The Daily Shot - 12/2/14
- From: "The Daily Shot" <thedailyshotletter@xxxxxxxxx>
- To: <thedailyshot@xxxxxxxxxxxxx>
- Date: Wed, 3 Dec 2014 01:05:23 -0500
The Daily Shot™
Greetings,
Today let’s start with Russia, where the currency went into a “free-fall”
today. The ruble was down 6% against the dollar by mid-afternoon as panic took
hold. The banking system has become dependent on the ongoing government
bailouts as bad loan volumes rise.
Bloomberg: - Russia’s banking system is experiencing “some panic” after oil
slumped, according to Sergey Dubinin, chairman of VTB Bank, Russia’s
second-largest lender. … VTB, which converted a more than 200 billion-ruble
($3.8 billion) subordinated loan from the government into preferred shares to
boost capital, asked for additional state support of 250 billion rubles,
Finance Minister Anton Siluanov said last week. The loan has not yet been
approved and a decision will probably come by year end, Dubinin said today.
VTB’s charge for bad debts almost tripled in the third quarter to 65 billion
rubles from 22.1 billion rubles a year earlier, the bank said Nov. 20. Losses
linked to the Ukraine crisis were 37 billion rubles in the first nine months of
2014. VTB shares have fallen 40 percent in London this year, and traded 0.2
percent higher at 4.7 kopeks at 5:11 p.m. in Moscow. Sberbank dropped 53
percent this year.
The Russian stock market has been moving higher (in ruble terms), as the
rapidly depreciating currency and uncertainty around deposits make holding cash
the least attractive alternative (similar to Argentina).
Source: MICEX
Anecdotally, this crisis is stoking anti-Western, and particularly
anti-American sentiment in Russia, as Putin’s regime plays the blame game.
_____
The ruble of course is not the only energy-linked currency under pressure.
Nigerian currency (the naira) hit new lows as well.
h/t @RobinWigg
_____
To put the energy situation in perspective, here are the largest winners and
losers from plunging oil prices.
Source: @YahooFinance, @361Capital
_____
Turning to the Eurozone, one of the reasons the euro weakness has not been as
helpful as some had hoped is that we tend to focus on EUR/USD. And while the
euro has experienced a significant correction against the dollar, the effect is
not nearly as pronounced on a trade-weighted basis.
Source: @TenYearNote
Some view this as an opportunity for the ECB to take a more aggressive monetary
easing action – the euro is still too strong.
There is also some concern that if the ECB does not act now, German inflation
will stabilize and the quantitative easing advocates will lose support. And
some expect German inflation to start picking up due to stronger wage growth.
Source: @Berenberg_Econ
_____
In Canada, economists do not seem to be adjusting home price forecasts much in
spite of the dislocation in the energy sector. Canadian home prices barely
budged during the Great Recession, as the commodity boom pushed housing higher.
Canadian households are now quite levered compared to those in the US and a bit
of a housing correction could be in store.
Source: @SoberLook, RBC
_____
In the United States, vehicle sales remain strong, driven in part by
extraordinarily low rates and flexible financing (in part resulting from strong
demand for asset-backed securities). The Detroit Big Three market share
remains relatively stable.
Source: Scotiabank
_____
Here is a thought on QE3 in the US. Being an open-ended effort, QE3 created a
great deal of uncertainty around the timing and the impact of the exit
(remember “taper tantrum”?). Credit growth slowed during much of QE3 and only
picked up once the pace of taper became clear.
_____
Here are two more positive signs of low energy prices making their way through
the US economy.
1. Gallup economic confidence improved recently as gas prices fell.
2. We are starting to see lower electricity costs in some instances.
Cate Long (Reuters): Puerto Rico's Prepa announces 9% rate reduction for
December electricity due to fuel price decline.
_____
I don’t mean to pick on private pension plan managers, but their timing with
respect to equity allocation is no better than that of retail investors. Let’s
cut equity holdings after the correction and miss much of the rally. Sad.
Source: @NickatFP
_____
In the equity markets, for those who follow the Dow Theory, the transport
sector outperformance has narrowed materially recently (remember the rail
shares?).
Source: stockcharts
_____
In credit markets, US corporate loan investors finally have some pricing power.
According to LPC, “upward and downward flex activity (coupon adjustment during
pricing of new loans) equalize in November”.
Source: @TRLPC
_____
Different types of US commercial properties have recovered very differently
after the recession. Here are the vacancy rates for major property types
compared with the US unemployment rate.
Source: Credit Suisse
_____
Finally some food for thought. Below is the global fine wine price index vs.
the Chinese consumer sentiment. Of course we have to watch out for “spurious
correlations” (such as the divorce rate in Maine being 99% correlated with per
capita consumption of margarine in the US), but this relationship is probably
quite real.
Source: @M_McDonough
_____
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