C.M.O. 2.25.2010
Credit Market Overview
February 25, 2010
With the markets reacting to each tidbit of news these days as if it were the last morsel of information they would feed on for a while, today should provide a bit of a smorgasbord, one made more appetizing by the fact that the items being offered are all the most sought after dishes at the moment.
Durable Goods, Jobless Claims and House Price information have all been watched intently as employment is seen as the key to the revitalization of the consumer, or at least their confidence. Durable goods also gives us a view into the attitude toward the future as you’re only going to buy something that last at least 3 years if you think the world will be around so you can use it. Then there is housing, all that can said about housing is that it’s what got us into this mess and it will probably be a key factor as to when we get out.
The most recent S&P/CaseShiller numbers on housing that came out Tuesday showed some promise of improvement with the strongest category being the seasonally adjusted MoM 20 City index. The YoY index came out twice as bad as the survey expected but was still only 1/3rd of the negative price movement reported the prior month.
Last week’s jobless claims were a bit of a disappointment. “The 31,000 increase largely reverses a 41,000 drop in the prior week and leads to new concerns that jobless claims are stalling at a high level”, is how Abiel Reinhart, an economist at J.P. Morgan Chase put it.
That leaves Durable Goods Orders. The interesting thing to watch here will be how that number breaks down because, besides the transportation component, both a washing machine and a drill press count as a durable good.
The clue here might come from news that Caterpillar Inc. (CAT) announced recently that they were bringing back 600 workers and factories in general have been the bright spot on the jobs front adding 11,000 workers last month. Which was the first increase in more than two years.
The auto industry has also announced hiring plans with General Motors (MTLQQ), Ford Motor Co. (F) and Chrysler Group LLC (private) all making positive statements with regard to bring on new workers, many at lower rates due to negotiations conducted during the worst year for car sales in the last 47, but jobs none the less.
F is investing $450MM to build its next generation hybrid and plug-in electric cars which it expects will add about 1,000 jobs to Michigan. Sergio Marchionne, Chrysler’s new CEO said recently, “We do need to re-establish a base of talent that I think has been lost as a result of restructuring”.
It goes without saying that these companies are adding lower cost workers and doing so from some very low payroll numbers. What can’t be denied is that the talk for these manufactures is about putting more people to work, not less.
A smorgasbord of information; we will most certainly get our fill. Let’s just hope we don’t also get indigestion.
The CDS/equity combo for CAT was moving in the empirically proven positive way from early September of last year (116bps/$43.51-9/2/2009) until January 11th of this year (48bps/$64.13). Since then things reversed but are recovering again with last night’s combo at 67bps/$59.76.
The CDS/equity combo for F is also heading in a way that is usually supportive of a stock, suffering a bit of the January set back but closing last night at $11.73, within sight of the $12.11 high set on 1/11. That high in the stock coincided nicely with the low in the CDS 584bps on the same day.
There is currently no quote for MTLQQ which is the current entity for General Motors but GMAC, the finance subsidiary, have actively quoted CDS and they have been on a slow slide lower, which is actually a good thing, closing at 465bps last night. Although a bit like comparing apples to oranges the stock, sans a few EKG like blips is trading at $0.60+/-.
Enjoy the week.
Jim Delaney
