Seems like the finacials and builders are going to go out Bear Sterns style and trade as if there was no problem until the day they fail. Isn't that about what Enron did.
From NBER:
Q:Typically, how long after the beginning of a recession does the BCDC declare that a recession has started?
A:Anywhere from 6 to 18 months. We wait long enough so that the existence of a recession is not at all in doubt. We concentrate on finding the date of the peak in activity. We wait until we can assign an accurate date. We are very aware of revisions in the data, in particular.
Add my kudos to the rest, CR. I'm a visual thinker; love them charts.
If we're going to dip as deep as the last recession, that charts shows that we still have a way to go.
The difference between now and then: when we hit bottom, most of us will be tapped out with no one to borrow from. Lifting off the bottom's going to be harder this time.
[OT] The new Bear Stearns deal has more differences than you might expect, according to the WSJ blog.
The description sounds identical to an outright purchase by the Fed of $30 billion of illiquid MBSes, with a $1 billion insurance policy from JPM. Surely I am not reading that right...
Too many people have made lots of money in the stock market for reality to sink in. There will have to be big losses and a couple of years of them before sentiment connects with reality. Market still levitating.
The "average" peak to trough decline in the S&P 500 index during a recession in ~32%.
We've seen a ~15% peak to trough decline so far...but make no mistake about it...like the US in 2001-2....or Japan 1990-2....we are in the early innings.
At the end of the day, the "consumer" is in retrenchment...which means that 70% of GDP is in retrenchment as well....and it'll be earnings going forward...or lack thereof...that will begin to take center stage as the recession deepens.
With regards to a 30%+ pullback in an average recession...we will look back on the current recession, which has taken the country to the brink of a systemic meltdown (Bear $2 JP/Fed bailout) is clearly anything but "average"...
(Minneapolis, MN) -- Foreclosure, often seen as an inner-city problem, is creeping into Hennepin County's middle-class suburbs.
In four of the last five months, the suburbs have seen more foreclosure auctions than Minneapolis. That's a change from the previous year, when Minneapolis dominated foreclosures in all but two months.
In February, more than 57 percent of county foreclosures were in the suburbs, the highest suburban share in at least the last 19 months.
Do you think Calculatedrisk and other financial blogs will have any meaning or purpose if The Fed is both goosing The Market, buy mortgages, bailing out banks and taking away free market reality from America? What will the point of debate or DD be, if accounting fraud is not important, debt is meaningless and bubbles are a normal function of week-to-week distortions?
Why would you matter...or God forbid, me? Oh my God, I can see you two going down the tubes....but what about us?
Just watched the news during lunchbreak. The "home sales figures" were just out for Feb. "Looks like things are picking up! We going into the strong spring selling season!" Hope springs eternal in spring..........
If the Fed has done anything illegal, won't Bush or the next president of either party simply pardon Ben and Hank? They've saved us from ourselves, goes the meme, and we should be grateful!
It's not illegal if the president (or his minions) do it, according to that line of thinking, and Congress thus far has not been willing to challenge that notion in any significant way.
The taxpayer loses, has always lost, will continue to lose. (I'm not very optimistic about all of this, in case you were wondering.)
how do you know that they really landed on the moon? based on out trust of the fed today it could be plausibele that the moon wlak was done on a backlot stage somewhere.
Marcus, I welcome thee to Rome. The flames are just beginning to burn.
I wonder... My most bearish newsletters just changed to a short-term bullish outlook (from several weeks to two months) today after our recent stock rally. It's hard to imagine how stocks could keep rallying if a recession really is picking up steam. An outright recession would create a growing flood of bad news that would tank the markets. Moreover, markets try and get ahead of the economic cycle, and if a recession were really brewing then stocks would be falling as earnings estimates were lowered.
In short, maybe the recession hasn't REALLY started, and won't kick in till late summer or fall?
Or maybe my bearish newsletter authors are making the (short-term) bullish call prematurely.
FDIC facts: Current insurance fund is $52.4 billion and covers 1.22% of total bank deposits. The FDIC at year end put 76 institutions with $22 billion in deposit assets on its troubled list. Loss provisions were set at $1.06 billion. In their last report they did infer that these numbers will move higher.
The above is from Russ Winter.
In other words, one Fed bailout to Bear Stearns/JP Morgan was worth more than half of the total backstop the FDIC has.
What are the odds the FDIC will burn through all $52 billion this year?
I'll bet 50%.
What are the odds through the end of 2009?
I'll bet 100%.
I believe FDIC has at least $50 billion of exposure on homebuilder and condo construction loans alone.
The FDIC should NEVER have let banks loan such a large percentage of assets to hi-rise condo construction projects in bubble markets.
In the last year, Brooklyn Park has seen almost 700 foreclosures, more than any other Hennepin County suburb.
It is followed by Brooklyn Center, Bloomington, Maple Grove, Eden Prairie, Crystal, Richfield and Plymouth, Champlin and Minnetonka.
The list is striking because it includes newer communities like Maple Grove and Eden Prairie, upscale suburbs like Minnetonka and post-World War II rambler cities like Richfield and Crystal.
That last paragraph is the most significant... Eden Prairie (misnamed in two respects IMHO) is very upscale in most locations as is Minnetonka... the others like Brooklyn Park, Richfield and much of Bloomington are neo-urban blight... 'Easties' (those in on the east side of Bloomington) are as likely to be on welfare or school lunch programs as anywhere inside Minneapolis proper. I have friends who teach at 'JFK HS' and its pretty rough.
Eden Prairie is NOT rough and to find it on the list suggests the containment is very much 'not contained'... but then we all knew that already.
Housing has Rebounded! I heard it on the Radio!! FOR THE FIRST TIME SINCE LASY YEAR USED HOME SALES ROSE IN FEBRUARY FROM JANUARY'S NUMBER!!! we have been saved,go shopping.
rich,
I think the FED has about 800 billion at its disposal and was the institution involved. The FDIC is a separate beast and wasn't involved in this case.
"Housing has Rebounded! I heard it on the Radio!! FOR THE FIRST TIME SINCE LASY YEAR USED HOME SALES ROSE IN FEBRUARY FROM JANUARY'S NUMBER!!! we have been saved,go shopping."
BOB DOBBS,I sure can,and since you are an AAA risk,i'll charge you the same Rate I would carrington!God I feel SOOO enthused when I heard the Financial news on the Radio today,it was like having april first weeks early.
For the first time 12 years there were 5 Fridays in February.
Honest, I cannot emphasize this enough. Feb 08 is just not going to be precise enough to make the types of comparisons people are attempting. More days, more Fridays, worse weather in many places, an Easter in the following month and very early, no Easter in the month after that. The margin of error and unique circumstances are unusually large.
Given that the Fed has rights to any gains, it sure seems that way.
And they have hired a private firm (BlackRock) to "manage the $30 billion portfolio".
So it appears that the Federal Reserse has, in effect, purchased $30 billion in securities and hired a private firm to manage the "investment". This strikes me as, shall we say, news. To put it mildly.
--
When it comes to admission that recession has begun lot of dominos have fallen in March, Seb notwithstanding. When Seb falls it would be time to go long for a 25%-30% tradable rally in S&P500. Bottom for S&P would be lot lower than the October 2002 bottom.
