Now the point is that “Rate”, in real life, follows an inverted U. The peak effect on the level of GDP comes at the top of the curve, but the peak effect on growth comes earlier, before the curve flattens out. In the table above, spending peaks in the second quarter of 2010, but the peak impact on growth is in the third quarter of 2009, i.e., it’s behind us. That’s true even though by the end of 2009 less than a third of the money has been spent. 

And when the spending begins to tail off, the effect on growth turns negative.

Free Institutional Research

via World Beta - Engineering Targeted Returns and Risk by Mebane Faber on 12/28/09

While I use Hedge Fund Letters for my hedge commentary fix, I was wondering a little about where to go for the best free institutional research published online.  I’m thinking in the vein of GMO, Hussman, PIMCO, Research Affiliates, etc.  I’m going to start a list below, feel free to make some comments and I’ll add as they come in.  Only requirement is the author(s) have to be institutional money managers:

PIMCO

Hussman

Research Affiliates

First Quadrant (I really liked this currency paper)

Buffett Letters

Munger Letters

Bridgewater

GMO

Tanker Glut!

via The Big Picture by Barry Ritholtz on 12/28/09

Back in September, we discussed the Ghost Fleet of the Recession.

Here’s the latest (via Bloomberg) on the tanker glut:

“A 26-mile-long line of idled oil tankers, enough to blockade the English Channel, may signal a 25 percent slump in freight rates next year.

Traders booked a record number of ships for storage this year, seeking to profit from longer-dated energy futures trading at a premium to contracts for immediate delivery, according to SSY Consultancy & Research Ltd., a unit of the world’s second- largest shipbroker. Ships taken out of that trade would return to compete for cargoes just as deliveries from shipyards’ largest-ever order book swell the global fleet.”

If you view the recovery as mediocre, stimulus-driven, hampered by a credit-constrained consumer, than tgius is what you would expect.

The trade in oil that would surprise most people isn’t a rise to $100 from $75, its a drop to $50 . . .

Source:
Tanker Glut Signals 25% Drop as 26-Mile Queue Overwhelms Demand
Alaric Nightingale and Alex Kwiatkowski
Bloomberg, December 28, 2009

http://www.businessweek.com/news/2009-12-28/tanker-glut-signals-25-drop-as-26-mile-queue-overwhelms-demand.html

Christmas Bonuses for Fannie and Freddie

via Marginal Revolution by Alex Tabarrok on 12/26/09

The Obama administration tried to sneak this one under the radar by making it official on Christmas Eve.  The Washington Post did a good job catching the story:

The Obama administration pledged Thursday to provide unlimited financial assistance to mortgage giants Fannie Mae and Freddie Mac, an eleventh-hour move that allows the government to exceed the current $400 billion cap on emergency aid without seeking permission from a bailout-weary Congress.

...But even as the administration was making this open-ended financial commitment, Fannie Mae and Freddie Mac disclosed that they had received approval from their federal regulator to pay $42 million in Wall Street-style compensation packages to 12 top executives for 2009.

The compensation packages, including up to $6 million each to Fannie Mae and Freddie Mac's chief executives, come amid an ongoing public debate about lavish payments to executives at banks and other financial firms that have received taxpayer aid. But while many firms on Wall Street have repaid the assistance, there is no prospect that Fannie Mae and Freddie Mac will do so.

On the Change in Q3 GDP

via EconomPic by Jake on 12/28/09

I hope you all are having a nice holiday season thus far. I am back in civilization, though I plan to keep posting light the remainder of the week.

I did want to touch upon the large downward revision to GDP prior to this becoming "last years news". The AFP reported:

The US economy limped forward at a 2.2 percent pace in the third quarter, according to government figures Tuesday that suggest a tepid recovery from recession.

The downward revision from last month's estimate of 2.8 percent growth in gross domestic product (GDP) came primarily from a weaker contribution from business investment, as well as slightly slower consumer spending growth.

The Commerce Department report confirms that the world's biggest economy swung back to growth in the July-September period after four quarters of contraction in the worst recession in decades, but with little forward momentum.

Scott Brown, chief economist at Raymond James & Associates, said the report was "a bit disappointing" and suggests "that underlying domestic demand is pretty soft."
Brown said he expects a jump in growth to at least 4.0 percent in the current fourth quarter, but says much of that will come from restocking of business inventories drawn down in the recession.

Below is a chart detailing what was revised down from the initial 3.5% release to the "final" (i.e. it can still be revised) 2.2% figure. It turns out... everything (consumption, investment, government spending, net exports).

Overall contribution remained centered around the rebound of the consumer in the face of mounting debt / high unemployment, but subsidized deals (i.e. cash for clunkers) winning the battle. Growth in investment and government spending outpaced the negative impact of the rebound in imports (what... you thought we were consuming only American made items????).

Source: BEA

Valuation Ticks Higher

via Bespoke Inv - whole posts by Paul Hickey on 12/24/09

The most recent new high for the S&P 500 has been accompanied by a big tick higher in the trailing 12-month P/E ratio.  We'll definitely need to see some earnings growth in 2010 for this rally to continue.

Don't miss the 2010 Bespoke Roundtable. 

Ford: Zero (Nearly) to Double Digits in 13 Months Flat

via Bespoke Inv - whole posts by Paul Hickey on 12/23/09

It's hard to believe that just 13 months ago this week, shares of Ford (F) nearly broke the buck.  Today, the company is trading above $10 per share for the first time in over four years, and it's the envy of all other American car makers (or what's left of them).  Amazingly, Ford (F) is one S&P 500 company that is actually higher today than it was when the S&P 500 peaked in October 2007.

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Darth Vader opens Wall Street

via kottke.org by Jason Kottke on 12/22/09

Darth Vader and a number of Storm Troopers from the Star Wars Saga rang the opening bell at the New York Stock Exchange.

(via @kngofwrld)

Tags: finance   Star Wars   this is a metaphor for something   video

Financial Sector Breaks Downtrend

via Bespoke Inv - whole posts by Paul Hickey on 12/22/09

The S&P 500 made a new bull market closing high today, but the action in the Financial sector was probably even more important.  The S&P 500 Financial sector has been underperforming the overall market lately, and it is a main reason why the major indices haven't been able to break out of their trading ranges.  Today, however, the Financial sector broke above its short-term downtrend line, which is a very positive technical formation.  If the Financials start moving higher again, the market should have no trouble making another leg higher.