The Big Picture

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• Thursday PM Reads
• The Shift from Manufacturing to Service Economy
• Behind the financial crisis: A fraud investigator talks
• Word of the Day: “Zombie Debtor”
• 7 yr auction soft, inflation expectations rise
• New Seat Class: “Premium Economy”
• How Much Rally Is Left?
• Average Correlation of S&P 500 (1986-2012)
• 10 Thursday AM Reads
• A quick look at ETFs

Thursday PM Reads Posted: 26 Jan 2012 01:30 PM PST My train reading: • Economists vs. Americans (Real Time Economics) see also Not all jobs are equal (LA Times) • China's Connectivity Revolution (Project Syndicate) see also The paradox of prosperity (Economist) • New-home purchases fall, 2011 worst ever for sales (Yahoo Fiannce) • Adding Weapons to ATM Defenses (WSJ) • Amazon’s Hit Man (Businessweek) • Romney Can Thank The Supreme Court For Newt Gingrich's Extended Campaign (TPM) • Apple vs. PC Shipments: “PC” Decline Worse Than Reported (The Small Wave) see also In China, Human Costs Are Built Into an iPad (NYT) • Oldest dinosaur nest site found (BBC) • Meet the Marriage Killer (WSJ) • “What if…” Movies reimagined for another time & place… (Behance Network) What are you reading? >

The Shift from Manufacturing to Service Economy Posted: 26 Jan 2012 11:30 AM PST On Sunday, we looked at how the iEconomy Shifts Labor Trends. I lamented about a a fantastic graphic in the print edition, showing changes in Manufacturing versus Service Jobs from the 1960a; it was nowhere to be found online. Huzzah! After discreet inquiries, we managed to free the Kraken from its print prison: > click for enormo version (at bottom of jump): Source: NYT

Behind the financial crisis: A fraud investigator talks Posted: 26 Jan 2012 11:00 AM PST Tom Borgers was tasked by a Congressional commission to investigate the causes of the financial crisis and found repeated examples of mortgage fraud. So why have no high-ranking bank executives been prosecuted? ~~~ Source: Behind the financial crisis: A fraud investigator talks

Word of the Day: “Zombie Debtor” Posted: 26 Jan 2012 10:41 AM PST zombie debtor: n. An indebted consumer who is only able to pay the debt interest each month. Example Citations: “There’s a new term being coined for payday borrowers who are able only to pay the interest on their loans — zombie debtors — so that the principal debt just rolls on, and while there’s talk of those institutions having a code of conduct introduced, that’s only in the pipeline at present and we want people to know that there is an alternative in the shape of Scotcash,” he said. —Joan McFadden, “Loan service launches attack on the zombies,” Herald Scotland, December 30, 2011 It is feared that 3.5m people will turn to payday lenders in the next six months but research shows that nearly two-thirds will regret the decision.Many will be unable to pay off the loan and risk becoming “zombie debtors“, only able to pay off the interest on what they owe. —Nick Sommerlad, “Church of England ban on payday investments,” Daily Mirror, December 19, 2011 Via Word Spy

7 yr auction soft, inflation expectations rise Posted: 26 Jan 2012 10:38 AM PST The 7 yr auction, the 1st of course since the Fed events of yesterday, was somewhat soft. The yield was above the when issued by about 1 bp and the bid to cover of 2.73 was below the 12 month average of 2.82. Direct and indirect bidders also took the least amount since May ’09. Bottom line, the Fed can pin short rates to any level they want but once you get past 5 years, inflation expectations become an influence and the marketplace adjusts those rates. Due to the Fed’s attempt to juice inflation, the implied inflation rate in the 5 yr TIPS today has risen to 2.03%, the highest since August. Implied expectations 10 yrs out are at 2.13%, just shy of the highest since Oct ’11. We don’t know if this rise in inflation expectations was a factor in the mediocre auction today but there is no question the Fed continues to play inflation chicken with the longer end of the yield curve. For now though, the Fed has certainly won (helped out by Europe’s debt problems).

New Seat Class: “Premium Economy” Posted: 26 Jan 2012 09:58 AM PST Source: What’s ‘Premium Coach’ Worth? (WSJ)

How Much Rally Is Left? Posted: 26 Jan 2012 08:37 AM PST Wed, Jan 25, 2012 8:45 AM EST > Source: Market Rally of 2012 Is Almost Over: Bianco

Average Correlation of S&P 500 (1986-2012) Posted: 26 Jan 2012 08:34 AM PST A preview of this afternoon’s discussion on correlation: > Click to enlarge: Source: Bianco Research

10 Thursday AM Reads Posted: 26 Jan 2012 06:45 AM PST My morning reading material: • Analysis: Bernanke paves the way for QE3 (Calculated Risk) see also Bernanke Makes Case for More Bond Buying (Bloomberg) • Why Home Prices Have Much Further To Fall (Advisor Perspectives) see also Don't Count on Housing Market to Lead Recovery (Bloomberg) • A Who's Who of Davos Absentees (DealBook) • Bank of America Settlements Impede Fraud Probe, Arizona Says (Businessweek) see also Activists Call for Breakup of Bank of America (DealBook) • Suing JPMorgan over MBS? Say thanks to bond insurers (Reuters) • California calls $25-billion mortgage settlement ‘inadequate’ (LA Times) see also Eric Schneiderman promises aggressive financial fraud probe (LA Times) • Uncanny Valley: The Real Reason There Are No Skyscrapers in the Middle of Manhattan (Observer) • How (not) to defend entrenched inequality (Crooked Timber) see also Romney's Tax Bill, European Style (Economix) • How a late night talk show works (Storify) • Turn off, tune in, drop out (Science News) see also Neural correlates of the psychedelic state as determined by fMRI studies with psilocybin (PNAS) What’s on your to read list? >

A quick look at ETFs Posted: 26 Jan 2012 05:30 AM PST The Financial Times – Look to history for profitable stockpicking The growth, proliferation and popularity of exchange traded funds has had consequences not all of which are beneficial. Today investors need no longer discern and analyse the differences between Exxon and Chevron since the Energy Select Sector ETF provides an opportunity to own both. And while the Technology Select Sector ETF, the short-cut to own S&P tech stocks, gives you both Apple and Google, you also end up with some MasterCard stock. As might be expected, this has created more interest in group, sector and top-down approaches… One of the difficulties in analysing historical sector performance has been the lack of data. For one, the S&P had approximately 100 groups, 20 of which might have been considered consumer-orientated. In 2001 S&P introduced 10 economic sectors, which made analysis somewhat easier but their data were only backdated to 1989. My firm subsequently took the data back to 1962 and then beyond. Source: Bianco Research

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