Today’s Daily Angle comes from Wikinvest Wire member REITWrecks.com. You can read the full article on the REIT Wrecks blog.

Whew! After a furious year of churning CMBS, repurchasing outstanding corporate debt and refinancing its bank loans, among other feats, Northstar Realty Finance (NRF) actually ended the year with a little bit of cash. That’s the good news. The bad news is they’re going to need it.

Northstar now has about $238 million in cash, which includes the all important figure of $138.9 million in unrestricted cash. This is discretionary cash, the kind of stuff that Hamamoto can use to expense dinners at Bobby Van’s. The remaining $99.4 million is bottled up inside Northstar’s CDOs, and the ability to profitably reinvest that cash is diminishing by the day as credit spreads tighten and the CDO reinvestment periods expire.

If you strip out all the non-GAAP AFFO noise from NAREIT, you can see the nail-biting story unfolding: Northstar’s cash flows from continuing operations have been declining rapidly. It’s true, Northstar did manage to generate $54 million in cash for all of 2009, but that’s down from $88 million in 2008 and $102 million in 2007. Obviously, an almost 50% drop in operating cash flow is not the sign of a healthy business, but the fact that Northstar is currently in an unhealthy business should also come as no surprise.

The question is, what can Northstar do about it? In the short term, the answer is not much. Northstar’s portfolio is running off, interest rates are at all time lows, and Northstar’s CDO funding model is dead. 2009 interest income of $142.2 million was $70 million less than 2008, and $150 million less than 2007. As Northstar’s asset balances decline, so too have Northstar’s advisory fees and rental income.

The lack of good options may be why NRF is attempting replace this revenue with management fees, and in the meantime Hamamoto is generating a lot of work for his accounting department with the debt buybacks and CMBS trading, but all of this is clearly a stop gap, and it’s just not enough.

Not only that, management fees are not ramping up nearly as fast as Northstar needs them to ramp up, and at the current pace, they may never ramp up. Northstar Realty Income Trust, the new non-traded REIT, has not yet been declared effective by the SEC, and Northstar can’t start raising money in earnest until that happens.

However, judging by its new Reg D offering, Northstar Income Opportunity REIT I, Northstar’s shiny new Denver broker/dealer operation isn’t knocking the cover off the ball. The first investor commitment was made on September 24th, but as of early February, Northstar Income REIT I had only raised $3.1 million in equity. This is certainly not failure, but managing $3.1 million will definitely not pay the rent at 399 Park Avenue. Furthermore, starting a broker/dealer from scratch is neither cheap nor risk free. Northstar must now comply with a whole new raft of federal and state securities laws, and be exposed to the liability that arises from selling shares to retail investors through hundreds of rowdy, independent securities brokers across the country.

On top of paying rent on the 18th floor, dinner at Bobby Van’s, and the expense of starting up a brand new broker/dealer, under its new credit facility with Wells Fargo, Northstar must make $30 million in annual amortization payments. Also, through its loan book, NRF is on the hook for $80 million in future funding commitments, of which only $51.9 million will come out of the CDOs. $50 million in operating cash flow doesn’t create a huge margin for error in a capital intensive business, so Northstar will likely have to borrow most of the remaining $28.1 million using credit facilities.

So what is Hamamoto thinking? That’s unclear, but NRF is definitely walking a tightrope, and that may explain the management and board changes at the end of Q4. Curiously, REITs have collectively raised almost $30 billion of debt and equity capital since the crisis began, and Crexus, Colony Capital and Starwood Capital were among several Mortgage REITs to raise almost $1.5 billion. Somehow, despite the stellar performance of its portfolio, NRF just barely managed to squeeze $25.7 million out of this deluge.

Some portfolio managers I know have said that Hamamoto is not part of the “REIT Mafia”, and therefore he is not always invited to the REIT fundraising parties. This may or may not be true, but I’m not sure what else could explain NRF’s decision to throw a hail mary into the cesspool of Reg D offerings and non-traded REITs.

I spent all day reading the 10K in search of an answer, and it seemed to confirm the REIT Mafia conspiracy theory, as well as the fact that NRF has chosen a particularly rocky path to circumvent it:

“we cannot currently raise large amounts of corporate equity capital at attractive levels...we hope that our reputation in the marketplace will enable us to be early in raising corporate capital when market conditions improve.”

One thing is for sure, Reg D offerings and non-traded REITs won’t do much for NRF’s reputation, so shareholders may also want to hope there is a contingency plan brewing somewhere on the 18th floor.

