The most interesting stuff this week:

  • The AAA mortgage papers are downgraded for the first time. Some institutions are not allowed to hold bonds below certain rating, so that kind of action usually triggers automatic sell-off of the whole position. Remember, AAA tranche is usually the 80% of the whole issue, it’s a lot of money
  • The retail sales came unbelievably high. By “unbelievable” I mean that this is one of those cases where I think the numbers are incorrect. But even if revised down I think the economy is still alive and kicking. For now
  • The takeover boom about to go bust – oh, oh
  • Commercial real estate is in big trouble – the “meltdown” in the CMBS market has caused a “sea change” in the amount that real-estate investors can borrow. More here
  • Core CPI came at only 0.1% – consumer buying power is fading
  • The home rent component of CPI increased only 0.1% in May, comparing with 0.3% in Feb and March. Commercial real estate is in double trouble
  • Manufacturing capacity utilization is very low – 79.9%. If there is no rebound soon then prices will collapse
  • Bernanke is very curious why people are still spending while the home prices are collapsing
  • Consumer sentiment is already at the level below one at the start of the last recession

What to watch next week:

  • Things are getting more and more interesting. We are certainly at the pivot point in stock market, commodities and bonds – all at once. So this time the answer to the question “what to watch” is “watch everything!”
  • I’d like to know the result of Bear Stern’s auction of $4 billion of mortgage junk