George Vecsey on Character

I am a little late with this but there was a great article this past Wednesday in the NY Times sports section written by George Vecsey. I will not do Mr. Vecsey justice by writing my summary about it so it is best to read it if you can. I will just mention that if you ever need to define the word character then the behavior of these young ladies in this article fit the description. The title of the article is "A Sporting Gesture Touches 'Em All." A very uplifting story, so great job Mr. Vecsey! Here is a link to the article:

http://www.nytimes.com/2008/04/30/sports/baseball/30vecsey.html?_r=1&oref=slogin

April Employment Estimate

From Yahoo Finance and Briefing, the non farm payrolls estimate is for the loss of 75,000 jobs. Based on all of the information that I take in my guess is that the job losses will be much larger than that for a loss of 130,000 jobs. Again I may be skewed because how bad things are in finance around the New York City area. I also follow the residential rental market around the tri - state and it has been extraordinarily weak, plus the very small businesses I speak to all say that business has been weak.

The Fed and The World Wide Food Riots

With the Fed holding a two day meeting they have an opportunity to discuss things at length and topics that they may not have the time for when they hold a one day meeting. Which temporarily brings me to another point - that the Fed should hold two day meetings all the time as the one day meeting from my perspective seems to be a bit hurried. I will have to look at that another day as today I wanted to mention that the Fed may be able to discuss the food riots that have occurred during the past couple of months. What do the food riots have to do with the Fed? Well the Fed is the steward of the US dollar (even if the US dollar is officially the Treasury's territory) and since the Fed has slashed rates so much the dollar has been in rapid descent. The lower dollar has caused many commodities which are priced and traded in US dollars to march higher. These higher costs have been passed onto the consumer and often to the consumer in foreign countries whose populace receives low wages. This has caused food riots. A terrible situation and my heart does go out to those who are suffering. Amazing though how the Fed's lower interest rates have led to food riots half way around the world. We live in a very inter-related world, actions here can be felt around the world and vice versa. Members of the Fed are aware of the problems and some in recent days have turned rather hawkish. Today's meeting and the Fed's communique that follows will be all the more interesting because of these factors.

The Bouncing $ - Another Prop Removed From the Manhattan Housing Market

With the dollar taking off in recent days, albeit from extremely cheap levels, the high end of the Manhattan Real Estate market may experience a pull back from the foreign buyer, especially from the European buyer. The European high end purchaser has feasted on the Manhattan condo market for the past 4 years due to a combination of rising apartment prices and a sliding US dollar (especially vs the Euro where it has been killed during the past 5 years or so). With apartment prices in Manhattan already sliding and the dollar rallying, the European high end buyer will likely be giving second thoughts to buying any future Manhattan apartments.

Q1 2008 GDP - My Guess = -0.5

The Q1 GDP first estimate will be released this week. From Yahoo Finance I picked up the following:

Briefing Forecast: +0.7

Market Expects: +0.4

Prior #: +0.6

Important to note that these are annualized numbers (so they were multiplied by 4). I will throw my hat into the ring and say that the GDP Q1 2008 will have shown a decline.

My Guess: -0.5 (Made on Sunday April 27th)

I only am going off of the earnings reports that I have followed and the economic reports I have followed for the quarter also a ton of anecdotal information in the NYC tri state area. I talk to everyone when I buy something and here around New York City businesses all tell me that things have fallen off pretty hard. On the positive side there are the agricultural commodities and the boom in infrastructure related equipment related to commodities. Also the tech sector was very strong as Google, Intel and others said they have not any pull back. So a large propeller will be the exports. Starbucks has felt the consumer retrenchment though as the ultimate discretionary item moves lower on the list of consumer must haves. In combination with a weak dollar the exports really helped the economy out. Locally here in the US though the consumer was getting beaten around from all sides as the Bear Stearns storm hit, the employment picture sharply weakened and wage growth was weak.

The Fed's Bag Of Tricks

The Federal Reserve meets this coming week. The Fed's interest rate cuts may be only slightly helping the borrowing problems that exist in the economy. This is occurring because liquidity in the credit markets continues to dry up. This dried up liquidity has been caused by loss of confidence from the lenders. Who are the lenders that have loss confidence? And why are they snake bit? In this case the lenders are all of those entities all over the world that participated in the securitization process during the past 5 - 6 years or so. The lenders are snake bit because their loans that they owned decreased sharply in value and large losses were taken. So now they have become more careful. Also they have less capital to give because of the large losses they have sustained already. This brings me back to the Fed. The Fed sees the problems and they know that until the log jam from the credit markets breaks free that the system will not be able to be fully repaired. They know that further interest rate cuts may not help much if at all. Maybe the Fed will come up with some other weapon to work on the credit market problems or maybe the Fed will revert back to one of its other weapons that seem to have given it some traction. Those special auctions seemed to have helped get the Fed some traction. what will they come up with this time?

The WSJ on Friday mentioned that some credit spreads have come down. Notably the junk bond spread which had been up at 9 points fell back to the 7 - 7 1/2 points. They note though that this spread is still way above normal levels of 2 points or so. Another part of the credit markets that I have observed more closely is the Ted Spread. I have both the WSJ and Bloomberg TV to thank for pointing this out - that the Fed watches the TED Spread very very closely. The bottom line - TED under 0.50 is normal, TED above 2.0 is very worrisome, and in between is well in between. What is interesting is that the TED Spread has not stayed this elevated for this length of time since the 1987 crash. It currently is around 1.56.

Why Did An Institution Buy 10,000 Call Contracts on AMR

Today's Wall Street Journal had a blurb in their Option column on AMR. They reported that an institution purchased 10,000 contracts at about 2.60 on the January 2009 7.50s. This is a $2.6 million bet. For the purchaser to make money on these contracts the stock would have to get over 10.10. The big question is why did this institution make such a large bet?

I will put some possibilities out, but they are really guesses:

- The institution believes AMR will get taken over.

-This is not a bet but rather a hedge to offset a large short position in AMR.

- The institution believes the business is going to soar and that profits will follow.

- The institution believes that fuel prices will collapse.

Lets say for a second that this institution is not making this bet to hedge a position. In this case the belief that the stock would go up must be so strong that this size bet was deemed reasonable. Maybe a hedge fund who has come upon a thesis that seems likely to happen. Very interesting.

* Note I do not have a position in AMR but may take on at any point. I also may decide to not do anything. I am not aware of any position that the firm I work for has.