Recession deniers seem to have serious mental problems.
Cheer up DAWG,it is an election year,and our newshounds on the TV breathe so much formaldehyde from their hairspray they can't help what they say.Just enjoy the show,lots of drama,Low and High humor and more tragedy than most would like,but what a show!
DJ Merrill Lynch To Report 1Q Loss Amid Writedowns - Analyst
. DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Merrill Lynch & Co. (MER), which reported its first annual loss in 2007, is likely to have another loss in its first quarter, Fox-Pitt Kelton analyst David Trone told investors on Monday.
Merrill may write down as much as $8 billion of corporate loans, subprime and other mortgages, commercial real estate and exposure to troubled bond insurers, Trone said. In the previous two quarters, Merrill wrote down $25 billion of assets.
Trone reversed his earlier forecast, in which he had estimated Merrill would report a profit of $1.36 a share for its quarter ending this week. He now sees a loss of 93 cents a share, or about $848 million. He revised his estimate after digesting the first-quarter reports of Goldman Sachs Group (GS), Lehman Brothers Holdings (LEH) and Morgan Stanley (MS), each of which last week signaled continued deterioration in the value of assets on their books. Those firms ended their fiscal first quarters in February.
Earlier Monday, Credit Suisse analyst Susan Roth Katzke forecast a net loss of $1.65 a share for Merrill, reversing her previous forecast of a profit of 43 cents a share. The average forecast of all analysts surveyed by Thomson Financial is for a gain of about 48 cents a share. Merrill has not yet said when it will report its first-quarter results.
Trone said Merrill probably thrived in trading interest rates, investment-grade bonds, commodities and currencies in the past three months but likely suffered a sharp 20% decline in investment banking revenue from the fourth quarter of 2007.
Merrill, which has raised more than $7 billion of new capital since December, probably has enough to tide it over until it assesses its position in midyear, Trone said. But he lowered his full-year estimate to $3.16 from $6.56 and his price target to $62 from $67.
"We continue to believe Merrill's exposure to mortgage and (corporate) segments, in the midst of global deleveraging, is disconcerting," he concluded.
Katzke cut her full-year 2008 estimate on Merrill's profit to $2.75 from $5, and her target price to a range of $65-$70 from $70-$75.
Merrill customarily does not comment on analyst reports. A spokeswoman did not immediately return a call for comment.
Merrill's shares rose 3.3% in composite trading on the New York Stock Exchange on Monday to $48.38. They are down 9.9% this year and 43.5% over the past 12 months.
Tom Stone writes:
Cheer up DAWG,it is an election year,and our newshounds on the TV breathe so much formaldehyde from their hairspray they can't help what they say.Just enjoy the show,lots of drama,Low and High humor and more tragedy than most would like,but what a show!
I'm already stuffed full of popcorn from watching KB Homes soar 9% on the news that one of their developments in Los Angeles caught fire. [My blog and Curbed LA]
Query, If Congress abolishes the Fed, could it then take possession of the 800 billion it has in treasuries and retire the debt? This action would certainly help sure up the dollar.
Malabar,try e mailing sacramento real estate statistics Blog,and Dawg,that IS good news for KB,pity it won't work for their petaluma development,since it is still bare dirt and a tattered sign.
I keep waiting for more effects of the recession to show up, mainly in vain. I don't see fewer cars on the roads, or fewer people out shopping. But maybe I haven't looked in the right places. My supermarket looked pretty empty Saturday before Easter, but maybe people had bought their hams earlier. Food would be the last thing to stop buying, right? I must check out Target next.
Be careful with the data. Real-litters are notorious for messing with the initial asking price (ie relisting a house) and subsequent revisions. The only thing you'll really know is the final price and that is frequently subject to manipulation via cash back, free cars, second loans from the home owner etc.
They are suppose to be the purveyors of clean data and know all about the "market" but the truth is a lot of their data / comps are subject to a lot of inaccuracies. What a great organization!
I wonder... My most bearish newsletters just changed to a short-term bullish outlook (from several weeks to two months) today after our recent stock rally. It's hard to imagine how stocks could keep rallying if a recession really is picking up steam. An outright recession would create a growing flood of bad news that would tank the markets. Moreover, markets try and get ahead of the economic cycle, and if a recession were really brewing then stocks would be falling as earnings estimates were lowered.
In short, maybe the recession hasn't REALLY started, and won't kick in till late summer or fall?
Or maybe my bearish newsletter authors are making the (short-term) bullish call prematurely.
Well I think any short-term bullish call would have more to do with internal market dynamics (e.g. shorts being squeezed out) than the economy.
I doesn't matter how bad the economy is, it won't save any bears from margin calls and forced stock purchases if they've gotten in too deep.
The FED may have been able to distract Wall Street with shiny objects (TSLF, BSC bailout, Blackrock holding company, rate cuts) and may have bought up to 3 months of time. The problem is that default rates for home loans are ACCELERATING and price drops are getting BIGGER every month. No changes to the underlying issue has been made. Hiding loses and treating the markets with kid gloves will come back to haunt the FED.
Anon the y, yes, of course. I don't know whether to be pleased that people read and care enough to check or worry that people care so much as to bother. [1996 was 5 Thursdays.]
Jim writes:
I keep waiting for more effects of the recession to show up, mainly in vain. I don't see fewer cars on the roads,
You might check the EIA and BTS for gasoline consumption. Down.
Saying the Fed and the FDIC are two different entities is like saying: Social Security will be broke when they spend all the money in the trust fund.
The FDIC insures only deposits, which gives them a substantially different mandate and agenda than the Fed or any other federal or pseudo-governmental agency. Really their sole purpose is to convince you (and try to ensure/insure) that your savings account is as safe as your mattress. They do not, for example, take steps to encourage banks to keep lending aggressively during periods of potential crisis, which one might argue is exactly what the Fed and the *Maes/Macs are trying to do. It seems very unlikely to me that the FDIC will run out of money, even if several major banks go under, since they have first dibs on every available dime and are only paying up to $100K per account. The shareholders, bondholders, and counter-parties are at far greater risk than depositors. Ultimately I think the average American is going to lose far more from their pension funds (which hold large amounts CDOs and bank stocks) than their savings accounts, it just won't be as visible to them.
AC: agreed. I covered my big (for me) R2000 ultra short last week with the confirmation up day. I think we've got a couple of months of la la land like last fall, then reality reasserts.
The thing that's astonished me all along is the slow motion of this trainwreck. If a bunch of underemployed philosophers like this blog can see things plain as day, why did it take the smart guys 6 months to take Bear from 130 to 2 (er, 10). I know: to give the smart money time to get out. But still, its like being in a dream where you're trying to run, but can't get anywhere.
I just wonder what variable I'm not considering that explains the reality of a pretty much perpetually rising market. Everyone's hedged, no one loses big money and everyone seems to gain 5-15% annually.
?????????????????????????????
Who pays the other side of the trade?
Anonymous | 03.24.08 - 8:28 pm |
AC: agreed. I covered my big (for me) R2000 ultra short last week with the confirmation up day. I think we've got a couple of months of la la land like last fall, then reality reasserts.