Today’s Daily Angle comes from Wikinvest Wire member Rob Powell of TelecomRamblings.com. You can read the full article on Rob’s blog.

Level 3 Communications (LVLT) brought its local markets initiative to northern California. They will be grouping together the markets of San Francisco, San Jose, Oakland, and Sacramento with a general manager, and will be adding both capacity and staff in the region. This is the second such initiative on the west coast, the first being up in Seattle last summer. No doubt we will see a southern California initiative at some point as well, however San Francisco is the last of the markets the company has publicly scheduled.

Unlike on the east coast where they acquired multiple metro footprints of different types per market, Level 3’s metro assets on the west coast are more homogeneous. They consist of the original Level 3 build plus a bit from Looking Glass, and whatever metro bits and pieces Broadwing and WilTel had (not much). Because that footprint has mostly wholesale origins, Level 3 begins its SF Bay area initiative in the mid-market enterprise segment with 450 miles of metro fiber but relatively few actual enterprise customers relative to its other markets.

So far, the company has said that its local markets initiative has been having a very positive effect on sales where it has been introduced. However, those effects have thus far not been large enough to really show up in the overall numbers. Perhaps that is both due to the length of sales cycles and to more general churn related to both the economy and internal shifts in focus. In 2010 the market will be looking for that to change as the effort gains both scope and momentum.

Today’s Daily Angle comes from Wikinvest Wire member Asset Prime. You can read the full article on the AssetPrime blog.

Last month, a couple of the major commodities exchanges announced the addition of some new futures contracts to help producers and consumers of raw goods hedge their expenses, and simultaneously give commodities traders three more reasons to develop stress-related ulcers.

First, across the pond, the world's foremost metals market, the London Metal Exchange (LME) last week opened trading of cobalt and molybdenum futures. In shocking concordance with my previous post about the emerging need for a lithium futures contract, the cobalt contract is designed specifically with battery manufacturers in mind, cobalt being a major input to rechargeable batteries in things like laptops and cellphones. Molybdenum, which I had never heard of before this Wall Street Journal article, is apparently used in the production of stainless steel.

Meanwhile, here in the States, the ever-growing Chicago Mercantile Exchange announced that it will be adding a contract for distiller's dried grain (DDG), a by-product of corn ethanol production. This is interesting because, with the addition of the contract, which will begin trading in April, ethanol producers can now effectively hedge every step of their production. For example, before the harvest you might buy a corn contract so as to protect yourself from unexpected price swings at your local grain elevator. Then, once you've got your corn and begin distilling ethanol, you can sell both a DDG and ethanol contract to lock in prices for your two resultant byproducts. Further, you can buy or sell oil, gas, or natural gas contracts to take advantage of spread deviations between the fuels. This is also interesting because the DDG contract may become a major hedge-staple for corporations that produce ethanol for non-fuel purposes... you know, like Jack Daniel's. The government, and now the private markets, are conspiring to make ethanol a real and viable energy source with plenty of economic safegaurds.

A bizarre reaction to these announcements is concern that opening these contracts to the public will increase volatility in the prices of the commodities and could potentially drive them too far one way or the other. Yes, that is true, prices will become more volatile... but only for the traders. The hedgers (people producing and consuming ethanol) actually need volatility to protect themselves from things like price-fixing and sudden, unexpected swings. Without an open public market, there's no way to plan for and predict what DDG would and will cost. To be clear, hedgers are not entering and exiting positions over and over to make a quick buck, they are locking prices in, exiting positions, and taking the difference as market protection.

Today’s Daily Angle comes from Wikinvest Wire member Kathy Lien of KathyLien.com and FX360.com. You can read the full article on her blog.

With mixed to slightly better than expected U.K. economic data, traders may be scratching their heads about why the British pound has collapsed more than 300 pips this week. Here are a couple of reasons:

1. Britain’s Prudential announced plans to buy AIG’s Asia operations for $35.5 billion in cash and stock - since this is partially a cash deal, it will involve selling British pounds.
2. Gilts Losing Luster - According to the FT, the gap between the U.K. and German interest rate has risen to the highest level since 2005. Even though the official U.K. interest rate is less than the Eurozone’s interest rate, the cost of servicing government borrowing in the U.K. over Germany has increased significantly. Click here for my chart comparing the UK-GE 10 Year Bond Yields
3. BoE Could Raise QE - Based upon the dovish comments from Bank of England officials at the beginning of last week, there is a tiny risk of the BoE raising the size of their QE program on Thursday. Even if they do not, the tone of their statement will be dovish which is also bearish for the GBP.
4. Short GBP/USD Positions Hit Record Highs - According to the CFTC Commitment of Traders report published on Friday, short GBP and EUR positions have hit the highest level ever. Forex traders are clearly very bearish pounds and they have good reasons to be with jobless claims at 12 year highs and consumer spending falling by the most since Feb 2009.
5. Stop Orders Tripped, Hedge Fund Selling - There has also been a lot of chatter about hedgies selling the GBP. There were a ton of stop orders sitting at the previous 9 month low of 1.5117. When the GBP/USD broke that level, the currency pair dropped very quickly. The selling exacerbated when stop orders at the 1.50 level were tripped, but the big move came when the GBP/USD broke below 1.4935 - it fell 158 pips in 3 minutes.

