Bet he finds the smuggest and richest investment firm of them all, which profited from betting against the debt market, while all the while continuing to sell bad debt to clients.
Sorry I missed the fun. I'd tell you what my attention was absorbed in yesterday but it would gross you out much more than anyone deserves at this hour of the day.
Prepare yourselves for more antibiotic metaphors . . .
I was listening to CNBC yesterday (I think it was Kudlow, but am not sure) and they were talking about how this might be a problem for the IB's,
ESPECIALLY Goldman Sachs.
They went even further and asked if Senator Dodd (D) would perhaps try to go after Henry Paulson since he was chief of GS when a lot of these deals were written. The commenters universally said "yes".
The consensus on CNBC was that this is very similar to what happened in 2001 when the analysts were privately saying "sell" and laughing about stocks when publicly they rated them as "buy"
IMO:
I'm not sure it matters what legally happens here. The IB's might have finally killed the golden goose
They have been caught packaging crap and promising it's a rainbow. To everybody. Then to make matters worse, they're trading opposite of what they are peddling...
Did the IBs really know the extent of the damage to the ABS they were creating in 2006? It seems like they placed a lot of credence in loan charateristics (FICO, LTV, % purchase) that began to lose their predictive validity as UW standards degraded.
I'm not sure it matters what legally happens here.
Well . . . there's probably a legal difference between failure to exercise due diligence, on the one hand, and omission of material fact on the other.
That is: it's not news to anyone that the IBs (and RAs) didn't do much loan-level due diligence.
However, they (the IBs, at least, if not the RAs) did some. And if outfits like Clayton turn over their due diligence reports in response to a subpoena, and those reports show that the IBs in fact did know that the cake had been left out in the rain (as opposed to merely suspecting it as any--ahem--reasonable person would), then we have a nastier picture for the IBs.
And that's nasty for two reasons: one, obviously, is that they then had material information that was withheld (presumably) from investors in the securities. The other is that they had material information that might have (if the firewall didn't work) encouraged them to bet the other way.
The more interesting part of the story is why only 3 IBs? Certianly GS, LEH etc are doing a lot of securitization (I went through LEH report last night and they originated 45B mortgage and 45B commercial loan in the first 9 month of this year. so no small potatoes). I would think that the probe will expand further. This is only the first wave....
In the case of George Orwell's "Keep the Apidistra Flying":
The aspidistra of the book's title comes from the pot plants to be found on every window sill which, for Comstock, symbolise all that is wrong with the "mingy, lower-class decency" he is desperate to escape.
So . . . you can't forecast cash-flows out 26 years or else you're Enron.
What, pray tell, are people who make 30-year mortgage loans supposed to do?
I think everyone knows that long-term forecasts have to keep getting revised, but aren't we in a situation in which everyone made a bunch of 30-year loans and only "projected cash flows" until the first reset?
Cuomo is going to target the rating agencies. They're the weak link.
It's a standard prosecution. Find the guy you can get, get him, and then cut him a deal.
The rating agencies are going to rat the banks and investment firms.
It will take time, but Cuomo is highly motivated, doesn't give a shit, and has a picture of Kathleen Kennedy on the wall with her MacDonald's boyfriend on the polo pony to keep him feisty.
Massive ADP employment change of 189K versus 50K expected.
Clearly someone left the cap off of the glue last night, to come up with these numbers out of thin air...its just like the printing press and our dollar..out of thin air.
So . . . you can't forecast cash-flows out 26 years or else you're Enron. What, pray tell, are people who make 30-year mortgage loans supposed to do?
It's one thing to forecast cash flows for long periods of time. It's quite another to base your capital requirements - especially when they're government-mandated - on the assumption that those forecasts will be 100% accurate.
Fer chrissakes, hasn't anyone at the GSEs heard of a 95% or 99% confidence level before? Or did someone run the numbers and just not like the result that dropped out? Because, given the long time frame and multivariable nature of the calculation, I'm sure the 3-sigma capital requirement would be seen as hugely conservative, and, really, "why should we tie up all this excess capital for no reason"?
...Aren't we in a situation in which everyone made a bunch of 30-year loans and only "projected cash flows" until the first reset?
But Tanta, that model worked for a long time. Worked very well in fact and generated huge upfront fees every few years. At the same time because they were around for only a few years rather than the typical 8-9 the theory was that the shorter term reduced exposure thus allowing riskier lending. Like I said, it worked until it didn't. It isn't a coincidence that summer 2006 was 2 years from the Fed initiation of raising rates Jun 2004. Too bad that many mortgages decoupled from the Fed Funds rate. Gee more inside advance information to preserve revenue? Sorry, too much tinfoil.
Something tells me "what did you know and when did you know it" is about to reenter the popular lexicon.
The ratings agencies...as they exist today...are and should be toast. As should be the insurers(what a crock, let me enhance your leverage with some of my own...there that's better).
Then the IBs should be whipped with reeds for strong-arming the ratings agencies.
"Massive ADP employment change of 189K versus 50K expected."
Utter BS! Does not reconcile with thousands and thousands of people turning out to apply for 300 Walmart jobs.
Stuart | 12.05.07 - 9:41 am | #
Actually yes it does... but you'd have to live in a place where Walmart jobs are considered the GOOD jobs. Better pay and better conditions. I go to those kinds of places regularly.
Wall Street might be corrupt, but the Fed is on their side. The Fed is on the case with rate cuts. Until the Street no longer reacts possitively to the cuts, the stock market will head higher. As we've seen the last couple of days, the bad news will have less effect and the good news, today, will be rewarded.
The Fed seems to feel that although the banks and brokers have screwed up big time, they can't punish them without destroying the entire economy, especially since the housing market is in recession.
Although I'm a longer term bear, because I believe the rate cuts will fail to save the RE market or credit markets, in the near term the Street will have faith in the Fed, strong seasonal factors (investors believe in the Santa rally) and incresed bearishness should lead the stock market higher into early next year.
Sorry I missed the fun. I'd tell you what my attention was absorbed in yesterday but it would gross you out much more than anyone deserves at this hour of the day.
Prepare yourselves for more antibiotic metaphors . . .
Tanta | Homepage | 12.05.07 - 8:39 am | #
On my way to deciding NOT to go to medical school I learned the world is one giant petri dish, good thing its tightly contained... just like in financial matters.
Something is wrong with the payroll survey, which ADP is designed to track. It could be a statistical glitch. It could have to do with the shape/timing of this recession. Or it could be outright govt. manipulation.
Almost everybody who is on top of this situation is looking at the household survey as the accurate measure of job growth at this time.
Under the graph, click on "% Chg. from Yr. Ago." This is the real picture of employment, and it shows that the U.S. economy is about to enter recession. There is no employment strength or surprise in the U.S. Less than 100,000 civilian jobs have been created in the first 10 months of 2007.
Although I'm a longer term bear, because I believe the rate cuts will fail to save the RE market or credit markets, in the near term the Street will have faith in the Fed, strong seasonal factors (investors believe in the Santa rally) and incresed bearishness should lead the stock market higher into early next year.
It's interesting that Bernanke seems to part from the Greenspan doctrine some what in his writings. It seems to me that Bernanke believes that the Fed should take a more activist role in suppressing asset bubbles. Which is interesting IMO because it explains some of the Fed's recent behavior, and also suggests that they've got no good options currently with bubbles still abounding besides the credit collapse (yay, bubble).
Again, I say this is just as much a behavioral problem. We've put the people that would essentially dismantle the economy for profit into positions of great power in the business world. So that's just what they're doing.
It takes fire to clean something like that out, and I don't think the Fed is up to that task. So I think I would tend to agree with you, but might have to change my mind tomorrow.
