> An impressive November Factory Orders report offered a respite from the
> recent round of weak economic data.

Yes, and maybe even nudge up Q4 forecasts (forecasting the past).

Also, if you look at the continuing claims graph since 1980, it is very low, especially when considering the growth in the labor force, and the latest rise isn’t yet at all meaningful.

> Another data point likely be viewed as
> an incremental positive by the Fed, was the first increase in Asset-Backed
> Commercial Paper outstanding in 20 weeks.

Yes, and the banks are now actively competing for that business. Markets are ‘functioning’ albeit at different rates than before.

> The ABCP market has been around
> for over 20 years. Between 2005 to 2007 it grew by 80% to $1.2 trillion as
> it became the primary funding tool for SIVs.

Yes. And before that, GDP managed to somehow grow, hitting 6%+ in the late 90s before the surplus took it all down.

There is now very good evidence -not that it was needed- that the financial sector adds little or nothing of value to the ‘real economy’ and instead acts as a massive ‘brain drain’ on the real economy.

> The market enabled SIVs to
> initiate hundreds of billions of dollars of leveraged spread trades. The
> SIVs borrowed short in the ABCP market and used the cash to finance
> purchases of mortgage backed securities, CDO’s and other credit instruments.
> Investors have made it clear to the ABCP market that they will no longer
> finance these carry trades. As a result, from August to December. The ABCP
> market shrunk by 37%. One of the concerns, the Fed has expressed has been
> that the legitimate participants in the ABCP market would be cut off from
> financing.

Right, hasn’t happened, and now, as you state, it is going the other way, and cheaper wholesale funding is again becoming available and again taking that lending away from the banks..

> This news could be the first to sign the ABCP market is
> returning to a sense of normalcy, which should be viewed as a minor positive
> and monitored for further improvement.

Agreed, thanks!


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