The thing that's astonished me all along is the slow motion of this trainwreck. If a bunch of underemployed philosophers like this blog can see things plain as day, why did it take the smart guys 6 months to take Bear from 130 to 2 (er, 10). I know: to give the smart money time to get out. But still, its like being in a dream where you're trying to run, but can't get anywhere.
I figure one big advantage some of us here have over the "smart money" is mobility.
If you only have a portfolio of $15-$20 million like a lot of us CR posters, you just don't have the sort of liquidity issues that a lot of the big guys do.
Imagine if it took you days or weeks to get out of a position.
Some of these guys do trades bigger than my entire 401k.
"Hiding loses and treating the markets with kid gloves will come back to haunt the FED"
The system breaks down when we do not increase borrowing. If I lend you ten dollars only payable in my notes at say 10% (for example) where do you get the extra buck? I have to lend it to you. Our system is based on ever increased lending our we have chained defaults as in a Ponzi scheme. Hidng losses is there only option. Disclaimer I am drunk and I do not know what I talking about.
Sorry..a bit off this topic...but in response to an earlier posting by Tanta.
The posting about "A Tale of Real Estate Predation" got me thinking. Took a day for me to mull this over.
I agree, that dishonest brokers that tricked people into mortgages and refinances, who lied to them about the real costs and took advantage of their ignorance are at blame.
But I also believe most people were "complicit".
Here is the definition from dictionary.com.
Dictionary.com Unabridged (v 1.1) - Cite This Source - Share This
com·plic·it /kəmˈplɪsɪt/ Pronunciation Key - Show Spelled Pronunciation[kuhm-plis-it] Pronunciation Key - Show IPA Pronunciation
adjective choosing to be involved in an illegal or questionable act, esp. with others; having complicity.
My interpretation is that if the borrower knew that the broker was fraudulent in the documentation, then the borrower committed fraud also.
Both are equally guilty.
I understand the hope of making your life better for your family.
My suggestions on how to help the foreclosures is the following:
Those lied to and duped and confused with huge piles of paper work should be able to sue.
Those that are complicit should understand they were renting to buy. The deal went south.
Those that made a bad decision, went for the American Dream, have some means to pay, could be given a second chance.
As a last comment....my opinion...most of the people who bought houses they could not afford
were complicit.
what recession, the market is on fire and will test new highs before spring is over. The Fed is printing money, media is hyping, pensions are being robbed and used to swap out collateral for Fed exchange programs, mkt is going higher, oil crashing, gold crashing, bonds crashing, what's not to like?
JJL Sayes:
The problem is that default rates for home loans are ACCELERATING and price drops are getting BIGGER every month. No changes to the underlying issue has been made.
Now don't bring up reality JJL, the FED has been doing a creative financial mojo to increase "confidence" so that banks will lend to each other, what's not to like.
I took the present participle as meaning in the process of on the gold and oil. Although I don't see the numbers going as low as 50/500 at this time, I do think gold is going to drop enough to cause gold bugs to wet themselves.
To continue my comments from another thread, earlier today FFDIC posted a link to the latest quarterly FDIC report. What jumped out most was the huge acceleration in the economic downturn in Michigan across all metrics.
The Fed is like an army that has captured the high ground over the harbor, which is metaphorically Wall Street. That's where they are aiming all their ammo. But it has long been written that this, uh, downclimb will spread like wildfire from the heartland out. I've written about this here for months.
Downturns don't know state boundaries. But if you drew a 150-mile radius around Toledo, OH, I think by year-end 08 or early 09 that area will look and feel a lot like America of 1931. Unemployment will be over 10%. Bank failures will be reported almost every week. Foreclosures will be off the charts. CRE will be vast, vacant parking lots. Public debts of towns and counties will be sharply downgraded and/or heading toward default.
The Fed has no high ground, no ammunition, for dealing with this kind of weakness. In a way, the Fed is probably fueling it.
It would take a united, creative Congress to help out this region with tax dollars. But thanks to Obumf*ck Michigan can't even get a vote.
Glad to see you are feeling so cheerful about your Hillary juggernaut predictions, Rich. I've been waiting for that.
And good to see you haven't learned a thing - your comment about Obama makes about as much sense as the Hillary predictions. Good lord deliver us from trained journalists.
What recession? It sure hasn't hit the pool re-plastering business. I built a pool in '98 including first rate equipment, pebble-tek... without any really fancy silly stuff for $12K. Today I got an estimate for a replaster on a slightly bigger pool for $8K. I was thinking $4K. I talked to the estimator and he's too busy to start until mid May and his rates recently went up from $60/hr to $80 and they're looking at upping to $100/hr.
So, if you're looking for a recession-proof business, I guess that's where to go.
I will be putting off the re-plaster till next year.
The question isn't whether the Fed is sterilizing, but how long it can contiue to do so.
That's why I've been thinking all along we'll ultimately end up with inflation (money supply growth)... they won't stop when the sterile needles are all used up.
Curious writes:
Shouldn't the well be about dry by now?
I just wonder what variable I'm not considering that explains the reality of a pretty much perpetually rising market. Everyone's hedged, no one loses big money and everyone seems to gain 5-15% annually.
?????????????????????????????
Who pays the other side of the trade?
Anonymous | 03.24.08 - 8:28 pm |
Curious | 03.24.08 - 8:37 pm | #
Ken - the FDIC does not have first dibs on a failed bank's assets. The Home Loan Banks have first dibs, and the FDIC comes after them. So if Countrywide, let's say, we're to go down, the Home Loan Bank of Atlanta gets first crack, and FDIC gets whatever is left.
Financial TImes' "Short View" from 3/24 has a plot towards the end (at ~2:06) that compares S&P and US NAHB Traffic data. The two data sets seem to show very good correlation, with a 20-month lag, i.e., the NAHB data leads S&P by 20 months. If this holds up, S&P's decline is just beginning and has a long way to go.
As for oil if it crashes and we do not have enough for future supply it would seem we underinvested. As for the second I am not familiar with that product, did you mean glod?
Anon,
Hard to say. If you consider the fact that the FEd has telegraphed their intention to buy bad mortgage paper, gold should soar and the dollar should fall. that is not happening, so time frames are tough. See my post tonight for more info. Short term gold is going to get whacked hard, and I hate that. All this bailout crap screws the macro investor by providing short term baloney for the fools.
I urge all to read "Simulacra and Simulations" by Baudrillard to get a grasp on where we are. A model has replaced the construct and only by perpetual ignorance of reality can the "system" go on. Good night.
The GDP figure has been so corrupted that it is meaningless as an indicator, so what difference does it make if it has positive or negative growth?
Furthermore, I look around at the complex weave of economic activity in this country and cannot for the life of me figure out how it can contract much. So much of spending is entirely inelastic. Once upon a time our factories were humming and in a recession people bought fewer of the produced goods, so factory workers were laid off.
Now the factories are in Asia, and most of the labor force is in Gov't and service occupations. Not so easy to lay those people off, because the services they provide are necessary.
Sure, you can close a McD's here, and lay off workers at HomeDepot, shutter a dog-grooming business. But how about teachers, firefighters, medical personnel, auto mechanics? How do Americans buy less insurance, not pay school fees, not pay for heat, not fix cars when they break down?