I hate to defend the brokers, but somehow I doubt Cuomo will turn something up.
The brokers had these propeller-head models that said the stuff they were selling would be fine. Maybe they didn't believe their own models, but at least there was plenty of analytical justification for pushing the product.
Of all the brokerage firms, two -- Goldman and Lehman -- managed to hedge themselves against subprime declines. Those two still have to deal with the possibibility of CDS counterparty defaults, which could yet sink them.
"Britain's mortgage lenders should brace themselves for a double-whammy of funding shortages and rising bad debts next year as conditions in financial markets look set to worsen, the Financial Services Authority warned yesterday."
The FSA warned lenders to prepare for the worst, amid fears of rising customer defaults, frozen wholesale funding markets and a surge in withdrawals of retail deposits that would force some institutions to wind down or sell up.
Clive Briault, head of retail at the FSA, told the Council of Mortgage Lenders that, to ensure their survival, companies would need to get liquidity funding in place even if that meant paying a higher price that reduces profits.
Mr Briault's dire warnings pointed out that at least 1.4 million short-term fixed-rate mortgages to customers who have stretched themselves will end next year. Those customers "will find it difficult (if not impossible) to refinance their mortgage on favourable terms... which may prove too much for many of them to afford". Sub-prime borrowers may not be able to borrow at any price, he added.
I imagine ADP has to forecast the output of the birth/death model. It has no incentive to get this "right". In fact it has every incentive to forecast the same exact birth/death adjustment that the BLS will report on Friday. So ADP is an advance measure of a faulty measure.
Like Rich said, the household number is now the more important one. The recent decline in Proprietor's Income points to a downturn in small businesses, and the household survey is better equipped to capture that trend.
Will these parties be able to point to the fact that they originated the same type of loans in 03 and 04 as in 05 and 06 but the impaired performance of the later issues are more related to market conditions than any changes in due diligence?
The whole process of mortgage originations grew to reward parties with a high tolerance for risk not for an assessment of risk. There are so many different parties responsible for this mess that it's going to be difficult to hold one party accountable when so many people had a hand in it.
What is their incentive structure? Also, do you recall how ADP came in with their numbers before the "shock and awe" 50bps FFR cut? The official numbers were horrible then heavily revised, I don't recall what ADP looked like then...
I imagine ADP has to forecast the output of the birth/death model. It has no incentive to get this "right". In fact it has every incentive to forecast the same exact birth/death adjustment that the BLS will report on Friday. So ADP is an advance measure of a faulty measure.
Right, the purpose of the ADP is to forecast the BLS payrolls, because that's where the easy speculative money is to made. Its purpose is not to provide useful economic data.
The ADP numbers were good and my guess is the numbers tomorrow will also be good.
The numbers aren't BS - they are what they are - way too much conspiracy talk here when the numbers are "positive".
Since everyone on this message board always argues that employment is a lagging indicator to GDP growth (which I definately agree with) this really should come as no surprise - GDP growth in Q2 and Q3 accelerated over the prior quarter.
Obviously things are slowing and I suspect employment will soon show a decline, but it doesn't look like thats going to happen this quarter.
I am by no means a bull and have been short the financials for several months - I also think a recession (and a severe one) is around the corner. But the numbers we get are always imperfect so need to be taken with a grain of salt - that being said, they usually are directionally right.
Seeing the numbers and calling them BS because they dont jive with your views is the exact same attitude that got us into this mess. I'd really expect more from the people who post on this board. I can get the uninformed "head in the sand" view from any one of the 28-32 year old money managers living in the greater NYC area.
Ok then prove to me where all this hiring is taking place...I know quite a few people looking for work...so maybe you can point them in the right direction.
NEW YORK, Dec 5 (Reuters) - Countrywide Financial Corp's (CFC.N: Quote, Profile , Research) chief executive called on the U.S. Congress to temporarily raise the maximum size of mortgages that Fannie Mae (FNM.N: Quote, Profile , Research), Freddie Mac (FRE.N: Quote, Profile , Research) and the Federal Housing Administration may buy or insure by 50 percent to $625,000.
"The pace of bad loan production in the US can't be maintained at profitable levels with the current cap of $417,000," Mozilo wrote.
besides, borkafatty, the jobs number doesn't count the QUALITY of the jobs only the QUANTITY.
I watched the ADP guy on CNBC. If I recall $197k jobs were from Retail/Service (probably mcdonald's, seasonal xmas hires, etc)
then there were losses in financials and housing (all off the top of my head)
If your friends want a job, send them to Minnesota. We have tons of jobs around the metro area... and COL isn't too bad compared to coasts... but higher than the rest of flyoverland excepting chicago.
but then you gotta live in winter my friend!
I know someone who works at NordicWare, a slightly higher end ceramics company... they've done really well this year due to dollar devaluation... now their products sell in Europe...
also Medical information technology consulting is BLAZING right now. nobody can keep up. If your friends have a CS major get them into medical information (like Epic, Cerner, etc). the other half does this and income's gone up 50% in the last 1 year.
Let's see what the revisions are and then get preachy, healthy skepticism seems in order when we have seen the recent swings, including directional changes, that we have seen recently. Especially if we are at an inflection point.
Color me (and I suspect others here) somewhere in between the blindly credulous and the tinfoil brigade...
Borkafatty -
Are you kidding me? So we should assume the sampling of people you know trumps what ADP says?
Your argument sounds just like all the knuckleheads who manage trillions of dollars and have never been through a consumer led recession or housing decline that say "never underestimate the resilience of the US consumer...."
Oy vey. Your arguments are Sebastian-esque.
Yearning -
Good point on quality versus quantity. I suspect thats reflected in income growth which has clearly slowed.
WSJ reports ADP figures include significant gains in financials (+10K) and a small decline relative to recent months in construction (-6K). And they may be correct.
I believe their intent is to anticipate the BLS estimate. If this is the case, their adjustment algorithm will be subject to the same effects CR has detailed elsewhere, wherein their reportage is less reliable at deflection points (either up or down).
The point is not so much whether they're correct or not, it's that their reliability is at its weakest when it's most important or useful to get it right.
It will be three months before the hard data is here. I'll be pleased to cede your point if financials and construction turn out to be close to the ADP figures.
My point is that ADP doesn't estimate job growth, it estimates the job growth that the Payroll Survey will report. Two (way) different things. Its not so much a monetary incentive, its just that the ADP survey was set up to that from the get-go.
Energyecon -
Everyone on this message board is preachy - I'm just trying to fit in.
I'm all for healthy skepticism - I'm only pointing out what I think is "unhealthy" skepticism. I also dont think the "current" jobs situation is reflective of where we are going.
My view of the numbers and healthy skepticism is: "The jobs numbers from ADP were pretty good, but the skeptic in me says that they wont be in the coming months and that we are on the cusp of a significant slowdown."
We dont know the revisions and they are just as likely to go up as ADP's numbers did in September and October.
Even if they get revised, it doesnt appear that ADP's recent revisions have been all that severe.
Did you say the August numbers were wrong when they came out and were horrible? I didnt.
Like I've said, the numbers were good, but it doesn't change my views.
As a previous poster noted, the ADP numbers are what they are - so what is that, anyways? The link below describes their methodology, ans sinces its been too dang long since I ground through an econometrics course I thought I would post the elements from the methodology section that might contribute to later revisions resutling in retrospectively noting an inflection point:
The new matched sample growth rates are seasonally adjusted using X-12
ARIMA, with estimated outliers in each cell replaced with the predicted value
from the underlying ARIMA model; the occurrence of estimated outliers is rare.
The sample period for the estimation of the seasonal factors (and the centered
moving average) is advanced each month.
