Recap 8-15-12

Main Items:

  • NAHB increased to 37 in Aug vs 35 exp and prev
  • US CPI declined to 1.4% YoY vs 1.6% exp and 1.7% prev. The Core measure declined to 2.1% vs 2.2% exp and prev
  • Empire Manufacturing declined to -5.85 vs +7 exp and 7.39 prev
  • MPC vote was unanimous for more QE.
  • Greece is looking for a two-year extension on its austerity program, spreading cuts over four years. The country would also need an additional 20bn to support their budget.


  • UK jobless Claims declined -5.9k in July vs 6k exp and 6.1k prev. ILO Unemployment declined to 8% vs 8.1% exp and prev

Upcoming Data:

  • Thurs: EU CPI, US Jobless Claims, Housing Starts
  • Fri: Canada CPI, U Michigan Confidence
  • Mon: Chicago Fed Index, RBA Minutes
  • Tues: Japan Merchandise Trade Balance
  • Wed: US Existing Home Sales, BoC Governor Carney speaks, FOMC minutes, China HSBC Flash Mfg PMI

Commentary & Links:

Note that REITs are currently very, very rich. With a 5y beta of 1.3 and correlation the S&P of 80%, one could be forgiven if he assumed that valuation differentials between the two asset classes are small. The chart below shows the historical REIT dividend yield – the S&P 500 earnings yield. (REIT dividend yield was used as a proxy for earnings yield because REITS are required by law to distribute 90% or more of its taxable income to shareholders) The current level of relative overvaluation is quite unprecedented:

It isn’t clear exactly why a valuation differential this wide exists, (readers are welcome to comment!) although one possibility is that investors see REITs as a fixed income proxy, thereby disregarding their correlation with equities. In any case, the valuation differential may be especially pertinent now because the BAML August Fund manager survey reported the highest exposure to REITs since January 2007…

Separately, the Times had an interesting article on for profit hospitals in the US following a private equity buyout:
There may be a case to be made for hospitals to be regulated like utilities, with a cap for profits.