NYTimes has got one of the more disturbing reads of the day, and admittedly there are more and more of these around lately: “Contracts Now Seen as Being Rewritable” Really? While this article refers specifically to employment contracts, we are downright scared of where this might be going. Apparently, so too, is The Washington Post, who’s got their very own version of the same tale: “Hard Line on Auto Aid Puts Bailed-Out Firms on Notice”. Right. Good times. What’s any of this got to do with the bond market? Donno. Have to say, though, the fundamentals (weak’ish data coming, month and qtr end, Fed buying, NO coupon issuance, and an ECB rate cut) along with technicals should be adding up to higher prices and flatter curves, and that’s just not working out. Yet. So we’ve had to dig deep to find whatever correlation is working at the moment and best we could do is stocks. This in mind, have a look at our PDF – we’ve brought forward Bloomy Chart Of Day which echoes Barrons article from weekend (stocks vs bonds ratio) and couple stories we’ve mentioned just above should have lasting impact on equity and risk-taking markets. Perhaps even unintended consequences . Sort of like FASB 157 – M2M – if/when it gets put on ice, banks swing to PROFITS (?), maybe they don’t have to sell into the TARP or PPIP. There goes Geithners latest plan. That a good thing? Donno. We’re obviously all over the place this morning, though. Have a good start.
Here’s an excerpt of OUR rant
We’re chaulking the following story up to being bond-guys watching stocks and NOT liking ourselves for it! We came across the following Chart Of The Day on the Bloomy terminal and thought we’d mention it as it seems to have caught EVERYONE’s attention – was subject of Barrons article which we linked to on yesterday’s PDF. While we’re not saying we agree or not, we’re just saying that it helps us justify being bond guys watchin’ stocks, at least for now:
S&P 500’s Earnings Yield Looks ‘a Bit Paltry’: Chart of the Day
By David Wilson
March 30 (Bloomberg) – U.S. stocks are too expensive compared with corporate bonds to justify buying them after this month’s rally, according to Barry Knapp, a strategist at Barclays Capital.
The CHART OF THE DAY illustrates how Knapp drew his
conclusion: by looking at the so-called earnings yield on the Standard & Poor’s 500 Index and the yields on investment-grade corporate debt, represented by a Barclays Capital index.
The earnings yield shown in the chart is calculated from S&P’s data on as-reported profits, including writedowns, at S&P 500 companies. On that basis, the index yielded 1.83 percent at last week’s close. Corporate bonds yielded 7.7 percent.
Knapp’s estimate for this year’s S&P 500 operating earnings, or profit before writedowns, amounts to a 5 percent earnings yield. The number “seems a bit paltry” relative to the investment-grade yields, he wrote in a March 27 report.
Purchasing stocks “implies a degree of confidence in a sharp recovery that doesn’t jive with the available evidence,” Knapp wrote. First-quarter earnings at non-financial companies are likely to be “quite poor,” the report said.
Knapp reduced his estimate for S&P 500 operating profits to $41 from $46 a week ago. His number is the third-lowest among 10 strategists in a Bloomberg survey.
The S&P 500 jumped 23 percent between March 10 and March 26 after falling to its lowest level since September 1996.
For Related News and Information:
U.S. stock strategy: TNI USS STRATEGY <GO> Top stock-market stories: TOP STK <GO> Bloomberg columns: NI COLUMNS BN <GO> Current opinion: OPED <GO>
–Editors: James Greiff, Laurence Arnolds‘
To contact the reporter on this story:
David Wilson in New York at +1-212-617-2248 or firstname.lastname@example.org
To contact the editor responsible for this story:
James Greiff at +1-212-617-5801 or email@example.com
Right. Moving on then, we couldn’t really figure out how to wrap the following story/video clip into our daily rant except to say that, well, tough economic times call for some tough, belt-tightening measures. With that in mind, we bring you the following heart-wrenching story of an X-Wall-Street’er. Get the Kleenex ready for the following CNBC spot: Life After Wall Street – One woman who made the choice to strip after being laid off six years ago and never looked back, with NBC’s Natalie Morales.