An additional adjustment for 5 week intervals between BLS survey dates is made
by regressing the matched sample growth rates is each cell on a dummy variable
that has a value of one in long months and zero otherwise. If the variable is
statistically significant, the regression is used to eliminate the effect of the long
month in that cell. Significant long-month effects were found in approximately
25% of the 90 cells.
Using the seasonally adjusted data, matched-sample growth rates by industry are
computed by taking a weighted average of the matched sample growth rates by
size within each industry. The weights are based on monthly interpolations of the
March estimates of employment by industry and size from the Quarterly Census
of Employment and Wages (QCEW).
Obviously the $417K conforming liquidity fire hose isn't big enough... but what happened to the nice round $1MM cap proposal? Is that now 'off the table'? Or under it? Is Tan Man just trying to sound... 'responsible'?
"Hey we'd love to see $625K but a mil? Ya we'd take that too..."
The ADS numbers have been questioned before but supposedly they are based on real data, like checks being cut. Anyway, for what it's worth, I continue to receive calls for projects in the project controls field. I have 15 unanswered voice mails that have accumulated over the past few months. At the moment, I'm just sitting on these and the sometimes accompanying emails as I prefer to trade but don't want to burn my bridges if I need a more secure source of income. The most recent call was on Monday of this week. Granted, it's not a walmart type of job and it's mostly in the utilities sector so that could account for something maybe but the calls are from a number of different companies and the projects appear to be spread out as far as regions go, northeast, midwest and southeast. Even though these type assignments are in the $70+/hour range, I think they may still be considered temporary employment as durations are typically 1-3 years.
Again, while my experience is anedotal, it's obviously not a reflection of the depression in employment in the building industries or financial services sector. I've been thinking maybe the number to key in on in the forthcoming report is the change in retail employment this year versus last year. It might be a better reflection of what's going on with employment in general as I don't think the unemployment contagion has yet spread to all sectors of the economy, though it may very well do so in the course of time, in which case should I need to return one of my stored calls, I'm likely to find no one home.
Perhaps Cuomo will take BLS and their mark-to-model practices to court one day. After all, their estimates are problematic and, one might propose, misleading.
The phrase "knew or should have known" might be revived from Johns-Manville days.
Point taken - I can't recall exactly where in the blogoverse I ran into it - but out there someone posted an excellent plot that shows over the course of the year the contribution of the B/D adjustment to employment growth has gone from ~30% to ~80%.
The cap increase called for by Mozilo is nothing more than PR (actually quite good PR). Even if F/F increased the cap (to any amount) the borrower will still have to qualify under F/F guidelines which many, if not most, will not be able to do. If they return to old-school guidelines (10-20% down, PI
Anthony Nieves, chairman of the institute's business survey committee, said in a statement accompanying the report that "the overall indication in November is continued economic growth in the non-manufacturing sector, but at a slower pace than in October."
He said that those surveyed were "concerned about the economy."
[snip]
The new orders index registered 51.1 in November, down from 55.7 in October while the employment index weakened to 50.8 last month from 51.8 the month before. The index of export orders softened to 55.5 from 56.0.
Prices shot up, with the price index registering 76.5 in November compared with 63.5 in October. That was the highest reading since 80.5 in September 2005, the institute said.
I'm not much on fundamentals from a trading perspective. I've built some systems that are exclusively technical. So my curiosity in fundamentals does not shape my trading methodology; therefore, without doing some research I cannot answer your question. I read this blog among others, both bullish and bearish, as well as follow the news from hoofy and boo among other news providers, but again, it's mostly to provide entertainment and to quinch my ever present curiosity. I do not trade the news.
Burnside and David Pearson -
All good points. Construction and financial have seemed like suspect numbers in all the reports for the past few months. Its possible severence (paricularly in financial) may be playing a role and keeping these employees on payrolls for months after they've been fired - but I dont know. Mr. Pearson may know that one.
Energyecon -
I guess its tough to not come across as preachy via email on a blog like this where there are clearly some strong opinions...
Also, thanks for the ADP link.
Rich -
Not sure what a troll is, but please feel free to ignore anything I say.
I'm sorry. I forgot to mention that I read this blog and the comments as often as I can and much more that I read anything else on the economy or the daily market action. I do follow many of the links provided but I normally start my reading here. I think this blog is my favorite news source and has been since I first discovered it several months ago. I have tremendous respect for CR and Tanta as well as some of the frequent commentors. You guys are flat out awesome. You put the "mainstream" press to shame.
Forget the relationships, I'd love to be the forensic accountant looking over the models, talking to the MBA who put it together and finding out how the senior manager (who colected the bonus) directed changes. . .
Anonymous libelously said: "...Your argument sounds just like all the knuckleheads who manage trillions of dollars and have never been through a consumer led recession or housing decline that say "never underestimate the resilience of the US consumer...."
Oy vey. Your arguments are Sebastian-esque..."
I've never said anything of the kind, or taken the side of anyone who is mindlessly and permanently bullish regardless of circumstances.
My position is (has been, always will be) that it's the bears who don't know what "bad" looks like, assuming the current conditions are serious enough to warrant recession.
Anonymous who asked, "So we should assume the sampling of people you know trumps what ADP says?"
Not trumps. Provides a test.
We have two purported facts. Our experience, and reported "normal". If they're in line with each other, great. If not, we must resolve the question. Far too often we ridicule and dump one or the other - the person who blindly says the sampling trumps experience is as bad as the one you ridiculed. A reminder - properly done statistical reports CAN have an anomalous event. The nature of "random sample" means that sometimes the number of individual samples can be non-representative in proportion to the pool from which they were drawn.
It is possible that the report is built using assumptions that are no longer appropriate - "this has been growing, so we'll predict it's still growing till we know better". It is possible that the experience is colored by drama (we know of THESE OMG, and forget the extremely large number of 'nothing special). It is possible that the stat report is an outlier. But YOU DON'T KNOW. And you lost credibility in my eyes by scoffing instead of pursuing courses to determine why the two facts diverge.
There's a common cliche, that anecdotes are not data. That's true - anecdotes are datum.
sorry... should say USD income is up 50% in one year... how low is the USD now?
Yearning to Learn
since January cca 25% to SKK, cca 12,5% to EUR
sad thing, all the grannies in my country have a lot of money from their us relatives in USD. my father was just changing grandmothers 5k USD, net loss in SKK since january 25%, since 2001 100%
well if USD/EUR changes from 0,8 to 1,48 you can see thats a lot
Sebatian's post reminds me of one of the reason I enjoy this blog. There are a few bulls here who are basically perceived to be bullish in spite of evidence that suggests all bulls should have thrown in the towel quite some time ago. There are, in my view, bears here whose commentary seem to suggest that the end will be loads and loads worse than what we have thus far seen. CR tends to be remarkably accurate in his forecasts and even though sometimes he seems bearish in a forecast, it has turned out he was, in fact, insufficiently bearish, but not by much.
I appreciate both the bulls and the bears because it's more entertaining and besides, once upon a time, in a galazy far far way....I did trade fundamentals and I found that getting stuck too deeply in one camp or the other was detrimental to performance. It's best for me to let the charts decide and follow the fundamental analysis as an entertaining and interesting pasttime.
perhaps you are all looking at this differently than I did...
I was SHOCKED that the number came in so high...
the conspiracy theorist in me was absolutely astonished.
