Banking System Asset Quality

The FDIC released its quarterly report on the banking system earlier this week.  It showed that the banking system has healed substantially from an asset quality standpoint.  The major exception are real estate loans, which are still ~6% non-current.  Until these issues are totally resolved it’s tough to see how the housing market will be able to make a sustained comeback.

Monetary Base Reached All Time High Last Week

Gold is down $70 today supposedly because Bernanke didn’t signal a desire for more QE in front of congress this morning.  Despite the fact that there isn’t technically new QE going on at the moment, the monetary base did reach a new all time high last week, as shown below.

Also, the Fed’s printing presses may not be running full steam at the moment, but the ECB’s certainly are, printing 500B euro just last night…

Fewest 1% Declines in the S&P 500 in a Year

If we hold the line today, the S&P 500 will have gone the first two months of the year without dropping more than 1% in a single day.  In the context of recent volatility, this is a pretty spectacular statistic, but what about in the context of history?

Below is a chart of the number of days per year that the S&P has dropped by more than 1% going back to 1957.  Last year there were 48 such days; there were 73 in 2008.  On average, the S&P drops by 1% or more 26 times per year. In 1961, 63 and 64 it dropped by 1% only 3 times, the lowest in the data-set.

Click to Enlarge

Durable Goods Orders Ex-Transports

The Durable Goods Orders numbers reported this morning were pretty poor, -3.2% excluding transportation companies.  The data is still in an uptrend though, and is only back to where it was in September of last year.  That said, Durable Goods Orders (which are a nominal number I believe) have not exceeded their pre recession peak.  That makes this data set one of the few nominal indicators that hasn’t made a new high.

Things That You Could Buy Instead of All The Gold in The World

In Buffett’s most recent annual letter, he writes an interesting passage on the value of gold relative to other assets.  He writes that if all of the gold in the world were combined into a solid cube, it would fit roughly in the infield of a baseball diamond and be worth $9.6T.  He goes on to write that this is approximately equivalent to the value of all of the farmland in the US and 16 Exxon Mobils combined (plus another $1T of cash).

It’s an interesting thought experiment, since few actually have $9.6T to spend, but here are some other big ticket items to compare to the price of Gold:

Global Oil Reserves: 1.3T barrels x ~$110 per barrel = $143T
Global Equities Market Capitalization: ~$55T
Total US Credit Market: $37.8T
US Real Estate Market: $18T
US Treasury Market: $10T

New Home Sales in the Last 10 Years

New home sales data for January was released this morning at 321k homes.  This was down 0.9% from a revised number for December.  Many commentators say that this is a sign of some improvement in the housing market, but 321k is still extremely depressed.  Below is a chart of new home sales data since 1973 to put the number in context.  There are still fewer homes being purchased than in any other period outside of the current housing collapse.  Of course, January is a period of heavy seasonal adjustment.

The red line on the chart is the rolling sum of new homes sold over a 10 year period.  It shows that over the last 10 years, there have still been more new homes sold than in other periods.  Over the last 10 years almost 10 million new homes were sold.  Up until the mid 90s, this figure was more like 8 million.  In order to normalize the 10 year number, new home sales may stay depressed for a bit longer.

The Perfect Year

Of all the anomalous years that have ever occurred in the markets, 1995 is one of the most interesting–not just because the S&P was up 35% that year, but more because of the fashion in which climbed.  In 1995 the market never stopped to catch its breath, and basically went straight up for 12 months.  Fast forward to 2012, in which the single biggest down day year to date has been a 0.6% drop.  A comparison of the two years is below (Indexed Jan 1=100).

Are we in for another perfect year? For fund managers who are underinvested, that’s the fear that can keep pushing this market higher.