Author: Sober Look

Sober Look is a no-hype financial markets/macro blog that typically relies on data analysis, primary sources, and original materials. We keep it concise, to the point, with no self-promoting nonsense, and no long-winded opinions. If you are looking for Armageddon predictions or conspiracy theories, you will be thoroughly disappointed. Topics include financial markets, banking, asset management, risk management, derivatives, global economy, policy, and regulation, with the emphasis on finance education. Follow him on his blog or twitter.

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Here are my most recent posts

Merkel goes to China to halt German economic slowdown

Merkel goes to China to halt German economic slowdown

By Sober Look The yield spread between US treasuries and German government bonds hit a new high last week (see chart). Was this divergence in rates simply a response to the ECB action last month (see post) in combination with stronger jobs data in the US or is there more to it? Part of the answer has been softer than […]

Four key reasons for capex accelerating

Four key reasons for capex accelerating

Sober Look’s received a number of e-mails regarding the recent post on the possibility that rising CAPEX spending in the US is driving corporations to tap their credit facilities, thus increasing loan growth. Most were highly critical of this line of thinking in their comments, using words such as “bogus”, “propaganda”, “head fake”, “delusional”, etc. But let’s just look at 4 key data points.

The US jobs market is healing

The US jobs market is healing

We are seeing signs of significant improvements in US labor markets. The ADP report today was certainly an indication of recovery from the winter slowdown. One area to watch in the ADP report is construction, as construction payrolls have consistently increased each month over the past year. With demand for rental units remaining high, this sector could pick up quickly.

Jumbos still cheaper than conforming mortgages

Jumbos still cheaper than conforming mortgages

For years mortgage rates on “jumbo” loans have been higher than for traditional (conforming) mortgages. Since jumbo loans were larger than the upper limit permitted to be packaged and sold to Fannie and Freddie, banks would typically charge a premium for “illiquidity” on these products. But starting last year conforming mortgages became more expensive for borrowers than jumbo loans.

Markets dismiss the risk of higher rates inhibiting growth

Markets dismiss the risk of higher rates inhibiting growth

Many continue to argue that the rate normalization taking place now will slow business activity in the US. Good luck betting on that however. There is no question that corporate America had benefited tremendously from extraordinarily low rates. Many US firms have locked in these rates over the past couple of years by refinancing – interest expense savings that go directly to the bottom line. But what will happen now as rates “normalize”?

Capex may be behind the sudden improvement in US loan growth

Capex may be behind the sudden improvement in US loan growth

Credit growth in the US seems to have stabilized and may be on the rise. It’s worth mentioning that the bottom in loan growth just happened to correspond to the start of Fed’s taper. Coincidence? Maybe. But why is corporate America increasing its borrowing all of a sudden? The most likely answer is the improvement in capital expenditures (capex), which is evidenced by firmer capital goods spending by US companies.

Will the slowdown in US services sector reverse with warmer weather?

Will the slowdown in US services sector reverse with warmer weather?

In trying to assess the trajectory of the US economy, one is struck by the recent divergence between the manufacturing and the services sectors. Most analysts blame the weakness in the service sector and the resulting softness in the labor markets on the weather. If that is indeed the case, as temperatures cimb, we should see a material rebound in service oriented businesses and therefore some big improvements in the jobs picture later this spring. That would mean more Fed taper and higher yields.