The Fed NEEDS a low jobs number to justify going 50bps. If the real jobs number at end of the week comes out this high then the 50bps is off the table.
if people were fudging numbers I would have thought they'd fudge LOW or at least about the same... not SUPER HIGH!!!!!
but regardless, it's all about "the mix". Take away a few Wall Street jobs and managerial jobs paying 100k+ per year.
hire more part time temp help at Daphne's Bargain Barn
Bobby, i think dc1000 and Banker are examples of Bulls who adapted for this down cycle that is currently developing
i am personally permabear, i will always be and i like it. to be sure that my money is more or less "safe". especially since i talked few days ago with a friend of mine who invested in a risky money market fond and is now after fees at 1,5% after taxes, while me in 1 year CD without any risk am a 3% after tax gain. in europe we dont have that big interest on deposits unless you live in uk and i am really comfortable with my currencies appreciation of 12,5% against EUR
I haven't read all the comments, so I apologize if someone has already addressed this, but Tanta - the Investment Banks have a duty to perform appropriate due diligence whereas the rating agencies do not.
That is the difference. It doesn't really matter leagally whether the IBs knew the collateral was flawed - if reasonable due diligence would have shown the collateral was flawed, the IBs will be on the hook for significant liability.
Read this article by Cadwalader attorney, Gregory Markel.
. If they return to old-school guidelines (10-20% down, PI not to exceed 28% of gross), my guess is that 99.99% of the folks that CW qualified will not qualify under the old school F/F requirements. If you want to borrow $600k, it would require a downpayment of $60-120k and a gross annual income of around $150k. Its a pretty small slice of the populace that would qualify.
I dont know if F/F will up the limit but it really doesnt matter anyway. Its almost better for Mozilo that they dont; Mozilo can then deflect some of the blame to F/F and the gubmint and away from the all of the problems that CW caused. Reasonably clever, wouldnt you say?
Yearning to learn -
You are right on. Very good observations. I'm not as shocked by the numbers as you sound, but I was a little surprised. I know plenty of businesses that have been hiring in the past few months under the belief that all is well. That being said, there is no doubt that view is changing. December will probably be a little weeker and I imagine that sometime in Jan/Feb we will see an absolute train wreck.
Borkafatty -
Chill out. The numbers are always wrong, but I do believe despite being wrong that the ADP numbers indicate more strength. As I've said, it doesnt change my opinion. My guess is that Q1 is going to be pretty bad on the jobs front.
Sebastian -
I was just trying to be funny. Nonetheless, I have rarely read a post from you that was supported by hard factual data.
Ok anono But the chill thing is right back at ya...i am not a doom and gloomer myself, in fact i want a strong economy...based on real jobs and real incomes...not borrowed money, and then take that borrowed money and turn it in to a GDP number..Borrowed money is borrowed time...as is evident with CREDIT CRISIS not Subprime. I lived through the 80's rates the 90's crash, and to see this Great Depression 2 in the rearview mirror it is quite frustrating for both sides...bears and bulls.
Anonymous said: "I was just trying to be funny. Nonetheless, I have rarely read a post from you that was supported by hard factual data.
The bears offer a great deal of hard, factual data---that doesn't mean what they say it does. CR projected 400k-600k in construction job losses by summer of 2007, a forecast missed by a wide margin.
How he arrived at his estimate was well-documented with both data sources and charts, but wrong because he ignored other significant causal factors, for example, the Fed's easing/tightening cycle and the economic cycle. Factors like that are "soft" in the sense that you can't illustrate them as simply as drawing a chart from spreadsheet data, but they're of major importance in forecasting where the economy is headed next.
Skeptical of me? Fair enough, as long as you (and everyone else) is as skeptical of evidence that isn't actually evidence. Keep the Iraq War and the Iranian nuclear threat in mind.
"Massive ADP employment change of 189K versus 50K expected"
For what it's worth--from Wiki:
"ADP's payroll services are so widespread that one in six Americans working in the private sector have their paychecks processed by the company." (citing the following for thestatistic:www.adp401k.com/_why_adp/pr_529payrolldeduction-09-2002.asp....""Up until very recently, 529 college savings programs were marketed primarily to high net worth individuals," said Joe Grana, Vice President of Marketing, ADP's 529 Services. "ADP expects to be a key driver in helping Americans increase their college savings because the company processes payroll for one-in-six Americans."
Comment ADP processes payroll for 1 in 6 Americans (i.e. approximately 17%), and now we are using these numbers as a proxy for the trend as to the other 83% of business payrolls. maybe we don't need offical statistics anymore. I may be missing something here, but this is laughable!!!!!!!
Tanta, you missed it! yesterday we were "doing the Freddie" in the comments (ok it was just me but it was still fun)!!!
This is why we need federalism. Where is the SEC? Where is the DOJ?
Didn't see C or GS mentioned
Bet he finds the smuggest and richest investment firm of them all, which profited from betting against the debt market, while all the while continuing to sell bad debt to clients.
Sorry I missed the fun. I'd tell you what my attention was absorbed in yesterday but it would gross you out much more than anyone deserves at this hour of the day.
Prepare yourselves for more antibiotic metaphors . . .
I was listening to CNBC yesterday (I think it was Kudlow, but am not sure) and they were talking about how this might be a problem for the IB's,
ESPECIALLY Goldman Sachs.
They went even further and asked if Senator Dodd (D) would perhaps try to go after Henry Paulson since he was chief of GS when a lot of these deals were written. The commenters universally said "yes".
The consensus on CNBC was that this is very similar to what happened in 2001 when the analysts were privately saying "sell" and laughing about stocks when publicly they rated them as "buy"
IMO:
I'm not sure it matters what legally happens here. The IB's might have finally killed the golden goose
They have been caught packaging crap and promising it's a rainbow. To everybody. Then to make matters worse, they're trading opposite of what they are peddling...
If I were a goldman customer, I'd be fuming...
bring on the lawsuits.
Massive ADP employment change of 189K versus 50K expected.
I'd tell you what my attention was absorbed in yesterday but it would gross you out much more than anyone deserves at this hour of the day.
my bagel thanks you for restraining yourself.
Did the IBs really know the extent of the damage to the ABS they were creating in 2006? It seems like they placed a lot of credence in loan charateristics (FICO, LTV, % purchase) that began to lose their predictive validity as UW standards degraded.
PS Keep the Apidistra Flying
I'm not sure it matters what legally happens here.
Well . . . there's probably a legal difference between failure to exercise due diligence, on the one hand, and omission of material fact on the other.
That is: it's not news to anyone that the IBs (and RAs) didn't do much loan-level due diligence.
However, they (the IBs, at least, if not the RAs) did some. And if outfits like Clayton turn over their due diligence reports in response to a subpoena, and those reports show that the IBs in fact did know that the cake had been left out in the rain (as opposed to merely suspecting it as any--ahem--reasonable person would), then we have a nastier picture for the IBs.
And that's nasty for two reasons: one, obviously, is that they then had material information that was withheld (presumably) from investors in the securities. The other is that they had material information that might have (if the firewall didn't work) encouraged them to bet the other way.
freddie mac = enron by mr weil:
Freddie Mac's Accounting Evokes Shades of Enron: Jonathan Weil - Bloomberg.com
Andy Cuomo... Spitzier than Spitz!!
It will be interesting to see what constitutes "disclosure" that the IB's were shorting what they were selling.
The more interesting part of the story is why only 3 IBs? Certianly GS, LEH etc are doing a lot of securitization (I went through LEH report last night and they originated 45B mortgage and 45B commercial loan in the first 9 month of this year. so no small potatoes). I would think that the probe will expand further. This is only the first wave....
Pardon my ignorance: what on Earth is an aspidistra? :-?
and those reports show that the IBs in fact did know that the cake had been left out in the rain
Tanta, I'll have you know that your offhand "MacArthur Park" reference caused me to spit Diet Coke all over my keyboard.
No better way for dealing with an economy heading for a '70s reprise than with some good ol' '70s music!
