Is LTRO QE in disguise?

Here’s Draghi’s explanation from an FT interview:

Is this Europe’s version of “quantitative easing”?
Each jurisdiction has not only its own rules, but also its own vocabulary. We call them non-standard measures. They are certainly unprecedented. But the reliance on the banking channel falls squarely in our mandate, which is geared towards price stability in the medium term and bound by the prohibition of monetary financing [central bank funding of governments].
Coming back to what banks are going to do with this money: we don’t know exactly. The important thing was to relax the funding pressures. Banks will decide in total independence what they want to do, depending on what is the best risk / return combination for their businesses. One of the things that they may do is to buy sovereign bonds. But it is just one. And it is obviously not at all an equivalent to the ECB stepping-up bond buying.

Sounds like a yes and a no.  What’s interesting is the statement about the prohibition of central bank funding of governments.  Seems like Draghi is trying to say that legally he can’t just outright start buying sovereigns, but he’s doing the closest thing he can–financing the banks and then hoping that they turn around and buy more sovereigns.

Financials Outperforming Slightly in December

Financials (represented by XLF) may be lagging the S&P significantly for the year, but for December at least, they’re actually leading a bit.  For the month, XLF is up 1.29% while the S&P is down 0.35%.  For the year, the XLF is down a punishing 18.64%, while SPY is down 0.84%.

Typically, December is a month for traders to press winners and losers–meaning that what has gone up for the beginning of the year continues to move higher in December while the opposite is true of what has gone down.

Russell 2000 Performance Based on Institutional Ownership

In pondering why some stocks are more affected by weak markets than others I ran some data since May 1st looking at how different stocks have fared in 2011 based on the size of their institutional share base. Since May 1 the average Russell 2000 stock in my sample has fallen by 17%.  Those stocks with high institutional ownership have tended to do a little better while those with low sponsorship have done a bit worse.  Surprisingly the middle quintile has done the best.  The average stock with 40-60% institutional ownership was only down about 12.5% in the period.

Jefferies Tangible Book Value

Jefferies is up 23% today, currently at $14.55 per share.  After hitting a low of $9.67 in late November, the stock has had a 50% run in a little over a month.  Following today’s rally the stock is now trading above 1x tangible book value–how quickly fortunes can change.

As a reminder, BAC is trading at ~.35x tangible book value.

November Housing Starts

Housing starts were up 5.7% m/m in November and 20.7% y/y to 685k.  The headline numbers look pretty impressive–the more granular data is ok, but not spectacular.  There’s a heavy seasonal adjustment to November since there aren’t a lot of homes started in the month.  Also the increase was led primarily by multifamily units.  Starts on large complexes (5 or more units) jumped by 80% y/y, smaller multi-family were up 10% while single family were up 3.6% y/y.  The seasonally adjusted 685k units is still within the range that we’ve been stuck in for several years.

Click to Enlarge

Total Loans and Leases at US Banks

It’s tough to find many reasons to be positive these days, but at least one indicator that can be a source of some hope is the growth in loans at US banks.  After 2.5 years of contraction, loan balances have been expanding for most of this year.  For those who believe that credit expansion is a unequivocal positive, this should be a boon.  At the very least, it’s a sign that de-leveraging in the US is not as severe as many people would have thought.  In fact, de-leveraging really isn’t even occurring.

Click to Enlarge.  Data adjusted for 2010 accounting changes to off balance sheet loans.

Ten Year/Thirty Year Treasury Spread

At the end of today’s trading, the 10 year treasury is yielding 1.81%.  By comparison the 30 year bond is yielding 2.80%, which is a spread of almost 100bps.  As shown in the chart below, this is fairly close to a multi-decade high.  Earlier this year we reached a 150bps spread.  At that point the spread was between 3% on the 10 year and 4.5% on the 30 year though.  If the 10 year bond stays anchored, it’s not inconceivable that the 30 year bond could hit the low 2% level.  Given the duration of the long bond, that represents quite a high total return potential.

Revenge of the Mo?

The Dow is down -53 points currently, but among the stocks that are in the green are the classic momentum/growth stocks.  Many of these have fared particularly poorly in recent months (really ever since NFLX broke), but today are doing relatively well.  Among the advancing stocks at the moment are:


Alas, poor Netflix continues to be beaten up, down 2.71%.