How much can our economy (which is no longer very productive in a tangible sense) contract without an abrupt collapse?
"All this bailout crap screws the macro investor by providing short term baloney for the fools."
Really, by now everyone here should be pretty well convinced we're in a recession and a bear market. Does that mean it's easy clear sailing south - The general direction? Of course not. Bear market rallies are far more fierce than bull market rallies as weak handed shorts get spooked easily.
The only way to play this market is to ride the bull for the short rallies and get off before you get clawed by the bear. I've been pretty lucky, buying as soon as the uptick looks like it'll have legs and then sell calls on the stock when it slows down, in case there's another bull run in the stock. I have been going with total losers and it's been pretty lucky so far...
Sure, you can close a McD's here, and lay off workers at HomeDepot, shutter a dog-grooming business. But how about teachers [larger class size], firefighters [fewer fire fighters, working longer hours & fewer fire stations - close some], medical personnel [longer queues & waits for procedures - close more ERs o make it harder for uninsured to get admitted], auto mechanics [fewer cars to work on as folks abandon older vehicles]? How do Americans buy less insurance [just go without - many do], not pay school fees [drop out, go cheaper - like community college], not pay for heat [move in with others - more homes go empty, less energy used], not fix cars when they break down [fewer people working mean fewer need cars - less maintenance]?
:: In short there are lots of ways to chop down service economy demand & resultant employment.
dryfly, those answers are a bit glib, IMO. Think about them a little. To some extent, they all can happen and have already happened. And in a typical recession, they are the secondary effects of a slowdown in production. But in the absence of layoffs in production, do they help?
I don't think we can have a "typical" recession anymore.
How much can our economy (which is no longer very productive in a tangible sense) contract without an abrupt collapse?
unirealist
The answer in a lot of big service companies is by "cutting the fat." That doesn't always mean the weakest employees. It can mean the most senior and highest-paid employees in companies that are too heavily staffed. It can mean employees who work in divisions that aren't growing or where people can be replaced by automation.
It's scary how much fat there is in a lot of big companies. Lately, I'm hearing about a lot of companies cutting back fat. Today, I heard that Dow Jones (the company that publishes the Wall Street Journal) is doing it big time. The New York Times, too.
Huge numbers of media and advertising companies are cutting fat because they know ad revenues are dropping like stones.
Do we need to redefine recession? If people stop buying things because they decide to save or put more towards their mortgage, that lowers GDP, but is that recession. How do we know we are in a recession if it's not properly defined?
No. But it would be nice to coin a word for the six months when we start to realize we're in one, but it can't be declared officially yet because the first six months isn't over and measured.
In a consumer spending driven economy, if consumers consume less and the labor market is flexible, people will be laid off. THOSE people will spend even less...
Even if consumption doesn't decline, if it doesn't grow as fast as productivity, jobs can be lost, as fewer people are required to produce the output. Thus the miracle of the jobless (or job-loss) recovery.
Even if GDP doesn't go negative, the shift from 4% growth to 0.5% growth can feel disconcerting.
dryfly is not that far off the mark. The service sector is dumping people, and increasing labor rates for the services you need. You'll wait longer, and pay more, as overhead is cut. I see this everyday, as I make my rounds.
The smiling faces are gone, and they won't be hired back. Meanwhile, payrates are being cut for the remainder (who have to go along after seeing the first 10% shown the door). Expect to pay bigtime for needed repairs to your cars and equipment.
If you can't pay, they won't need you coming around. It's happened before, and it happens again.
Tip of the day: get out of that luxury SUV. You will not believe how much a set of tires is going to hurt. Got an extra $2G burning a hole in your pocket? Think about 20 tanks of gas, in one day, taken out of your paycheck.
Last time this happened, it did no good to have good tires. They disappeared in the middle of the night (but I got 4 new concrete blocks under my car, in exchange).
When was the last time a recession had not already ended by the time it was called by NBER?
Seems like the finacials and builders are going to go out Bear Sterns style and trade as if there was no problem until the day they fail. Isn't that about what Enron did.
When was the last time a recession was fully priced into all of our efficient markets in advance?
Blue barz we must haz our blue barz!
Seriously, CR your constant provision of quality information in a clear manner is invaluable. Thank you.
What is propping up this market? Don't answer, I already know: THE U.S. GOV'MINT.
Nemo, exactly! We can't wait for NBER.
From NBER:
Q:Typically, how long after the beginning of a recession does the BCDC declare that a recession has started?
A:Anywhere from 6 to 18 months. We wait long enough so that the existence of a recession is not at all in doubt. We concentrate on finding the date of the peak in activity. We wait until we can assign an accurate date. We are very aware of revisions in the data, in particular.
NBER just tells us what happened ...
Best Wishes
Rob Dawg, thanks for the nice comments. Yes, we need those blue bars!
Best Wishes.
Forensic economists! CSI FED
The best recessions are always the ones in the rear view mirror. NBER is just being nice.
I was just about to write the same as the Dawg. The content and quality continues to improve and improve (not that it either were ever in question).
I had a co-worker say to me: "Did you see that housing had rebounded"
I sent him a few of this mornings posts to set him straight
Thanks!
I predict that man will set foot on the moon in 1969.
Respectfully, I think the recession started in June 07
I'll pretend like I got my praise in before you responded... After all there is nothing like acknowledging old data (or past posts)
The best recessions are always the ones in the rear view mirror.
As seen on this mirror:
"Recessions in mirror are bigger than they appear"
Add my kudos to the rest, CR. I'm a visual thinker; love them charts.
If we're going to dip as deep as the last recession, that charts shows that we still have a way to go.
The difference between now and then: when we hit bottom, most of us will be tapped out with no one to borrow from. Lifting off the bottom's going to be harder this time.
Rearview Mirror Live YouTube
- Pearl Jam - Rearview Mirror Live @ Pink Pop
This is a way better rear view mirror...
"As seen on this mirror:
"Recessions in mirror are bigger than they appear"
Or: Recessions is mirror are closer than they appear.
[OT] The new Bear Stearns deal has more differences than you might expect, according to the WSJ blog.
The description sounds identical to an outright purchase by the Fed of $30 billion of illiquid MBSes, with a $1 billion insurance policy from JPM. Surely I am not reading that right...
Oh come on, I told you that sunday afternoon, why are they sooooo slow?
Too many people have made lots of money in the stock market for reality to sink in. There will have to be big losses and a couple of years of them before sentiment connects with reality. Market still levitating.
The "average" peak to trough decline in the S&P 500 index during a recession in ~32%.
We've seen a ~15% peak to trough decline so far...but make no mistake about it...like the US in 2001-2....or Japan 1990-2....we are in the early innings.
At the end of the day, the "consumer" is in retrenchment...which means that 70% of GDP is in retrenchment as well....and it'll be earnings going forward...or lack thereof...that will begin to take center stage as the recession deepens.
With regards to a 30%+ pullback in an average recession...we will look back on the current recession, which has taken the country to the brink of a systemic meltdown (Bear $2 JP/Fed bailout) is clearly anything but "average"...
Buckle up, it's going to get real ugly, IMO.