In the case of George Orwell's "Keep the Apidistra Flying":
The aspidistra of the book's title comes from the pot plants to be found on every window sill which, for Comstock, symbolise all that is wrong with the "mingy, lower-class decency" he is desperate to escape.
Carlomagno, aspidistra is a common house plant.
freddie mac = enron
So . . . you can't forecast cash-flows out 26 years or else you're Enron.
What, pray tell, are people who make 30-year mortgage loans supposed to do?
I think everyone knows that long-term forecasts have to keep getting revised, but aren't we in a situation in which everyone made a bunch of 30-year loans and only "projected cash flows" until the first reset?
Massive ADP employment change of 189K versus 50K expected.
That's hot.
Oh gosh, I'm redundant this morning. Wall Street firms are corrupt. And the stock market is set to rocket today on incredible data.
Not much changes.
So . . . you can't forecast cash-flows out 26 years or else you're Enron.
everyone with an msr on your balance sheet: you're in trouble now...
Cuomo is going to target the rating agencies. They're the weak link.
It's a standard prosecution. Find the guy you can get, get him, and then cut him a deal.
The rating agencies are going to rat the banks and investment firms.
It will take time, but Cuomo is highly motivated, doesn't give a shit, and has a picture of Kathleen Kennedy on the wall with her MacDonald's boyfriend on the polo pony to keep him feisty.
This is going to be ugly, ugly, ugly.
Massive ADP employment change of 189K versus 50K expected.
Clearly someone left the cap off of the glue last night, to come up with these numbers out of thin air...its just like the printing press and our dollar..out of thin air.
And, I believe, Cuomo is going to do it cute, really cute.
He goes to the banks, etc. and says, well, you knew this was shit, why did you sell it to school districts.
They say, Wait a minute! Moody's et al said we were fine.
So then he goes to Moody's.
The rating agencies are going to sing an entire opera.
The next Attorney General of the US, who will be named Patrick Fitzgerald, will tie a bow around this.
So . . . you can't forecast cash-flows out 26 years or else you're Enron. What, pray tell, are people who make 30-year mortgage loans supposed to do?
It's one thing to forecast cash flows for long periods of time. It's quite another to base your capital requirements - especially when they're government-mandated - on the assumption that those forecasts will be 100% accurate.
Fer chrissakes, hasn't anyone at the GSEs heard of a 95% or 99% confidence level before? Or did someone run the numbers and just not like the result that dropped out? Because, given the long time frame and multivariable nature of the calculation, I'm sure the 3-sigma capital requirement would be seen as hugely conservative, and, really, "why should we tie up all this excess capital for no reason"?
Oh gosh, I'm redundant this morning. Wall Street firms are corrupt. And the stock market is set to rocket today on incredible data.
Not much changes.
You should learn to love BubbleWorld.
It can be your friend.
"Massive ADP employment change of 189K versus 50K expected."
Utter BS! Does not reconcile with thousands and thousands of people turning out to apply for 300 Walmart jobs.
...Aren't we in a situation in which everyone made a bunch of 30-year loans and only "projected cash flows" until the first reset?
But Tanta, that model worked for a long time. Worked very well in fact and generated huge upfront fees every few years. At the same time because they were around for only a few years rather than the typical 8-9 the theory was that the shorter term reduced exposure thus allowing riskier lending. Like I said, it worked until it didn't. It isn't a coincidence that summer 2006 was 2 years from the Fed initiation of raising rates Jun 2004. Too bad that many mortgages decoupled from the Fed Funds rate. Gee more inside advance information to preserve revenue? Sorry, too much tinfoil.
Something tells me "what did you know and when did you know it" is about to reenter the popular lexicon.
The ratings agencies...as they exist today...are and should be toast. As should be the insurers(what a crock, let me enhance your leverage with some of my own...there that's better).
Then the IBs should be whipped with reeds for strong-arming the ratings agencies.
I should clarify;
when I said "I'm not sure it matters what legally happens here. The IB's might have finally killed the golden goose"
I meant only that the legal aspect might be only one small part of the problem for the big IBs.
They have literally screwed over too many players this time. perhaps too badly.
foreign investors, pension funds, you name it.
They had built a certain amount of trust over the last century (yes I did say trust).
Over the last 3 years they have destroyed all that.
why do you think the capital markets aren't working well? because nobody wants to touch anything that's been shat upon by the Investment Banks.
I would imagine that it will take a while to re-earn that trust... and that there will be a different model going forward.
don't get me wrong, the IB's I'm sure will be richer than ever, but they've shorn this goose just a little too closely
"Massive ADP employment change of 189K versus 50K expected."
Utter BS! Does not reconcile with thousands and thousands of people turning out to apply for 300 Walmart jobs.
Stuart | 12.05.07 - 9:41 am | #
Actually yes it does... but you'd have to live in a place where Walmart jobs are considered the GOOD jobs. Better pay and better conditions. I go to those kinds of places regularly.
Wall Street might be corrupt, but the Fed is on their side. The Fed is on the case with rate cuts. Until the Street no longer reacts possitively to the cuts, the stock market will head higher. As we've seen the last couple of days, the bad news will have less effect and the good news, today, will be rewarded.
The Fed seems to feel that although the banks and brokers have screwed up big time, they can't punish them without destroying the entire economy, especially since the housing market is in recession.
Although I'm a longer term bear, because I believe the rate cuts will fail to save the RE market or credit markets, in the near term the Street will have faith in the Fed, strong seasonal factors (investors believe in the Santa rally) and incresed bearishness should lead the stock market higher into early next year.
Sorry I missed the fun. I'd tell you what my attention was absorbed in yesterday but it would gross you out much more than anyone deserves at this hour of the day.
Prepare yourselves for more antibiotic metaphors . . .
Tanta | Homepage | 12.05.07 - 8:39 am | #
On my way to deciding NOT to go to medical school I learned the world is one giant petri dish, good thing its tightly contained... just like in financial matters.
Something is wrong with the payroll survey, which ADP is designed to track. It could be a statistical glitch. It could have to do with the shape/timing of this recession. Or it could be outright govt. manipulation.
Almost everybody who is on top of this situation is looking at the household survey as the accurate measure of job growth at this time.
To see the real picture, go to:
St. Louis Fed: Series: CE16OV, Civilian Employment
Under the graph, click on "% Chg. from Yr. Ago." This is the real picture of employment, and it shows that the U.S. economy is about to enter recession. There is no employment strength or surprise in the U.S. Less than 100,000 civilian jobs have been created in the first 10 months of 2007.
George Orwell? Funny, I detected Dirty Harry.
Although I'm a longer term bear, because I believe the rate cuts will fail to save the RE market or credit markets, in the near term the Street will have faith in the Fed, strong seasonal factors (investors believe in the Santa rally) and incresed bearishness should lead the stock market higher into early next year.
It's interesting that Bernanke seems to part from the Greenspan doctrine some what in his writings. It seems to me that Bernanke believes that the Fed should take a more activist role in suppressing asset bubbles. Which is interesting IMO because it explains some of the Fed's recent behavior, and also suggests that they've got no good options currently with bubbles still abounding besides the credit collapse (yay, bubble
).
Again, I say this is just as much a behavioral problem. We've put the people that would essentially dismantle the economy for profit into positions of great power in the business world. So that's just what they're doing.
It takes fire to clean something like that out, and I don't think the Fed is up to that task. So I think I would tend to agree with you, but might have to change my mind tomorrow.
I hate to defend the brokers, but somehow I doubt Cuomo will turn something up.
The brokers had these propeller-head models that said the stuff they were selling would be fine. Maybe they didn't believe their own models, but at least there was plenty of analytical justification for pushing the product.
