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Archive for the ‘Economy’ Category

Debt spiral

by henrycopeland
Wednesday, July 8th, 2009

WSJ reports:

Short-term interest rates at near zero have helped pull yields down across the curve. In June 2009 the average cost of government debt fell to 2.69% from 4.04% a year earlier.

But since January, longer-dated Treasury yields have risen. The 10-year note now yields 3.33% up from just over 2%. Meanwhile, the rate on T-bills, or debt with less than a one-year maturity, will not remain near zero forever – unless, of course, the U.S. enters a Japan-style extended period of stagnation.

The potential impact of government borrowing rates returning to more normal levels could be huge, the CBO data shows. Even under its baseline assumptions net interest payments will rise from around 7.7% of revenues in 2010, to 9.6% in 2012, to 14.1% in 2014. The total net interest bill for the 2010-2014 period weighs in at $1.5 trillion. Even this interest burden has the potential to constrain policy – forcing the administration to cut spending aggressively or raise taxes.

But if there were some kind of interest-rate shock, the picture could look extremely bleak. One CBO scenario: If 10-year yields and T-bill rates moved back to the average levels of the 1990s by 2014, the interest bill for the five-year period would rise to $2 trillion. If yields returned to 1980s levels, when 10-year yields averaged 10.5%, the interest bill would climb to $2.6 trillion.

Double down

by henrycopeland
Monday, July 6th, 2009


Investors anticipating another “summer rally” may be disappointed as Treasury Secretary Timothy Geithner accelerates debt sales to finance a record budget deficit. After more than doubling note and bond offerings to $963 billion in the first half, another $1.1 trillion may be sold by year-end, according to Barclays Plc, one of the 16 primary dealers that are obligated to bid at Treasury auctions. The second-half sales would be more than the total amount of debt sold in all of 2008.

The U.S. will conduct four auctions this week for the first time since the Treasury began issuing securities regularly in 1976. Today’s $8 billion auction of 10-year Treasury Inflation- Protected Securities will be followed by the sale $35 billion of 3-year notes tomorrow, $19 billion of 10-year notes the next day and $11 billion of 30-year bonds on July 9.

China boycotts US debt?

by henrycopeland
Thursday, June 18th, 2009

Reuters reports: “According to US Treasury data issued Monday, Beijing owned 763.5 billion dollars in US securities in April, down from 767.9 billion dollars in March.”

We’ve got another trillion or so to borrow in the next year — who we gonna call?

Q1 dotcom advertising bloodbath

by henrycopeland
Monday, June 8th, 2009

First quarter ad sales were off 5% versus Q1 ’08, the IAB estimates. This is the first year-over-year decline in quarterly Internet advertising since 2002.

Versus the holiday-bloated Q4, the Q1 number was an even more horrendous decline, down 17%.

Relative to the rest of the economy, the Internet advertising decline doesn’t look outrageous. But the rest of the economy isn’t still pumping out product — more cars, more hotdogs, more washingmachines, more homes — with reckless abandon. Producers have cut back to reduce costs and avoid stockpiling goods nobody will buy.

The same isn’t true online. New dotcoms are still being conceived and birthed daily, and CGM (postings on Youtube, Myspace, Flickr etc) is still doubling yearly.

Malthusian pricing Armageddon impends.

Update: Here’s more data on overall advertising trends. The Internet’s Q1 decline looks wonderful relative to things like ad spends in local Sunday supplements (-38%) and B2B magazines (-30%) and spot TV 101-210DMAs (29%.)

Guilty as charged

by henrycopeland
Wednesday, May 13th, 2009


The BoE has made clear one of its main objectives in buying £125 billion ($189 billion) of gilts is to drive down gilt yields. In theory, this should be impossible since, as senior Bank officials admit, the gilt market is extremely liquid and deviations in yields away from market interest rate expectations should be quickly arbitraged away.