With so many straws on the camel’s back, it was bound to fall under the pressure. A bounce is not out of the question after such a big move particularly since the GBP/USD has not able to rally for the past 9 trading days. However unless the BoE stops talking about QE and we don’t expect them too, the GBP will continue to be the worst performing currency.

Finally, the GBP/AUD has hit a record low. Last week, I blogged about how shorting GBP/AUD is my favorite trade. At the time it was trading above 1.73 and today it hit a low of 1.6545. Hopefully you managed to bank some solid profits. I still expect it to move lower - but this is where trailing stops should be implemented to lock in profits. Click here for my technical chart comparing GBP/AUD

Today’s Daily Angle comes from Wikinvest Wire member Richard Wilson of HedgeFundBlogger.com. You can read the full article on Richard’s blog.

Global hedge funds managed to post modest gains in February 2010. A large trend, as reported last week, was betting against the Euro while largely avoiding stocks. Early data for last month shows that the average hedge fund increased 0.34%. The mild gains may help offset a disappointing January and weak returns in the end of 2009.

Hedge funds are not required to release their returns and so any indication of performance is closely followed. Later this week several other firms that track performance and flows are expected to release their numbers.

"Overall, hedge funds are still cautious on equities, but appear to have returned to commodities," the analysts wrote, adding that hedge funds continue to buy energy and metals during the last week of February while also adding to "their bearish position on the Euro." The euro has lost roughly 5.25 percent against the dollar this year. According to the Wall Street Journal, managers at Soros Fund Management, SAC Capital Advisors and Greenlight Capital were betting against the euro.

Already during the fourth quarter George Soros's hedge fund more than doubled its bet on the price of gold. Source

Today’s Daily Angle comes from Wikinvest Wire members MarketFolly. You can read the full article on the Market Folly blog.

For those of you who haven't had a chance to read this yet (shame on you), here it is: Warren Buffett's annual letter and Berkshire Hathaway's annual report. For value investors and future Buffett wanna-be's, this is must-read material.

One very interesting thing to note about Buffett's letter is how he mentions that many of Berkshire's holdings heavily rely on consumer spending and housing demand. While Berkshire has obviously survived [2008 Financial Crisis|the crisis]], those are areas many foresee a very slow recovery in. So, those companies will have to operate efficiently as they continue to face challenges. At the same time though, Buffett took advantage of the crisis to secure many solid deals and acted on his old adage of buying when others are fearful. He even expanded on this with an excellent new quote, saying "When it's raining gold, reach for a bucket, not a thimble."

Additionally, as we assumed when we reviewed Warren Buffett's portfolio, he confirmed that he sold positions to finance his impending acquisition of railroad Burlington Northern Santa Fe. And this purchase continues to signify a growing trend in Buffett's portfolio: he's investing in industries that have monopolies or near-monopolies.

Buffett's letter gives his take on the economy, his investments, and various Berkshire components. You can directly download the .pdf here.

Of course a lot of criticism surrounding the letter is the lack of discussion regarding succession plans for when Buffett eventually steps down. This is a legitimate concern for investors and in the past we've posted up a great video that examines potential successor candidates at Berkshire. Many think Sokol will be the man for the job, but we'll have to wait and see.

So while his latest letter didn't provide any breakthrough new information, it's always good to hear his thoughts. For more great investment reads, head to Warren Buffett's recommended reading list.

Today’s Daily Angle comes from Wikinvest Wire member Blain Reinkensmeyer of StockTradingToGo.com. You can read the full article on on Blain’s Blog.

Looking to add some hot Exchange Traded Funds – ETFs – to your investment portfolio?

If so you need to read the list below which consists of the 10 best ETFs based on overall return from the last month. Note: ETFs must trade atleast 50,000 shares per day to be included.