Of all the brokerage firms, two -- Goldman and Lehman -- managed to hedge themselves against subprime declines. Those two still have to deal with the possibibility of CDS counterparty defaults, which could yet sink them.
Doesn't sound like a widespread conspiracy to me.
OT
German Banks have EUR 173bln/$254bln in SIVs
Germany Update: German Banks have EUR 173bln/$254bln in SIVs [General] - MarketTicker Forums
This is by far the best article i have read on how we got to where we are in this housing mess
http://www.gao.gov/new.items/d0878r.pdf
"Britain's mortgage lenders should brace themselves for a double-whammy of funding shortages and rising bad debts next year as conditions in financial markets look set to worsen, the Financial Services Authority warned yesterday."
The FSA warned lenders to prepare for the worst, amid fears of rising customer defaults, frozen wholesale funding markets and a surge in withdrawals of retail deposits that would force some institutions to wind down or sell up.
Clive Briault, head of retail at the FSA, told the Council of Mortgage Lenders that, to ensure their survival, companies would need to get liquidity funding in place even if that meant paying a higher price that reduces profits.
Mr Briault's dire warnings pointed out that at least 1.4 million short-term fixed-rate mortgages to customers who have stretched themselves will end next year. Those customers "will find it difficult (if not impossible) to refinance their mortgage on favourable terms... which may prove too much for many of them to afford". Sub-prime borrowers may not be able to borrow at any price, he added.
FSA warns lenders to prepare for crisis -
Business News, Business - The Independent
I imagine ADP has to forecast the output of the birth/death model. It has no incentive to get this "right". In fact it has every incentive to forecast the same exact birth/death adjustment that the BLS will report on Friday. So ADP is an advance measure of a faulty measure.
Like Rich said, the household number is now the more important one. The recent decline in Proprietor's Income points to a downturn in small businesses, and the household survey is better equipped to capture that trend.
Will these parties be able to point to the fact that they originated the same type of loans in 03 and 04 as in 05 and 06 but the impaired performance of the later issues are more related to market conditions than any changes in due diligence?
The whole process of mortgage originations grew to reward parties with a high tolerance for risk not for an assessment of risk. There are so many different parties responsible for this mess that it's going to be difficult to hold one party accountable when so many people had a hand in it.
David,
What is their incentive structure? Also, do you recall how ADP came in with their numbers before the "shock and awe" 50bps FFR cut? The official numbers were horrible then heavily revised, I don't recall what ADP looked like then...
$625,000 Fannie/Freddie Cap
Business & Financial News, Breaking US & International News | Reuters.com
Thats quite a hike
I imagine ADP has to forecast the output of the birth/death model. It has no incentive to get this "right". In fact it has every incentive to forecast the same exact birth/death adjustment that the BLS will report on Friday. So ADP is an advance measure of a faulty measure.
Right, the purpose of the ADP is to forecast the BLS payrolls, because that's where the easy speculative money is to made. Its purpose is not to provide useful economic data.
Kinda illustrates how bad things have gotten.
The ADP numbers were good and my guess is the numbers tomorrow will also be good.
The numbers aren't BS - they are what they are - way too much conspiracy talk here when the numbers are "positive".
Since everyone on this message board always argues that employment is a lagging indicator to GDP growth (which I definately agree with) this really should come as no surprise - GDP growth in Q2 and Q3 accelerated over the prior quarter.
Obviously things are slowing and I suspect employment will soon show a decline, but it doesn't look like thats going to happen this quarter.
I am by no means a bull and have been short the financials for several months - I also think a recession (and a severe one) is around the corner. But the numbers we get are always imperfect so need to be taken with a grain of salt - that being said, they usually are directionally right.
Seeing the numbers and calling them BS because they dont jive with your views is the exact same attitude that got us into this mess. I'd really expect more from the people who post on this board. I can get the uninformed "head in the sand" view from any one of the 28-32 year old money managers living in the greater NYC area.
Ok then prove to me where all this hiring is taking place...I know quite a few people looking for work...so maybe you can point them in the right direction.
NEW YORK, Dec 5 (Reuters) - Countrywide Financial Corp's (CFC.N: Quote, Profile , Research) chief executive called on the U.S. Congress to temporarily raise the maximum size of mortgages that Fannie Mae (FNM.N: Quote, Profile , Research), Freddie Mac (FRE.N: Quote, Profile , Research) and the Federal Housing Administration may buy or insure by 50 percent to $625,000.
"The pace of bad loan production in the US can't be maintained at profitable levels with the current cap of $417,000," Mozilo wrote.
Freddie`s new nickname is "Nostradumbmac".
I agree with anon at 10:34.
besides, borkafatty, the jobs number doesn't count the QUALITY of the jobs only the QUANTITY.
I watched the ADP guy on CNBC. If I recall $197k jobs were from Retail/Service (probably mcdonald's, seasonal xmas hires, etc)
then there were losses in financials and housing (all off the top of my head)
If your friends want a job, send them to Minnesota. We have tons of jobs around the metro area... and COL isn't too bad compared to coasts... but higher than the rest of flyoverland excepting chicago.
but then you gotta live in winter my friend!
I know someone who works at NordicWare, a slightly higher end ceramics company... they've done really well this year due to dollar devaluation... now their products sell in Europe...
also Medical information technology consulting is BLAZING right now. nobody can keep up. If your friends have a CS major get them into medical information (like Epic, Cerner, etc). the other half does this and income's gone up 50% in the last 1 year.
sorry... should say USD income is up 50% in one year... how low is the USD now?
I think that the fat lady has finally started to sing on this opera.
Orange County, California reports that they went to the financial doctor who has diagnosed them as being seriously SIV positive.
The public health department is now tracing their partners to give them the good news.
I hope this link to Bloomberg works:
Orange County Funds Hold SIV Debt on Moody's Review (Update3) - Bloomberg.com
Anon,
Let's see what the revisions are and then get preachy, healthy skepticism seems in order when we have seen the recent swings, including directional changes, that we have seen recently. Especially if we are at an inflection point.
Color me (and I suspect others here) somewhere in between the blindly credulous and the tinfoil brigade...
Aspidistras were popular houseplants in Northern England because they thrived on pollution and low light.
No better houseplant for a resident of a dark satanic mill.
Ok then prove to me where all this hiring is taking place
Wal*mart
Borkafatty -
Are you kidding me? So we should assume the sampling of people you know trumps what ADP says?
Your argument sounds just like all the knuckleheads who manage trillions of dollars and have never been through a consumer led recession or housing decline that say "never underestimate the resilience of the US consumer...."
Oy vey. Your arguments are Sebastian-esque.
Yearning -
Good point on quality versus quantity. I suspect thats reflected in income growth which has clearly slowed.
YtL, Anon,
WSJ reports ADP figures include significant gains in financials (+10K) and a small decline relative to recent months in construction (-6K). And they may be correct.
I believe their intent is to anticipate the BLS estimate. If this is the case, their adjustment algorithm will be subject to the same effects CR has detailed elsewhere, wherein their reportage is less reliable at deflection points (either up or down).
The point is not so much whether they're correct or not, it's that their reliability is at its weakest when it's most important or useful to get it right.
It will be three months before the hard data is here. I'll be pleased to cede your point if financials and construction turn out to be close to the ADP figures.
Energyecon,
My point is that ADP doesn't estimate job growth, it estimates the job growth that the Payroll Survey will report. Two (way) different things. Its not so much a monetary incentive, its just that the ADP survey was set up to that from the get-go.
Hard-Money mortgages gaining popularity among...affluent borrowers
Tanta - I thought you'd be all over this.
