Monday morning thoughts ...
* Bonds took it on the chin last week due to the March jobs report. That report was definitely stronger than expected, with 180,000 positions added versus expectations for 130,000. Average hourly earnings are up a hefty 4% year-over-year, underscoring the bond market's simmering inflation fears.
* Speaking of inflation fears, the 10-year TIPS spread is up ... again ... to 249 basis points today. That's the highest since the end of August 2006.
* In yet more convincing evidence that the mortgage problems are completely, utterly, totally confined and contained to the subprime world (ha-ha), American Home Mortgage Investment Corp. warned that its first-quarter profit will miss earnings expectations by a country mile. It said investors are just not paying up for bundles of home loans like they used to, including loans with better credit quality than subprime mortgages. It also said it had to boost reserves to cover repurchases of Alt-A loans ... repurchases driven by early borrower defaults.
* The private equity pandemonium continues, with rumors out of Great Britain of a $50 billion+ takeover of Dow Chemical. That would be the biggest buyout deal to date.
Look, I have no problem with takeovers and leveraged buyouts of troubled companies. They help clean up corporate waste, make companies lean and mean, and otherwise boost productivity. It's American capitalism at its best.
But a lot of today's deals involve companies that are in fine shape (Equity Office Properties, anyone?). They seem to be happening just because big money investors have flooded LBO firms with money. In a word, it's just another manifestation of the Money, Money Everywhere trade, where excess liquidity sloshes from investment fad (residential real estate) to investment fad (commercial real estate, LBOs), drives valuations to dumb levels, and then moves on to find the next bubble.
I have some more thoughts on the matter in this piece.