Foreclosure scourge hitting the suburbs
By MARY JANE SMETANKA, Star Tribune
March 20, 2008
(Minneapolis, MN) -- Foreclosure, often seen as an inner-city problem, is creeping into Hennepin County's middle-class suburbs.
In four of the last five months, the suburbs have seen more foreclosure auctions than Minneapolis. That's a change from the previous year, when Minneapolis dominated foreclosures in all but two months.
In February, more than 57 percent of county foreclosures were in the suburbs, the highest suburban share in at least the last 19 months.
Foreclosure scourge hitting the suburbs | StarTribune.com
Tanta, CR,
Do you think Calculatedrisk and other financial blogs will have any meaning or purpose if The Fed is both goosing The Market, buy mortgages, bailing out banks and taking away free market reality from America? What will the point of debate or DD be, if accounting fraud is not important, debt is meaningless and bubbles are a normal function of week-to-week distortions?
Why would you matter...or God forbid, me? Oh my God, I can see you two going down the tubes....but what about us?
Just watched the news during lunchbreak. The "home sales figures" were just out for Feb. "Looks like things are picking up! We going into the strong spring selling season!" Hope springs eternal in spring..........
If the Fed has done anything illegal, won't Bush or the next president of either party simply pardon Ben and Hank? They've saved us from ourselves, goes the meme, and we should be grateful!
It's not illegal if the president (or his minions) do it, according to that line of thinking, and Congress thus far has not been willing to challenge that notion in any significant way.
The taxpayer loses, has always lost, will continue to lose. (I'm not very optimistic about all of this, in case you were wondering.)
Marcus Aurelius
how do you know that they really landed on the moon? based on out trust of the fed today it could be plausibele that the moon wlak was done on a backlot stage somewhere.
Marcus, I welcome thee to Rome. The flames are just beginning to burn.
I wonder... My most bearish newsletters just changed to a short-term bullish outlook (from several weeks to two months) today after our recent stock rally. It's hard to imagine how stocks could keep rallying if a recession really is picking up steam. An outright recession would create a growing flood of bad news that would tank the markets. Moreover, markets try and get ahead of the economic cycle, and if a recession were really brewing then stocks would be falling as earnings estimates were lowered.
In short, maybe the recession hasn't REALLY started, and won't kick in till late summer or fall?
Or maybe my bearish newsletter authors are making the (short-term) bullish call prematurely.
Stock Market = Wile E. Coyote walking on air until he looks down....
He falls quite a ways doesn't he? He still lives on though. Battered w/ stars floating around his head.
He should not have gotten his home loan from Acme Home Mtg....
The above is from Russ Winter.
In other words, one Fed bailout to Bear Stearns/JP Morgan was worth more than half of the total backstop the FDIC has.
What are the odds the FDIC will burn through all $52 billion this year?
I'll bet 50%.
What are the odds through the end of 2009?
I'll bet 100%.
I believe FDIC has at least $50 billion of exposure on homebuilder and condo construction loans alone.
The FDIC should NEVER have let banks loan such a large percentage of assets to hi-rise condo construction projects in bubble markets.
80% of those projects in the pipeline are DOA.
I don't care what color the bar is, as long as it's open.
From Alt-A Default links...
In the last year, Brooklyn Park has seen almost 700 foreclosures, more than any other Hennepin County suburb.
It is followed by Brooklyn Center, Bloomington, Maple Grove, Eden Prairie, Crystal, Richfield and Plymouth, Champlin and Minnetonka.
The list is striking because it includes newer communities like Maple Grove and Eden Prairie, upscale suburbs like Minnetonka and post-World War II rambler cities like Richfield and Crystal.
That last paragraph is the most significant... Eden Prairie (misnamed in two respects IMHO) is very upscale in most locations as is Minnetonka... the others like Brooklyn Park, Richfield and much of Bloomington are neo-urban blight... 'Easties' (those in on the east side of Bloomington) are as likely to be on welfare or school lunch programs as anywhere inside Minneapolis proper. I have friends who teach at 'JFK HS' and its pretty rough.
Eden Prairie is NOT rough and to find it on the list suggests the containment is very much 'not contained'... but then we all knew that already.
Blackrock is the new Halliburton. When will they move the headquarters to Dubai?
Casaubon’s Book » Blog Archive » Hard Times Come Again- Voices of Those who Have Been There Before
What if it's not just a recession?
Sharon Astyk on Hard Times Come Again- Voices of Those who Have Been There Before
Housing has Rebounded! I heard it on the Radio!! FOR THE FIRST TIME SINCE LASY YEAR USED HOME SALES ROSE IN FEBRUARY FROM JANUARY'S NUMBER!!! we have been saved,go shopping.
rich,
I think the FED has about 800 billion at its disposal and was the institution involved. The FDIC is a separate beast and wasn't involved in this case.
"Housing has Rebounded! I heard it on the Radio!! FOR THE FIRST TIME SINCE LASY YEAR USED HOME SALES ROSE IN FEBRUARY FROM JANUARY'S NUMBER!!! we have been saved,go shopping."
Sure. Spare a 20?
The description sounds identical to an outright purchase by the Fed of $30 billion of illiquid MBSes, with a $1 billion insurance policy from JPM.
Given that the Fed has rights to any gains, it sure seems that way.
Historically, FRNs are backed by Treasuries, right? What's the long term effect if FRNs are backed part by Treasuries, part by CDOs?
Why is it that US consumers are the last to know about recessions?
"Yep...we had a very severe recession about 9 months ago, but we pulled through it okay."
BOB DOBBS,I sure can,and since you are an AAA risk,i'll charge you the same Rate I would carrington!God I feel SOOO enthused when I heard the Financial news on the Radio today,it was like having april first weeks early.
For the first time 12 years there were 5 Fridays in February.
Honest, I cannot emphasize this enough. Feb 08 is just not going to be precise enough to make the types of comparisons people are attempting. More days, more Fridays, worse weather in many places, an Easter in the following month and very early, no Easter in the month after that. The margin of error and unique circumstances are unusually large.
MarkS --
Given that the Fed has rights to any gains, it sure seems that way.
And they have hired a private firm (BlackRock) to "manage the $30 billion portfolio".
So it appears that the Federal Reserse has, in effect, purchased $30 billion in securities and hired a private firm to manage the "investment". This strikes me as, shall we say, news. To put it mildly.
--
When it comes to admission that recession has begun lot of dominos have fallen in March, Seb notwithstanding. When Seb falls it would be time to go long for a 25%-30% tradable rally in S&P500. Bottom for S&P would be lot lower than the October 2002 bottom.
Recession deniers seem to have serious mental problems.
Jas
Cheer up DAWG,it is an election year,and our newshounds on the TV breathe so much formaldehyde from their hairspray they can't help what they say.Just enjoy the show,lots of drama,Low and High humor and more tragedy than most would like,but what a show!
OT-Dow Jones-MLynch
DJ Merrill Lynch To Report 1Q Loss Amid Writedowns - Analyst
. DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Merrill Lynch & Co. (MER), which reported its first annual loss in 2007, is likely to have another loss in its first quarter, Fox-Pitt Kelton analyst David Trone told investors on Monday.
Merrill may write down as much as $8 billion of corporate loans, subprime and other mortgages, commercial real estate and exposure to troubled bond insurers, Trone said. In the previous two quarters, Merrill wrote down $25 billion of assets.