To the schnapster, that reads like one of the dark horsemen of the apocalypse just escaped from BrokerUniverse and is running amuck in suburbia.
Anonymous is a troll who wants attention and doesn't pay attention to the intelligent comments written here by many. Just ignore him.
Energyecon -
Everyone on this message board is preachy - I'm just trying to fit in.
I'm all for healthy skepticism - I'm only pointing out what I think is "unhealthy" skepticism. I also dont think the "current" jobs situation is reflective of where we are going.
My view of the numbers and healthy skepticism is: "The jobs numbers from ADP were pretty good, but the skeptic in me says that they wont be in the coming months and that we are on the cusp of a significant slowdown."
We dont know the revisions and they are just as likely to go up as ADP's numbers did in September and October.
Even if they get revised, it doesnt appear that ADP's recent revisions have been all that severe.
Did you say the August numbers were wrong when they came out and were horrible? I didnt.
Like I've said, the numbers were good, but it doesn't change my views.
As a previous poster noted, the ADP numbers are what they are - so what is that, anyways? The link below describes their methodology, ans sinces its been too dang long since I ground through an econometrics course I thought I would post the elements from the methodology section that might contribute to later revisions resutling in retrospectively noting an inflection point:
The ADP National Employment Report
Overview of Methodology & Methodological Enhancements
[snip]
The new matched sample growth rates are seasonally adjusted using X-12
ARIMA, with estimated outliers in each cell replaced with the predicted value
from the underlying ARIMA model; the occurrence of estimated outliers is rare.
The sample period for the estimation of the seasonal factors (and the centered
moving average) is advanced each month.
An additional adjustment for 5 week intervals between BLS survey dates is made
by regressing the matched sample growth rates is each cell on a dummy variable
that has a value of one in long months and zero otherwise. If the variable is
statistically significant, the regression is used to eliminate the effect of the long
month in that cell. Significant long-month effects were found in approximately
25% of the 90 cells.
Using the seasonally adjusted data, matched-sample growth rates by industry are
computed by taking a weighted average of the matched sample growth rates by
size within each industry. The weights are based on monthly interpolations of the
March estimates of employment by industry and size from the Quarterly Census
of Employment and Wages (QCEW).
[snip]
Anon,
LOL noted on the preachy, though I take great pains to avoid it myself!
$625,000 Fannie/Freddie Cap
Obviously the $417K conforming liquidity fire hose isn't big enough... but what happened to the nice round $1MM cap proposal? Is that now 'off the table'? Or under it? Is Tan Man just trying to sound... 'responsible'?
"Hey we'd love to see $625K but a mil? Ya we'd take that too..."
The ADS numbers have been questioned before but supposedly they are based on real data, like checks being cut. Anyway, for what it's worth, I continue to receive calls for projects in the project controls field. I have 15 unanswered voice mails that have accumulated over the past few months. At the moment, I'm just sitting on these and the sometimes accompanying emails as I prefer to trade but don't want to burn my bridges if I need a more secure source of income.
The most recent call was on Monday of this week. Granted, it's not a walmart type of job and it's mostly in the utilities sector so that could account for something maybe but the calls are from a number of different companies and the projects appear to be spread out as far as regions go, northeast, midwest and southeast. Even though these type assignments are in the $70+/hour range, I think they may still be considered temporary employment as durations are typically 1-3 years.
Again, while my experience is anedotal, it's obviously not a reflection of the depression in employment in the building industries or financial services sector. I've been thinking maybe the number to key in on in the forthcoming report is the change in retail employment this year versus last year. It might be a better reflection of what's going on with employment in general as I don't think the unemployment contagion has yet spread to all sectors of the economy, though it may very well do so in the course of time, in which case should I need to return one of my stored calls, I'm likely to find no one home.
Regards,
Perhaps Cuomo will take BLS and their mark-to-model practices to court one day. After all, their estimates are problematic and, one might propose, misleading.
The phrase "knew or should have known" might be revived from Johns-Manville days.
David,
Point taken - I can't recall exactly where in the blogoverse I ran into it - but out there someone posted an excellent plot that shows over the course of the year the contribution of the B/D adjustment to employment growth has gone from ~30% to ~80%.
Bobby,
Great point on YoY - what was ADP job growth for the same period last year?
Nates,
The cap increase called for by Mozilo is nothing more than PR (actually quite good PR). Even if F/F increased the cap (to any amount) the borrower will still have to qualify under F/F guidelines which many, if not most, will not be able to do. If they return to old-school guidelines (10-20% down, PI
In the details of the ISM non-manufacturing number:
Service Sector Expands Further in Nov.
[snip]
Anthony Nieves, chairman of the institute's business survey committee, said in a statement accompanying the report that "the overall indication in November is continued economic growth in the non-manufacturing sector, but at a slower pace than in October."
He said that those surveyed were "concerned about the economy."
[snip]
The new orders index registered 51.1 in November, down from 55.7 in October while the employment index weakened to 50.8 last month from 51.8 the month before. The index of export orders softened to 55.5 from 56.0.
Prices shot up, with the price index registering 76.5 in November compared with 63.5 in October. That was the highest reading since 80.5 in September 2005, the institute said.
[snip]
energycon,
I'm not much on fundamentals from a trading perspective. I've built some systems that are exclusively technical. So my curiosity in fundamentals does not shape my trading methodology; therefore, without doing some research I cannot answer your question. I read this blog among others, both bullish and bearish, as well as follow the news from hoofy and boo
among other news providers, but again, it's mostly to provide entertainment and to quinch my ever present curiosity. I do not trade the news.
Regards,
Tanta - I thought you'd be all over this.
I'm a little slow today. I will probably be a little slow for the next couple of days. Don't make me tell you why; bacon dreamz might be eating.
Burnside and David Pearson -
All good points. Construction and financial have seemed like suspect numbers in all the reports for the past few months. Its possible severence (paricularly in financial) may be playing a role and keeping these employees on payrolls for months after they've been fired - but I dont know. Mr. Pearson may know that one.
Energyecon -
I guess its tough to not come across as preachy via email on a blog like this where there are clearly some strong opinions...
Also, thanks for the ADP link.
Rich -
Not sure what a troll is, but please feel free to ignore anything I say.
O/T
Seattle RE market softens.
November 2007 Foreclosure Report Issued By Propertyshark.Com; Increases in Los Angeles, New York City and Miami; Seattle Doubles
I'm sorry. I forgot to mention that I read this blog and the comments as often as I can and much more that I read anything else on the economy or the daily market action. I do follow many of the links provided but I normally start my reading here. I think this blog is my favorite news source and has been since I first discovered it several months ago. I have tremendous respect for CR and Tanta as well as some of the frequent commentors. You guys are flat out awesome. You put the "mainstream" press to shame.
Regards,
"On my way to deciding NOT to go to medical school I learned the world is one giant petri dish"
As a former medical photographer at a children's teaching hospital, I learned there are worse things than Wall Street goons...
Forget the relationships, I'd love to be the forensic accountant looking over the models, talking to the MBA who put it together and finding out how the senior manager (who colected the bonus) directed changes. . .
Anonymous libelously said: "...Your argument sounds just like all the knuckleheads who manage trillions of dollars and have never been through a consumer led recession or housing decline that say "never underestimate the resilience of the US consumer...."
Oy vey. Your arguments are Sebastian-esque..."
I've never said anything of the kind, or taken the side of anyone who is mindlessly and permanently bullish regardless of circumstances.
My position is (has been, always will be) that it's the bears who don't know what "bad" looks like, assuming the current conditions are serious enough to warrant recession.
Sebastia
Anonymous who asked, "So we should assume the sampling of people you know trumps what ADP says?"
Not trumps. Provides a test.
