January 21, 2008   Tony Crescenzi at NYSSA event

The following are notes I took at a conference I went to see Tony Crescenzi last week.  I enjoyed the presentation, the lunch and informal lunch discussions with other NYSSA members.  These notes are not all encompassing.  I often take notes on items that I feel I could or will benefit from.  Hence, these notes are hardly complete.  I enjoyed the presentation so much, that I ordered two of Crescenzi's  same book for our office, "Stigum's Money Market, 4E".  I didn't want to risk being without one ;-)


"Tony Crescenzi is the Chief Bond Market Strategist at Miller Tabak + Co., LLC where he advises the equity desk and its clients on issues related to the bond market, the economy and other macro-related issues."

This is what NYSSA mentioned as a summary of the event.

"Stigumís Money Market is the definitive book on the money market, a market that was at the center of the firestorm that hit the financial markets in 2007. Stigumís book has long been described as ďthe bibleĒ of the money market, selling nearly 250,000 copies despite its hefty price tag.

Tony Crescenzi, author of the Fourth Edition of new features of
The Money Market, gives his insights into the latest edition of one of one of the most popular books ever written about the bond market. Topics will include: Federal Reserve studies, research from internationally recognized institutions such as the Bank for International Settlements, and ways in which investors can become better Fed watchers. Stigumís Money Market is the most relevant work on the subject and will be an invaluable tool for others throughout the 2007 credit crisis and beyond."

Notes are in Black, my comments are italicized.

1.    During November 2007 industrial production gave a slight warning that cycle might be changing from Virtuous to Vicious.

2.    Claims typical unemployment numbers need to be increased to 160% of the reported amount, to get the "Total Real Unemployment."  This is based on unemployed no longer being tracked, and other reasons.  He claimed this has been the typical multiplier.

3.    Look for Philly Fed to release factory activity.  This is an important item to track.  http://www.philadelphiafed.org/ .  He claims that 20 or below reading has always been a recession since 1968. 

4.    Best indicators to track are "consumer confidence", "factory output" and "employment."  Look for changes in cycles.  This could help predict when recessions are ending.  You will see change in spending before you see change in relative output.  Output is a lagging indicator.  If output is changing, see if it is changing different than the change in spending.  For example, if spending goes up 5%, then other companies will want to meet that demand and in the future increase output. (As I write this, I wonder how inventory excess would be accounted for here.  Meaning spending could increase, and then inventory used, hence perhaps no change in output?)  He went on to discuss, "Look for pick up in spending and look at the following indicators weekly:  Chain Store Sales, Mortgage Bankers Association, Car Sales and Home Sales.  If these change up, then economy will change up, and equities should go up.

5.    He indicated that typical recession lasts for 9 - 10 months.  Typically you would start buying 5 months into the recession. (I think recessions are defined as drop in growth for 2 quarters or 6 months, hence if recession does last 9 months, you might not know you were in a recession till you were out of it.  That is difficult to conceptualize.  I need to study this at greater length.)  He thinks recession started in December.  If that were the case, he thinks buying equities should start around May 1, 2008.  Rather than guess, wait for a "violent employment number, which should be a rally killer." ( My handwritten notes had this scribble, "I find that odd.  Is a typical recession 8 months long?  Will this recession be typical?")

6.    Look at Freddie Mac Website  http://www.freddiemac.com/  .  They have Thursday updates, sometimes not posted till Fridays.  You can monitor rates and applications.  Look for changes in dynamics.  Tony claims that Adjustable Rate Mortgages are starting to change downwards.  Yet, he does not think that mortgage extraction will be as great this time as the past.  He still believes there will be extraction, which in turn will cause spending to rise off its lows.  Again, not to regain prior change in velocity.

7.    Demographics - Death figure is predicted to rise by 6% over next 5 years, and 8% over next 5 years.  (I do not know where he gets this data from.)  Claims that age 55+ are the textbook 2nd home buyers.

8.    Housing Starts - when looking at housing starts subtract 300,000 from starts.  This is what he considers to be the "teardown" units.  Hence if we are shown that there were 1M units started, subtract 300K for a net of 700K units started.  He monitors this, because the 700K is really new housing inventory availability, since the other 300K are just upgrades of some type.  He feels the new adjusted housing starts are low compared to the population changes.

9.    Inventories -  Feels they are extremely low.  Look at production.

10.    Exports - Expects exports to stay strong.  Weaker US Dollar will help that.

11.    Corporate Cash - still high.  Watch ratios of profits > Capex.

12.    Government Balance Sheets - Look at ratio of "Deficit / GDP"

13.    Watch where the Sovereign Wealth Funds put their money.  Watch global infrastructure spending.

14.    Innovation - watch Best Buy and Apple sales.  ( I somewhat agree, yet one can monitor disruptors as well.  Perhaps Microsoft will accelerate market share on various devices, for example the "Zune.")

15.    Sub-Prime resets are ready to abate.  (yet, he did not discuss seasoning of Option ARM mortgages.  We discussed this at length at this link http://rbcpa.com/companies/CFC_notes.html )

16.    Reduced drag from construction can't go on forever.

17.    One of the best tools that should be used is Federal Reserve Bank of San Francisco  http://www.frbsf.org/