analysts currently forecast just 3% growth in Q1). S&P500 earnings forecasts have declined from ~$113 to $106 now. FT
  • Iran, Israel and the US have all stated they will conduct large military exercises in the Strait of Hormuz over the coming weeks and months. Goldman’s head of commodities research said crude has massive upside risk on the tension. He sees energy returning 18% over the next 12 months.
  • The IMF is said to be losing confidence in Greece’s ability to clean up its public finances and work off its debt. Citing an internal memo, the IMF said the readjustment program currently implemented is insufficient and will need new measures. Either Athens cuts spending further or private creditors write off more of their investments – Ekathimerini
  • SNB chairman Hildebrand resigned over allegations of improper trading
  • Santander said that its Tier 1 Capital ratio now stands at 9%. It planned to increase it to 10% by June, while maintaining its 60c dividend.


  • Chinese M2 growth jumped to 13.6% YoY in Dec vs 12.9% exp and 12.7% prev
  • Swiss Unemployment increased to 3.1% in Dec as exp vs 3.0% prev.


I have noted that US consumer savings rate is very low. This means that the US economy is unusually vulnerable to shocks. Like a 15% spike in crude prices as a result of Iran tensions. Or a spike in food costs given that this is been the driest 1st week of January in US recorded history. (h/t Kedrosky)

One caveat to that view is that with the wealth inequality, a large portion of consumer spending is by the wealthy segment of the population, which has a higher savings rate and is more immune to economic shocks. However, if this is true, that also means consumer spending should be more correlated to asset prices – as perceptions of wealth has a higher impact on spending behavior. This suggests that a decline in the stock market may have a higher impact on GDP growth.

Separately, note that aggregate Greek deposits have continued to leak. On a YoY basis, deposits are down 16% as of Nov 2011, after falling 12% in 2010.

This is an old fashioned bank run. In the short term, the ECB is providing liquidity to Greek banks, but at this pace, a liquidity problem WILL occur. Over the past 2 years, the Greek banking system has lost 25% of its deposits. If deposits continue to leave at a constant 15% YoY rate, the Greek banking system will be down to half its original deposit base in another 2 years. Without a proportional decline in non-cash assets, a cash shortage is inevitable.
A Greek bank collapse will be eventful not because it is necessarily unexpected, but because of its effect on other EU bank depositors. How will Italian and Spanish depositors react if they find out that some Greek depositors lost their life savings?


One thought on “Recap 1-9-12

  1. market trades like it senses we are about to see something nasty around the corner or than positive surprises due to temporary effects are waning. the ecb having to take a haircut might be one, or just a slow down in inflation is another bond positive/risk negative event.

    heck, has is occurred to anybody that unicredit maybe the new, i mean old, creditanstalt?

    best wishes for the new year!

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