Trone reversed his earlier forecast, in which he had estimated Merrill would report a profit of $1.36 a share for its quarter ending this week. He now sees a loss of 93 cents a share, or about $848 million. He revised his estimate after digesting the first-quarter reports of Goldman Sachs Group (GS), Lehman Brothers Holdings (LEH) and Morgan Stanley (MS), each of which last week signaled continued deterioration in the value of assets on their books. Those firms ended their fiscal first quarters in February.
Earlier Monday, Credit Suisse analyst Susan Roth Katzke forecast a net loss of $1.65 a share for Merrill, reversing her previous forecast of a profit of 43 cents a share. The average forecast of all analysts surveyed by Thomson Financial is for a gain of about 48 cents a share. Merrill has not yet said when it will report its first-quarter results.
Trone said Merrill probably thrived in trading interest rates, investment-grade bonds, commodities and currencies in the past three months but likely suffered a sharp 20% decline in investment banking revenue from the fourth quarter of 2007.
Merrill, which has raised more than $7 billion of new capital since December, probably has enough to tide it over until it assesses its position in midyear, Trone said. But he lowered his full-year estimate to $3.16 from $6.56 and his price target to $62 from $67.
"We continue to believe Merrill's exposure to mortgage and (corporate) segments, in the midst of global deleveraging, is disconcerting," he concluded.
Katzke cut her full-year 2008 estimate on Merrill's profit to $2.75 from $5, and her target price to a range of $65-$70 from $70-$75.
Merrill customarily does not comment on analyst reports. A spokeswoman did not immediately return a call for comment.
Merrill's shares rose 3.3% in composite trading on the New York Stock Exchange on Monday to $48.38. They are down 9.9% this year and 43.5% over the past 12 months.
Shares were down eight cents in late trading.
-By Jed Horowitz, Dow Jones Newswires; 201-938-4047; jed.horowitz@dowjones.com
(END) Dow Jones Newswires
March 24, 2008 18:43 ET (22:43 GMT)
Tom Stone writes:
Cheer up DAWG,it is an election year,and our newshounds on the TV breathe so much formaldehyde from their hairspray they can't help what they say.Just enjoy the show,lots of drama,Low and High humor and more tragedy than most would like,but what a show!
I'm already stuffed full of popcorn from watching KB Homes soar 9% on the news that one of their developments in Los Angeles caught fire. [My blog and Curbed LA]
It's all the same money. Read Theroxylander's column today.
The Fed is the underwriter for U.S. govt. tax-backed loans; i.e., Treasuries.
Saying the Fed and the FDIC are two different entities is like saying: Social Security will be broke when they spend all the money in the trust fund.
The only assets of the "trust fund" are special-purpose Treasuries. It's amazing how many people they can fool with nomenclature.
Could the Federal Reserve go under? I want to get a copy of their balance sheet and let a team of professional accounts study it in detail. Am I nuts?
Or do they just create more credits out of thin air?
Anyone know a handy site for prices for closed RE transactions in Northern Calif?
I would like to build a graph of the spread between listing price and closed prices to see if the spread is growing or shrinking.
Did Blackrock get the contract so the IBs would get some green shoe relief?
Query, If Congress abolishes the Fed, could it then take possession of the 800 billion it has in treasuries and retire the debt? This action would certainly help sure up the dollar.
Malabar,try e mailing sacramento real estate statistics Blog,and Dawg,that IS good news for KB,pity it won't work for their petaluma development,since it is still bare dirt and a tattered sign.
Come next year, will JPM be looking for a new CEO?
I keep waiting for more effects of the recession to show up, mainly in vain. I don't see fewer cars on the roads, or fewer people out shopping. But maybe I haven't looked in the right places. My supermarket looked pretty empty Saturday before Easter, but maybe people had bought their hams earlier. Food would be the last thing to stop buying, right? I must check out Target next.
Jim,
Here you go..All the economic indicators here
Economic Indicators
I didn't want to see you driving around looking for the recession since gas is pretty expensive!
malabar,
Be careful with the data. Real-litters are notorious for messing with the initial asking price (ie relisting a house) and subsequent revisions. The only thing you'll really know is the final price and that is frequently subject to manipulation via cash back, free cars, second loans from the home owner etc.
They are suppose to be the purveyors of clean data and know all about the "market" but the truth is a lot of their data / comps are subject to a lot of inaccuracies. What a great organization!
{end snark}
I wonder... My most bearish newsletters just changed to a short-term bullish outlook (from several weeks to two months) today after our recent stock rally. It's hard to imagine how stocks could keep rallying if a recession really is picking up steam. An outright recession would create a growing flood of bad news that would tank the markets. Moreover, markets try and get ahead of the economic cycle, and if a recession were really brewing then stocks would be falling as earnings estimates were lowered.
In short, maybe the recession hasn't REALLY started, and won't kick in till late summer or fall?
Or maybe my bearish newsletter authors are making the (short-term) bullish call prematurely.
Well I think any short-term bullish call would have more to do with internal market dynamics (e.g. shorts being squeezed out) than the economy.
I doesn't matter how bad the economy is, it won't save any bears from margin calls and forced stock purchases if they've gotten in too deep.
No, for the first time in 28 years there were 5 Fridays in February.
The FED may have been able to distract Wall Street with shiny objects (TSLF, BSC bailout, Blackrock holding company, rate cuts) and may have bought up to 3 months of time. The problem is that default rates for home loans are ACCELERATING and price drops are getting BIGGER every month. No changes to the underlying issue has been made. Hiding loses and treating the markets with kid gloves will come back to haunt the FED.
Another good indicator:
Google Trends: foreclosure
Anon the y, yes, of course. I don't know whether to be pleased that people read and care enough to check or worry that people care so much as to bother. [1996 was 5 Thursdays.]
Jim writes:
I keep waiting for more effects of the recession to show up, mainly in vain. I don't see fewer cars on the roads,
You might check the EIA and BTS for gasoline consumption. Down.
Best time to load up on stocks.
The whole goal of all of this manipulation is to keep the market up until the election by any means legal or illegal.
Saying the Fed and the FDIC are two different entities is like saying: Social Security will be broke when they spend all the money in the trust fund.
The FDIC insures only deposits, which gives them a substantially different mandate and agenda than the Fed or any other federal or pseudo-governmental agency. Really their sole purpose is to convince you (and try to ensure/insure) that your savings account is as safe as your mattress. They do not, for example, take steps to encourage banks to keep lending aggressively during periods of potential crisis, which one might argue is exactly what the Fed and the *Maes/Macs are trying to do. It seems very unlikely to me that the FDIC will run out of money, even if several major banks go under, since they have first dibs on every available dime and are only paying up to $100K per account. The shareholders, bondholders, and counter-parties are at far greater risk than depositors. Ultimately I think the average American is going to lose far more from their pension funds (which hold large amounts CDOs and bank stocks) than their savings accounts, it just won't be as visible to them.
AC: agreed. I covered my big (for me) R2000 ultra short last week with the confirmation up day. I think we've got a couple of months of la la land like last fall, then reality reasserts.