Top ETFs

1. Direxion Real Estate Bull 3X (DRN), up 14.36%
2. Direxion Small Cap Bull 3X (TNA) up 11.46%
3. Direxion China Bull 3X (CZM), up 11.09%
4. ProShares Ultra Real Estate (URE), up 9.66%
5. Direxion Midcap Bull 3X (MWJ), up 9.14%
6. ProShares Ultra Basic Materials (UYM), up 8.15%
7. ProShares Ultra Semiconductors (USD), up 8.11%
8. ProShare Ultra Russel 2000 (UWM), up 7.38%
9. Spider S&P Retail (XRT), up 7.32%
10. ProShares Ultra Midcap 400 (MVV), up 7.20%

Pretty noticeable to see that the majority of ETFs are ultra and triple leveraged. Due to new regulation the margin required to buy these types of funds has been increased but they still remain extremely popular.

Today’s Daily Angle comes from Wikinvest Wire member CreditWritedowns.com. You can read the full article on the CreditWritedowns blog.

Canada reported a somewhat disappointing Q4 09 current account data yesterday, but this is not sufficient to change our preference to buy Canadian dollars on weakness.

The current account shortfall was C$9.8 bln instead of the C$8.5 bln the consensus expected. Adding insult to injury the Q3 deficit, already a record, was revised lower to -C$13.8 bln from -C$13.1 bln. The improvement was slower than the market had expected in Q4 and the external sector may be a drag on Canadian growth in the coming quarters.

But this has already been acknowledged by officials and appears to have been taken on board by the market. And Canadian growth appears to have picked up considerably in Q4. Canada will report Q4 GDP on Monday, March 1. It is likely to be 10-fold better than the 0.4% annualized pace reported in Q3.

In addition, there is some speculation that Canadian officials may soon provide some more guidance on the unwinding of some of its extraordinary liquidity facilities. Such a statement could be seen as early as March 2nd after the Bank of Canada policy meeting (which no one expects any change in policy). The Bank of Canada has already ended two of its three main emergency lending programs. The last one is a term repo facility and officials have committed themselves to ending in late June.

In recent weeks we have recommended being long Canadian dollars against sterling. The bounce earlier this week got our stop, but at current levels we like being long CAD vs the US dollar, but also the Mexican peso.

• Currency
• Forex
• Bank of Canada

• Canadian Dollar
• American Dollar
• British Pound
• Mexican Peso

Today’s Daily Angle comes from Wikinvest Wire member Saj Karsan of BarelKarsan.com. You can read the full article on Saj’s blog.

What a difference a year can make! Last year at this time, as the market set low after low, investors were cautioned to be aware of companies with defined benefit pension plans. Since shareholders are on the hook for the pension obligations, any drop in pension plan assets (as a result of the market declines) should result in a drop to a company's valuation.

This year, the opposite effect is taking place. As companies with fiscal years ending on December 31st will release their annual reports in the coming weeks, companies with defined benefit plans will likely see improved financial positions! Since pension asset values are only reported once a year, investors using 3rd quarter reports are likely underestimating the value of their companies under study. In other words, companies with defined benefit plans are likely worth more than investors are giving them credit for!

As an example, consider Twin Disc (TWIN), a company we discussed as a potential value investment last year. Last year, the value of the company's pension assets fell by $24 million, pushing the company to cease accruing pension benefits for employees. For a company with a market cap of just $100 million, this change in the value of its pension assets is clearly material to the value of the stock.

Since the broad market has gained significantly in last several months, Twin's assets have likely experienced a material gain as well. Unfortunately, until the 10-K comes out (and for TWIN, that is not for several months, as their fiscal year-end is not the same as the calendar year-end), all the investor can do is estimate the gains.

Unfortunately, estimating gains is not easy. While companies do disclose their planned asset allocations, determining the rise in values of private equity or real-estate investments is not an easy task. Furthermore, in the interests of conservatism, investors are cautioned from being overly optimistic when estimating returns. However, in cases where pension assets are material, recognition of this issue can help the investor improve the accuracy of his valuation.

Today’s Daily Angle comes from Wikinvest Wire member Dividend Growth Investor. You can read the full article on DividendGrowthInvestor.com.

Three well-known dividend aristocrats raised dividends last week. The companies include Coca-Cola (KO), Abbott Labs (ABT) and Sherwin-Williams (SHW). Another promising dividend raiser included Swiss Company Nestle (NSRGY). In dividend investing it is important not only to concentrate on companies with solid competitive advantages, but also ones which grow earnings and dividends along the line.