We have two purported facts. Our experience, and reported "normal". If they're in line with each other, great. If not, we must resolve the question. Far too often we ridicule and dump one or the other - the person who blindly says the sampling trumps experience is as bad as the one you ridiculed. A reminder - properly done statistical reports CAN have an anomalous event. The nature of "random sample" means that sometimes the number of individual samples can be non-representative in proportion to the pool from which they were drawn.
It is possible that the report is built using assumptions that are no longer appropriate - "this has been growing, so we'll predict it's still growing till we know better". It is possible that the experience is colored by drama (we know of THESE OMG, and forget the extremely large number of 'nothing special). It is possible that the stat report is an outlier. But YOU DON'T KNOW. And you lost credibility in my eyes by scoffing instead of pursuing courses to determine why the two facts diverge.
There's a common cliche, that anecdotes are not data. That's true - anecdotes are datum.
sorry... should say USD income is up 50% in one year... how low is the USD now?
Yearning to Learn
since January cca 25% to SKK, cca 12,5% to EUR
sad thing, all the grannies in my country have a lot of money from their us relatives in USD. my father was just changing grandmothers 5k USD, net loss in SKK since january 25%, since 2001 100%
well if USD/EUR changes from 0,8 to 1,48 you can see thats a lot
Sebatian's post reminds me of one of the reason I enjoy this blog. There are a few bulls here who are basically perceived to be bullish in spite of evidence that suggests all bulls should have thrown in the towel quite some time ago. There are, in my view, bears here whose commentary seem to suggest that the end will be loads and loads worse than what we have thus far seen. CR tends to be remarkably accurate in his forecasts and even though sometimes he seems bearish in a forecast, it has turned out he was, in fact, insufficiently bearish, but not by much.
I appreciate both the bulls and the bears because it's more entertaining and besides, once upon a time, in a galazy far far way....I did trade fundamentals and I found that getting stuck too deeply in one camp or the other was detrimental to performance. It's best for me to let the charts decide and follow the fundamental analysis as an entertaining and interesting pasttime.
Regards
Ed S. good point. The more I thought about it I dont see how it will help him much or the current situation at all...
All...
perhaps you are all looking at this differently than I did...
I was SHOCKED that the number came in so high...
the conspiracy theorist in me was absolutely astonished.
The Fed NEEDS a low jobs number to justify going 50bps. If the real jobs number at end of the week comes out this high then the 50bps is off the table.
if people were fudging numbers I would have thought they'd fudge LOW or at least about the same... not SUPER HIGH!!!!!
but regardless, it's all about "the mix". Take away a few Wall Street jobs and managerial jobs paying 100k+ per year.
hire more part time temp help at Daphne's Bargain Barn
voila... good jobs numbers.
Tanta,
Hang in there and feel better!
I'm sure you know, but just in case, antibiotics kill the healthy gut bacteria as well, so yogurt or acidopholus needs to be in your daily regime.
Regardless, your unsettling GI details would be a welcome relief from a lot of the stomach unsettling financial news reports coming in.
Bobby, i think dc1000 and Banker are examples of Bulls who adapted for this down cycle that is currently developing
and i am really comfortable with my currencies appreciation of 12,5% against EUR 
i am personally permabear, i will always be and i like it. to be sure that my money is more or less "safe". especially since i talked few days ago with a friend of mine who invested in a risky money market fond and is now after fees at 1,5% after taxes, while me in 1 year CD without any risk am a 3% after tax gain. in europe we dont have that big interest on deposits unless you live in uk
I haven't read all the comments, so I apologize if someone has already addressed this, but Tanta - the Investment Banks have a duty to perform appropriate due diligence whereas the rating agencies do not.
That is the difference. It doesn't really matter leagally whether the IBs knew the collateral was flawed - if reasonable due diligence would have shown the collateral was flawed, the IBs will be on the hook for significant liability.
Read this article by Cadwalader attorney, Gregory Markel.
http://www.cwt.com/assets/article/122706MarkelSecLitandRegulation.pdf
Nates,
My comment was cut off; here's the balance of it:
. If they return to old-school guidelines (10-20% down, PI not to exceed 28% of gross), my guess is that 99.99% of the folks that CW qualified will not qualify under the old school F/F requirements. If you want to borrow $600k, it would require a downpayment of $60-120k and a gross annual income of around $150k. Its a pretty small slice of the populace that would qualify.
I dont know if F/F will up the limit but it really doesnt matter anyway. Its almost better for Mozilo that they dont; Mozilo can then deflect some of the blame to F/F and the gubmint and away from the all of the problems that CW caused. Reasonably clever, wouldnt you say?
And the only Knuckle head i see is the Anonopuss who actually believes this data 189,000 jobs please...go shop at walmart...fool!
Yearning to learn -
You are right on. Very good observations. I'm not as shocked by the numbers as you sound, but I was a little surprised. I know plenty of businesses that have been hiring in the past few months under the belief that all is well. That being said, there is no doubt that view is changing. December will probably be a little weeker and I imagine that sometime in Jan/Feb we will see an absolute train wreck.
Borkafatty -
Chill out. The numbers are always wrong, but I do believe despite being wrong that the ADP numbers indicate more strength. As I've said, it doesnt change my opinion. My guess is that Q1 is going to be pretty bad on the jobs front.
Sebastian -
I was just trying to be funny. Nonetheless, I have rarely read a post from you that was supported by hard factual data.
Ok anono But the chill thing is right back at ya...i am not a doom and gloomer myself, in fact i want a strong economy...based on real jobs and real incomes...not borrowed money, and then take that borrowed money and turn it in to a GDP number..Borrowed money is borrowed time...as is evident with CREDIT CRISIS not Subprime. I lived through the 80's rates the 90's crash, and to see this Great Depression 2 in the rearview mirror it is quite frustrating for both sides...bears and bulls.
Anonymous said: "I was just trying to be funny. Nonetheless, I have rarely read a post from you that was supported by hard factual data.
The bears offer a great deal of hard, factual data---that doesn't mean what they say it does. CR projected 400k-600k in construction job losses by summer of 2007, a forecast missed by a wide margin.
How he arrived at his estimate was well-documented with both data sources and charts, but wrong because he ignored other significant causal factors, for example, the Fed's easing/tightening cycle and the economic cycle. Factors like that are "soft" in the sense that you can't illustrate them as simply as drawing a chart from spreadsheet data, but they're of major importance in forecasting where the economy is headed next.
Skeptical of me? Fair enough, as long as you (and everyone else) is as skeptical of evidence that isn't actually evidence. Keep the Iraq War and the Iranian nuclear threat in mind.
Sebastia
"Massive ADP employment change of 189K versus 50K expected"
For what it's worth--from Wiki:
"ADP's payroll services are so widespread that one in six Americans working in the private sector have their paychecks processed by the company." (citing the following for thestatistic:www.adp401k.com/_why_adp/pr_529payrolldeduction-09-2002.asp....""Up until very recently, 529 college savings programs were marketed primarily to high net worth individuals," said Joe Grana, Vice President of Marketing, ADP's 529 Services. "ADP expects to be a key driver in helping Americans increase their college savings because the company processes payroll for one-in-six Americans."
Comment ADP processes payroll for 1 in 6 Americans (i.e. approximately 17%), and now we are using these numbers as a proxy for the trend as to the other 83% of business payrolls. maybe we don't need offical statistics anymore. I may be missing something here, but this is laughable!!!!!!!
PS "Massive ADP employment change of 189K versus 50K expected"
ADP is a private corporation. When it says "50 K expected".... by whom... on what assumptions... when did you conceive of such an expectation? etc.
And when will Cuomo look under that god of rocks, Goldman Sachs?