The thing that's astonished me all along is the slow motion of this trainwreck. If a bunch of underemployed philosophers like this blog can see things plain as day, why did it take the smart guys 6 months to take Bear from 130 to 2 (er, 10). I know: to give the smart money time to get out. But still, its like being in a dream where you're trying to run, but can't get anywhere.
Shouldn't the well be about dry by now?
I just wonder what variable I'm not considering that explains the reality of a pretty much perpetually rising market. Everyone's hedged, no one loses big money and everyone seems to gain 5-15% annually.
?????????????????????????????
Who pays the other side of the trade?
Anonymous | 03.24.08 - 8:28 pm |
Can we please stop calling it a recession?!
I much prefer the term downclimb.
AC: agreed. I covered my big (for me) R2000 ultra short last week with the confirmation up day. I think we've got a couple of months of la la land like last fall, then reality reasserts.
The thing that's astonished me all along is the slow motion of this trainwreck. If a bunch of underemployed philosophers like this blog can see things plain as day, why did it take the smart guys 6 months to take Bear from 130 to 2 (er, 10). I know: to give the smart money time to get out. But still, its like being in a dream where you're trying to run, but can't get anywhere.
I figure one big advantage some of us here have over the "smart money" is mobility.
If you only have a portfolio of $15-$20 million like a lot of us CR posters, you just don't have the sort of liquidity issues that a lot of the big guys do.
Imagine if it took you days or weeks to get out of a position.
Some of these guys do trades bigger than my entire 401k.
"Hiding loses and treating the markets with kid gloves will come back to haunt the FED"
The system breaks down when we do not increase borrowing. If I lend you ten dollars only payable in my notes at say 10% (for example) where do you get the extra buck? I have to lend it to you. Our system is based on ever increased lending our we have chained defaults as in a Ponzi scheme. Hidng losses is there only option. Disclaimer I am drunk and I do not know what I talking about.
Sorry..a bit off this topic...but in response to an earlier posting by Tanta.
The posting about "A Tale of Real Estate Predation" got me thinking. Took a day for me to mull this over.
I agree, that dishonest brokers that tricked people into mortgages and refinances, who lied to them about the real costs and took advantage of their ignorance are at blame.
But I also believe most people were "complicit".
Here is the definition from dictionary.com.
Dictionary.com Unabridged (v 1.1) - Cite This Source - Share This
com·plic·it /kəmˈplɪsɪt/ Pronunciation Key - Show Spelled Pronunciation[kuhm-plis-it] Pronunciation Key - Show IPA Pronunciation
adjective choosing to be involved in an illegal or questionable act, esp. with others; having complicity.
My interpretation is that if the borrower knew that the broker was fraudulent in the documentation, then the borrower committed fraud also.
Both are equally guilty.
I understand the hope of making your life better for your family.
My suggestions on how to help the foreclosures is the following:
Those lied to and duped and confused with huge piles of paper work should be able to sue.
Those that are complicit should understand they were renting to buy. The deal went south.
Those that made a bad decision, went for the American Dream, have some means to pay, could be given a second chance.
As a last comment....my opinion...most of the people who bought houses they could not afford
were complicit.
Yoo Hoo...Sebastian...there's a call for you on line 1. It's someone from the Chicago Fed. Something about a three-month moving average index...
what recession, the market is on fire and will test new highs before spring is over. The Fed is printing money, media is hyping, pensions are being robbed and used to swap out collateral for Fed exchange programs, mkt is going higher, oil crashing, gold crashing, bonds crashing, what's not to like?
I forgot an important comment about "complicity". If you allow someone to commit fraud for your benefit...you are complicit.
The Fed is printing money
That's strange given the money supply is contracting.
pensions are being robbed and used to swap out collateral for Fed exchange programs
Huh. I thought the Fed was using its balance sheet to fund these endoavors in sterilzed operations. But what do I know?
oil crashing, gold crashing
Now I agree with you! What's not to like about those two?!
Q: When is a crash not a crash?
A: When it's a correction.
A crash would be oil: under $50/bl., Gold under $500/oz.
The question isn't whether the Fed is sterilizing, but how long it can contiue to do so.
IMHO.
Cheers,
JJL Sayes:
The problem is that default rates for home loans are ACCELERATING and price drops are getting BIGGER every month. No changes to the underlying issue has been made.
Now don't bring up reality JJL, the FED has been doing a creative financial mojo to increase "confidence" so that banks will lend to each other, what's not to like.
I took the present participle as meaning in the process of on the gold and oil. Although I don't see the numbers going as low as 50/500 at this time, I do think gold is going to drop enough to cause gold bugs to wet themselves.
Misean, the number is 771B left, if I'm not mistaken. After that they have to wave the magic wand over their balance sheet.
To continue my comments from another thread, earlier today FFDIC posted a link to the latest quarterly FDIC report. What jumped out most was the huge acceleration in the economic downturn in Michigan across all metrics.
The Fed is like an army that has captured the high ground over the harbor, which is metaphorically Wall Street. That's where they are aiming all their ammo. But it has long been written that this, uh, downclimb will spread like wildfire from the heartland out. I've written about this here for months.
Downturns don't know state boundaries. But if you drew a 150-mile radius around Toledo, OH, I think by year-end 08 or early 09 that area will look and feel a lot like America of 1931. Unemployment will be over 10%. Bank failures will be reported almost every week. Foreclosures will be off the charts. CRE will be vast, vacant parking lots. Public debts of towns and counties will be sharply downgraded and/or heading toward default.
The Fed has no high ground, no ammunition, for dealing with this kind of weakness. In a way, the Fed is probably fueling it.
It would take a united, creative Congress to help out this region with tax dollars. But thanks to Obumf*ck Michigan can't even get a vote.
ipodius,
That's just the Bear deal.
The auction later this week will put a dent in that.
Cheers,
Glad to see you are feeling so cheerful about your Hillary juggernaut predictions, Rich. I've been waiting for that.
And good to see you haven't learned a thing - your comment about Obama makes about as much sense as the Hillary predictions. Good lord deliver us from trained journalists.
What recession? It sure hasn't hit the pool re-plastering business. I built a pool in '98 including first rate equipment, pebble-tek... without any really fancy silly stuff for $12K. Today I got an estimate for a replaster on a slightly bigger pool for $8K. I was thinking $4K. I talked to the estimator and he's too busy to start until mid May and his rates recently went up from $60/hr to $80 and they're looking at upping to $100/hr.
So, if you're looking for a recession-proof business, I guess that's where to go.
I will be putting off the re-plaster till next year.
barely,
Firing off the last clip at the pool before selling in the great '08 Spring sell-a-thon.
Just a thought.
Cheers,
The question isn't whether the Fed is sterilizing, but how long it can contiue to do so.
That's why I've been thinking all along we'll ultimately end up with inflation (money supply growth)... they won't stop when the sterile needles are all used up.
You, the taxpayer.
Clinton has declared war on the economy, "We need a president who is ready on day one to be Commander-in-Chief of our economy."
Curious writes:
Shouldn't the well be about dry by now?
I just wonder what variable I'm not considering that explains the reality of a pretty much perpetually rising market. Everyone's hedged, no one loses big money and everyone seems to gain 5-15% annually.
?????????????????????????????
Who pays the other side of the trade?