But these are not normal times. The U.K. government’s decision to borrow 220 billion pounds this year and £600 billion over the next five years means gilts yields have been well above levels implied by the swaps market. Without quantitative easing, gilt yields would be much higher.

In fact, the BoE’s efforts to manipulate the gilt markets may actually be exacerbating the problem. Credit market participants are increasingly uncertain about the true risk-free rate and the market’s interest rate expectations. That makes it harder to price assets — and may drive yields higher even as the BoE is trying to drive them lower though quantitative easing.

In an ideal world, a strong independent central bank would tell the government to get a grip on its borrowing, rather than mopping it up. Instead, the U.K. financial framework requires the BoE to accommodate itself to the government’s reckless fiscal policy. The weakness will eventually have to be addressed — but it might take a crisis to get there.

Same goes for the Fed.

TheStreet.com ad sales off 26%

by henrycopeland
Wednesday, May 6th, 2009

TheStreet.com gets the scoop on its own ad sales:

TheStreet.com Inc.(TSCM Quote), an online financial media company and the publisher of this Web site, swung to a loss in the fiscal first quarter and said revenue declined 26% from the same period a year ago. For the first quarter ended March 31, total revenue was $14 million, down from $18.9 million in the same quarter of 2008.

Does anyone know of a “publisher dead pool” that we can link to?

Ad spending off 9% in Q4?

by henrycopeland
Wednesday, May 6th, 2009

Emily Steele reports:In a sign that marketers have begun to deepen their cutbacks, TNS Media Intelligence, an ad-tracking firm owned by WPP PLC, reported Monday that ad spending in the fourth quarter fell 9.2% from a year earlier.That’s a lot worse than any numbers we’ve heard yet elsewhere.

Risk avalanche = higher yields

by henrycopeland
Wednesday, April 29th, 2009


But these bailouts are hugely risky — as reflected in the high cost of insuring government debt. Credit Derivatives Research’s government-risk index, which measures credit-default swap premiums on seven large sovereign borrowers including the U.S., U.K. and Japan, continued to rise this year even as the VIX fell. It currently stands at 75 compared to a pre-boom level of around 3 and implies a VIX in the 60s, according to CDR.

Though the Fed has been buying hundreds of billions in Treasuries and corporate bonds to keep a lid on rates, the government’s skyrocketing debt sales to fund the deficit, the gradual erosion of the foreign appetite for US debt and the fear that the Fed’s bond buying will itself eventually fuel inflation, make it inevitable that 30-year t-bond yields, currently at 4%, will be far higher in coming months and years.

Social radar

by henrycopeland
Wednesday, April 29th, 2009

Geography of jobs.

Swine flu map.

Suit urself bub

by henrycopeland
Monday, April 27th, 2009

On a recent trip to New York, we stopped through Brooks Brothers on 44th and Madison, where I bought suits while I worked on Wall Street in the 80s.

Brooks Brothers, once Wall Street’s bustling official dressing room, was a silk-strewn and worsted-wool-festooned desert.

Of course, two seconds of thinking made it obvious that no sane banker is today spending $80 on a hank of silk to wrap around his neck when in doubt about his job prospects. A simple rope will do.

And who wants to spend $1600 on a suit, below, and then find himself only wearing said suit to Starbucks to sip coffee and browse TheLadders? A track suit will suffice.

Suits are useless as anything other than social devices traditionally deployed to signal that the wearer is not a manual laborer, that the wearer is a cut or three above the hoi polloi. White collar and all that, don’t ya know.

But now, of course, a suit is worn predominantly by folks who made a bunch of lousy bets with other people’s money or who are now living large on the public dole.

When the economy comes back, will the suit return too? Not if banking loses its aura as an esteemed dynamo of capitalist innovation. You don’t find a soul wearing a suit at SXSW, where the creative class — programmers, designers, writers and ad execs — gather to hobnob every March. Suits may soon the way of the top hat, the cummerbund and 3% ten year US T-notes.

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