The Coca-Cola Company (KO) manufactures, distributes, and markets nonalcoholic beverage concentrates and syrups worldwide. The company’s board of directors recently approved the Company's 48th consecutive annual dividend increase, raising the quarterly dividend approximately 7 percent from $0.41 to $0.44/share. This dividend aristocrat currently yields 3.20%. (analysis)

Abbott Laboratories (ABT) manufactures and sells health care products worldwide. The company’s board of directors increased its quarterly dividend by 10% to 44 cents/share. This marks the 38th consecutive year that Abbott has increased its dividend. This dividend aristocrat currently yields 3.20%. (analysis)

Nestle (NSRGY) engages in the nutrition, health and wellness sectors. The company is proposing a dividend increase of 14.3% to CHF 1.60/share ($1.477). This international dividend achiever has raised distributions each year since 1997. The stock currently yields 3%.

The Sherwin-Williams Company (SHW) engages in the development, manufacture, distribution, and sale of paints, coatings, and related products. The company boosted its quarterly dividend by 1.40% to 36 cents/share. This marks the thirty-second consecutive annual dividend increase for this dividend aristocrat. The stock currently yields 2.20%.(analysis)

Of the four stocks mentioned, Coca-Cola (KO) and Abbott Labs (ABT) are attractively valued at the moment. Sherwin-Williams (SHW) not only has a low current yield but also the last two dividend increases have been disappointing, making the stock a hold. Nestle (NSRGY) does look like a promising candidate for addition to a dividend growth portfolio, since it would also bring in some international diversification. I would place it on my list for further research.

Full Disclosure: As of writing, author is long ABT and KO

• KO
• ABT
• SHW
• NSRGY

• Dividends
• Dividend Yield
• Value Investing

Today’s Daily Angle comes from Wikinvest Wire member Kathy Lien of KathyLien.com and FX360.com. You can read the full article on her blog.

Burger King’s decision this week to raise the price of a double cheeseburger from $1 to $1.19 and to remove one slice of cheese from the double cheeseburger on its dollar menu (they now call it the BK Dollar Double) is a perfect example of the dilemma that major U.S. corporations are dealing with in the current economic environment.

Their costs are going up on the producer level because of higher commodity prices and in a healthy economy, Burger King would have simply raised the price of the burger. However with demand weak, they are forced to cut their offering by giving you only 1 instead of 2 slices of cheese if you order from the dollar menu. For those people that still want 2 slices of cheese on their hamburger - be prepared to pay up. While $1 menu items can boost traffic and sales, restaurant operators can lose money if too many of those sales come from money-losing items and this problem is exacerbated by rising prices.

This week, we saw a sharp increase in producer prices but virtually no growth in consumer prices. Producers are having a tough time passing on higher costs to consumers and are therefore left with the tough choice of either:

1. Eating the cost
2. Skimping on the product or
3. Risk losing customers by raising the price

None of these options are good ones but this is the consequence of operating in a country with an unemployment rate of 9.7 percent.

This is inflation - disinflation in the works my friends.

In the meantime, if you are hungry for a double cheeseburger, eat as many as you can by April 26 because that is when the price increase will be implemented!

Today’s Daily Angle comes from Martin Hutchinson of Wikinvest Wire members MoneyMorning.com. You can read the full article on the Money Morning blog.

In the monthly U.S. Treasury report this week, it was announced that China had sold $34.2 billion of Treasuries in December (or allowed short-term ones to run off), making Japan once again the largest holder of U.S. Treasuries.

The battle between China and Japan for the title of largest holder of this dubious asset is not very interesting. What's more interesting is the question of where China is instead opting to invest. After all, $34.2 billion is a fair chunk of change, and China's overall reserves are growing - not shrinking - and now total $2.4 trillion.

The People's Bank of China usually keeps its holdings a carefully guarded secret, much more so than for most central banks - our knowledge of its holdings of Treasuries comes from U.S. data, not from China. We do, however, have some evidence about the Chinese government's investment thinking, thanks to the holdings of China Investment Corp., the country's $200 billion sovereign wealth fund.

CIC got heavily involved in the U.S. financial business in 2007, buying a $3 billion stake in The Blackstone Group LP (NYSE:BX) and a $5 billion stake in Morgan Stanley (NYSE:MS) - in both cases, 9.9% of the outstanding common. Neither of those investments turned out particularly well - Blackstone is down about 60% from CIC's buy price while Morgan Stanley is down about 40%.

More recently, CIC has turned toward natural resources, in 2009 buying 17% of Teck Resources Ltd. (NYSE:TCK) and 13% of Singapore-based Noble Group. Teck Resources is a major diversified mining company, while Noble is a global commodities trading/supply-chain manager with $36 billion in sales.

For CIC, the bad news is that because commodities companies have wimpy market valuations compared with the overstuffed titans of Wall Street, its investments in Teck and Noble were much smaller - $1.7 billion and $1.1 billion, respectively. Still, those investments have turned out a lot better - CIC's Teck investment is worth about 110% more than it cost and its Noble investment has risen about 60% - with both increases coming in less than a year.

So which do you think the Chinese government is motivated to invest in - the staggering titans of U.S. financial services or rapidly growing commodity producers? That's without taking into consideration the fact that China has an ever-increasing thirst for commodities, because of its rapid growth, whereas it has perfectly competent banks of its own.

Click here to continue reading this article on the Money Morning Blog.

• Blackstone
• Morgan Stanley
• Teck Resources

• Investing in China
• Investing in Japan
• US Treasury Bills
• Debt
• Commodities

Today’s Daily Angle comes from Wikinvest Wire member Asset Prime. You can read the full article on the AssetPrime blog.

According to the US Census Bureau, January housing starts were up from December, as well as January 2009. Specifically, according to the Bureau's report:

Privately-owned housing starts in January were at a seasonally adjusted annual rate of 591,000. This is 2.8 percent (±11.5%) above the revised December estimate of 575,000 and is 21.1 percent (±12.3%) above the January 2009 rate of 488,000.

It appears I was wrong with my initial assessment and the housing market indeed showed signs of picking up in January, potentially contributing to the Lumber run-up of the last month. However, the actual meaning of the housing start increase is slightly more complicated than the above quoted numbers and, I would make the case, much less meaningful than reports are making it out to be. Let me explain.

First, regarding the meaning of the number itself, the 2.8% increase in housing starts is an increase in the seasonally adjusted housing start rate. Because the US Housing market is highly seasonal (i.e. more building projects begin in the spring and summer months) examining trends on a purely month to month basis is not meaningful when analyzing long-term trends. Housing starts will almost always go up in March, and they will almost always go down in October. As such, the US Census Bureau developed a statistical method called X12 (and its predecessor X11) used to remove the expected seasonal effects of this type of data. The best article I could find describing the algorithm is, oddly enough, on an old Federal Reserve Bank of Dallas webpage, but suffice to say the algorithm is designed to remove expected seasonal effects for a given data series, thereby showing the actual overarching trend. Thus, the published number is a point estimate for what the current annual housing start rate is; in this case, 591,000 housing units started per year. As with any statistical analysis, there is a margin of error to that point estimate, and the margin is given right in the reporting sentence. "This is 2.8 percent (±11.5%) above the revised December estimates..." Wait a minute, 2.8% ±11.5%? That should give us a range of –8.7% to +14.3% and, if I'm not mistaken, –8.7 ≤ 0 ≤ 14.3. As any statistician can tell you, a confidence range that includes zero is not statistically significant at all. And the Census Bureau uses a 90% confidence interval in their calculations, so it's not as though they're being overly conservative with their estimates and confidence ranges. In other words, this number is fundamentally meaningless. In fact, if you actually bothered to read the report (as apparently no one in the media did) you'd see that the "±11.5%" figure is asterisked with a footnote that reads as follows:

"90% confidence interval includes zero. The Census Bureau does not have sufficient statistical evidence to conclude that the actual change is different from zero."

So, in other words, there is no evidence that there was a change in the seasonally adjusted rate WHATSOEVER. This number is meaningless. Moving on, despite the lack of evidence for a month over month change, the increase in rate from January last to now does appear to be truly significant, with a confidence interval of 21.1 percent ±12.3% (between 8.8% and 33.4%) for the change from January 2009's seasonally adjusted rate. (Note that that range does not cross zero.) The report also lists the raw housing start numbers (those that haven't been seasonally adjusted). Here are the highlights (all numbers pulled from the aforementioned report):

• 2008 Year in full: 905,500
• 2009 Year in full: 554,500
• January 2009: 31,900
• November 2009: 42,300
• December 2009: 37,100
• January 2010: 37,800

The takeaway from all of this is that the housing market has improved significantly since 2009. In fact, using either the December or January estimate for the seasonally adjusted housing start rate yields a significant improvement over the 2009 total figure. However, there is not sufficient evidence to suggest that any further progress has been made over the last two or three months, the numbers (both seasonally adjusted and raw) do not demonstrate sufficient statistical significance to draw that conclusion. Starker still, is that the market today remains at about 65% of where it was in 2008.

How did the Lumber market respond to all this? Somehow, despite the hype, prices moved mostly sideways; either this information was already priced in, or it doesn't really exist.

Full Disclosure: As of writing, author is short May 2010 Lumber (LBK10)

Today’s Daily Angle comes from Wikinvest Wire member Yves Smith of Naked Capitalism. You can read the full article on NakedCapitalism.com

The latest move in the “so what are we gonna do about Greece?” EU vs. Greece drama was that Greece was playing non-negotiable, saying it had agreed to reduce its fiscal deficit by 4% of GDP (from over 12.7% to 8.7%) and it was premature to talk about doing more at this juncture.

That posture is not going over well in Brussels. This is the key section of a recap from Bloomberg:

The ministers from the 16 nations that use the euro told Greek authorities to ready more deficit measures by March 16, in case the government fails to show sufficient progress on its budget goals in a report to the European Commission…. “We’re waiting for Greece to prove that it’s taking very seriously the commitments it has made,” Luxembourg’s Jean- Claude Juncker said late yesterday after leading a meeting of euro-area finance ministers in Brussels. Should the government’s efforts not satisfy the commission, the EU “will impose on Greece the acceptance of additional measures,” he said...

The ministers signaled that Papandreou’s plan may not be enough and told the government to prepare more measures by mid- March, including higher value-added taxes, a new levy on luxury goods, increased taxes on energy products and cuts in capital spending. It’s up to Greece to decide on the specific actions.

Yves here. One thing that strikes me as odd is various remarks from EU officials that come close to saying that Greece needs to be punished. Huh? This may simply be playing to audiences back at home, but even the deemed-to-be-inadequate 4% budget cut is going to be exceedingly painful. Deflationary debt unwinds are ugly affairs and no country that has been through one is keen to go repeat the experience. Just consult the record of Thailand and Indonesia post the Asian crisis.

Despite the current apparent loggerheads, most observers seem confident that Greece will knuckle under because it has to. Not only does Greece face the pressure of maturing debt starting in April, but the EU can also impose very hefty fines for Greece’s violation of Maastricht rules. But even though the markets seem more upbeat about the euro this morning, any resolution is likely to be a hard-fought process.

Today’s Daily Angle comes from Wikinvest Wire member REITWrecks.com. You can read the full article on the REIT Wrecks blog.

Not even Joe DiMaggio could have hit this change up. Just one year ago, the United States financial system stood on the brink of failure. GDP had declined by 6.25%, the most severe contraction since 1982. In November 2008, non-farm payrolls were cut by 533,000, the most severe contraction since 1974. But just a few months later, right after the ink had dried on the largest corporate bankruptcy filing in American history (Lehman Brothers), U.S. GDP managed to grow at a 5.7% annual rate -- the fastest expansion in 6 years.

It's a remarkable turnaround, but the problems in commercial real estate persist. CMBS defaults at the end of 2009 registered a five-fold increase over 2008. In two of the hardest hit sectors, hotels and apartments, almost 10% of all CMBS loans were delinquent at the end of 2009. Fitch says overall CMBS default rates could reach 12 percent by 2012.

Indeed, even God is losing money on commercial real estate. Lenders are foreclosing on Stuyvesant Town and Peter Cooper Village, which was acquired in 2006 for $5.4 billion. Stuyvesant Town is a huge property, so it's not surprising that the acquisition set the mark for the highest price ever paid for a multi-family residential asset. What is surprising is that just four years later, the value of the property is estimated to have declined by 70%. The investor group included the Church of England, and the foreclosure completely wiped out its $250 million investment.

Since divine intervention appears to be out of the question, investors are understandably nervous about the $1.5 trillion in commercial real estate debt maturing over the next three years. Nevertheless, despite the carnage yet to come, the decline in commercial real estate prices is unlikely to cause a rain delay in the nascent economic recovery.

This is primarily because the U.S. commercial real estate market is much smaller in comparison to other important markets. Based on flow of funds data from the Federal Reserve at the peak of the market in 2007, the corporate bond market was worth $3.5 trillion; U.S. government securities $5.1 trillion, single family securitizations stood at $6.8 trillion and all single family mortgages amounted to $11.2 trillion. Meanwhile, the commercial real estate market was worth about $6.8 trillion in total, with only $3.3 trillion of that comprised of debt.

Just as important, the problems in commercial real estate have been well-telegraphed, while the full extent of the problems in single family were not clear until we were well into the crisis. Not only have the problems been well telegraphed, and well documented, but Jamie Dimon (CEO of Chase) is already declaring a bottom. "Commercial real estate is a train wreck, but it's already happened," Dimon said during a speech at a J.P. Morgan health-care conference in San Francisco last month.

While commercial real estate debt maturities are clearly still a problem, sophisticated investors from all over the world have lined up piles of dough for America's distressed real estate play. Combine that with banks and special servicers that are determined not to sell into a weak environment, and the result is 30 or more bids for distressed commercial property sales in major markets, with some bids coming from as far away as Germany and South Korea.

I personally was involved in the recent bank sale of a non-performing loan for 60 acres of entitled but otherwise empty desert outside of Phoenix, and that sale attracted 26 bids. If entitled single family residential land in Arizona isn't the absolute belly of the beast I don't know what is, yet most of the bids for that flaccid loan were all cash.

What we're witnessing is the market's sometimes noisy process of converting debt to equity. That process is working, greased by baksheesh from all over the world. So why all the unrelenting gloom and doom with regard to commercial real estate and the economy? It's pretty simple really: in this era of populist schadenfreude, people love to read about it.

Today’s Daily Angle comes from Wikinvest Wire members MarketFolly. You can read the full article on the Market Folly blog.

At the recent Russia 2010 conference, an interesting question was posed: how would you invest $100 million for 12 months? The panel included hedge fund manager Hugh Hendry, black swan-er Nassim Taleb, and Marc Faber, among others.

Taleb presented a few ideas that he would allocate to the 'risky' portion of the portfolio. He likes a short of the S&P 500 and a long of precious metals (gold, silver, platinum) in a fixed ratio of around 1.5 to 1. He also suggests to buy an out of the money option on hyperinflation through a basket of instruments on gold, treasuries, etc. He doesn't care about inflation, he wants to possibly game the slim chance of hyperinflation. He says you will probably lose money on the play, but if you're right and hyperinflation hits, you can win huge. Lastly, he also says that you should be shorting US treasuries, something we've seen numerous prominent hedge fund managers recommend.

Hendry then took the mic and was his usual entertaining self. He focused on how everyone at the conference had a different opinion and he was sick of opinions, saying "Who cares about that opinion? You pay people for what they do with that opinion." And he brings up a very good point. It's one thing to have a trade idea or research, but it is quite another thing to execute it. We've postulated that this could potentially be the problem over at Peter Thiel's global macro hedge fund Clarium Capital as they've had a rough past two years.

Hendry says that he doesn't even need to spend all the $100 million to invest, but rather just a tiny amount of it. He simply underwrites the risk that the Bank of England will cut rates further. He takes the proceeds from this and uses it to cheapen an option that bets against the English central bank raising interest rates over the next four months. If they raise rates, all he loses is his premium, which is not a lot. However, if nothing happns, he can make five times his money. It's all about the risk/reward skew. He also mentioned that he had a John Paulson-esque play where you could make 75 times your money and only risk a tiny amount, but he teased the audience and said he'd save that for another time. We've previously covered some of Hendry's hedge fund commentary on the site as he's been the resident deflationist.

Some of the answers from other panelists were also intriguing as they favored emerging market consumer plays. They also recommended avoiding: credit, real estate (especially commercial) in the western world, as well as western financial institutions.

We highly recommend watching the video of the hour-long panel here.

Today’s Daily Angle comes from Wikinvest Wire member Rob Powell of TelecomRamblings.com. You can read the full article on Rob’s blog.

After holding back the tide through 2009, it seems that AT&T (T) could no longer stall the inevitable. In quick succession, both the Sling Player and Skype have apparently been given the green light to operate on the iPhone over the operators 3G network. Sling Media’s app was unceremoniously rejected as a bandwidth hog back in May, and restrictions on Skype usage were fodder for many months in the network neutrality debates. Now the barbarians have successfully entered the castle, and the question is: now what?

The AT&T network is already straining to serve current iPhone demand. According to Andy Abramson, VoIP over 3G is no panacea anyway even without the congestion. And as for video, while the Sling Player adapts to current network congestion levels, it still has the potential to add huge amounts of bits to the network which cannot be ignored. Since other similar apps are popping up like daisies above a compost heap and each is likely to be approved as well, is AT&T going to be able to keep up? It’s one thing to earmark an extra few billion dollars to your capex budget, it’s quite another to actually install all that new gear.

And for that matter, if they do keep up does that mean their revenue from voice minutes will suffer as people shift calls to their data plans? I can’t help but think that there is going to be a major pricing shift from AT&T and Verizon soon in response.

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