Anonymous | 03.24.08 - 8:28 pm |
Curious | 03.24.08 - 8:37 pm | #
Topher writes:
You, the taxpayer.
Topher | 03.24.08 - 9:45 pm | #
dryly,
"That's why I've been thinking all along we'll ultimately end up with inflation (money supply growth)"
That bounces around my empty head a lot.
I am hopeful that you are incorrect. I am not dumb enough to say you are wrong.
Cheers,
Ken - the FDIC does not have first dibs on a failed bank's assets. The Home Loan Banks have first dibs, and the FDIC comes after them. So if Countrywide, let's say, we're to go down, the Home Loan Bank of Atlanta gets first crack, and FDIC gets whatever is left.
Financial TImes' "Short View" from 3/24 has a plot towards the end (at ~2:06) that compares S&P and US NAHB Traffic data. The two data sets seem to show very good correlation, with a 20-month lag, i.e., the NAHB data leads S&P by 20 months. If this holds up, S&P's decline is just beginning and has a long way to go.
FT.com / Short View
oil crashing, gold crashing
As for oil if it crashes and we do not have enough for future supply it would seem we underinvested. As for the second I am not familiar with that product, did you mean glod?
Gold and oil are dead. The FED has guaranteed thier demise.
Ipod your the gold/commodities guy on here.
Thoughts for the next few months.
Normal April/May rally or are we screwed.
JJL - short term dead or long term dead.
Anon,
Hard to say. If you consider the fact that the FEd has telegraphed their intention to buy bad mortgage paper, gold should soar and the dollar should fall. that is not happening, so time frames are tough. See my post tonight for more info. Short term gold is going to get whacked hard, and I hate that. All this bailout crap screws the macro investor by providing short term baloney for the fools.
I urge all to read "Simulacra and Simulations" by Baudrillard to get a grasp on where we are. A model has replaced the construct and only by perpetual ignorance of reality can the "system" go on. Good night.
All this bailout crap screws the macro investor by providing short term baloney for the fools.
JJL | Homepage | 03.24.08 - 10:28 pm | #
That's me. My macro predictions are all going to hell in free market fantasy land.
Oil is likely reacting to gasoline inventories. Commodities are just exausted as trading vehicles.
I realize the taxpayer is going to end up holding the bag.
But who is paying for the capital appreciation in J6P's retirement funds?
Is it just another form of a ponzi scheme (i.e., as long as cash flows in looking for a home it's willing to pay a higher price for shares).
I realize that do to labor arbitrage, earnings may have risen, justifying a higher share price but...
they've already rung that bell...
so what happens when earnings fall, does the money keep flowing in from contributions to J-401K regardless.
I kinda think it does, because these people just have the money taken out of there paycheck and sent to Vanguard.
The GDP figure has been so corrupted that it is meaningless as an indicator, so what difference does it make if it has positive or negative growth?
Furthermore, I look around at the complex weave of economic activity in this country and cannot for the life of me figure out how it can contract much. So much of spending is entirely inelastic. Once upon a time our factories were humming and in a recession people bought fewer of the produced goods, so factory workers were laid off.
Now the factories are in Asia, and most of the labor force is in Gov't and service occupations. Not so easy to lay those people off, because the services they provide are necessary.
Sure, you can close a McD's here, and lay off workers at HomeDepot, shutter a dog-grooming business. But how about teachers, firefighters, medical personnel, auto mechanics? How do Americans buy less insurance, not pay school fees, not pay for heat, not fix cars when they break down?
How much can our economy (which is no longer very productive in a tangible sense) contract without an abrupt collapse?
"All this bailout crap screws the macro investor by providing short term baloney for the fools."
Really, by now everyone here should be pretty well convinced we're in a recession and a bear market. Does that mean it's easy clear sailing south - The general direction? Of course not. Bear market rallies are far more fierce than bull market rallies as weak handed shorts get spooked easily.
The only way to play this market is to ride the bull for the short rallies and get off before you get clawed by the bear. I've been pretty lucky, buying as soon as the uptick looks like it'll have legs and then sell calls on the stock when it slows down, in case there's another bull run in the stock. I have been going with total losers and it's been pretty lucky so far...
unirealist writes [I reply]...
Sure, you can close a McD's here, and lay off workers at HomeDepot, shutter a dog-grooming business. But how about teachers [larger class size], firefighters [fewer fire fighters, working longer hours & fewer fire stations - close some], medical personnel [longer queues & waits for procedures - close more ERs o make it harder for uninsured to get admitted], auto mechanics [fewer cars to work on as folks abandon older vehicles]? How do Americans buy less insurance [just go without - many do], not pay school fees [drop out, go cheaper - like community college], not pay for heat [move in with others - more homes go empty, less energy used], not fix cars when they break down [fewer people working mean fewer need cars - less maintenance]?
:: In short there are lots of ways to chop down service economy demand & resultant employment.
JJL writes:
"perpetual ignorance of reality"
That's the American way!
It can't have a happy ending.
dryfly, those answers are a bit glib, IMO. Think about them a little. To some extent, they all can happen and have already happened. And in a typical recession, they are the secondary effects of a slowdown in production. But in the absence of layoffs in production, do they help?
I don't think we can have a "typical" recession anymore.
"perpetual ignorance of reality"
Yes, but if everyone thinks the world is flat, does that make it flat...
What could possibly convince them they are wrong?
The answer in a lot of big service companies is by "cutting the fat." That doesn't always mean the weakest employees. It can mean the most senior and highest-paid employees in companies that are too heavily staffed. It can mean employees who work in divisions that aren't growing or where people can be replaced by automation.
It's scary how much fat there is in a lot of big companies. Lately, I'm hearing about a lot of companies cutting back fat. Today, I heard that Dow Jones (the company that publishes the Wall Street Journal) is doing it big time. The New York Times, too.
Huge numbers of media and advertising companies are cutting fat because they know ad revenues are dropping like stones.
Rich,
Fat?
I thought private industry was lean and mean via self-correcting, free market mechanisms.
Do we need to redefine recession? If people stop buying things because they decide to save or put more towards their mortgage, that lowers GDP, but is that recession. How do we know we are in a recession if it's not properly defined?
Do we need to redefine recession?
No. But it would be nice to coin a word for the six months when we start to realize we're in one, but it can't be declared officially yet because the first six months isn't over and measured.
In a consumer spending driven economy, if consumers consume less and the labor market is flexible, people will be laid off. THOSE people will spend even less...
Even if consumption doesn't decline, if it doesn't grow as fast as productivity, jobs can be lost, as fewer people are required to produce the output. Thus the miracle of the jobless (or job-loss) recovery.
Even if GDP doesn't go negative, the shift from 4% growth to 0.5% growth can feel disconcerting.
Do we need to redefine recession?
A recession is when your neighbor loses his job . . .
dryfly is not that far off the mark. The service sector is dumping people, and increasing labor rates for the services you need. You'll wait longer, and pay more, as overhead is cut. I see this everyday, as I make my rounds.
The smiling faces are gone, and they won't be hired back. Meanwhile, payrates are being cut for the remainder (who have to go along after seeing the first 10% shown the door). Expect to pay bigtime for needed repairs to your cars and equipment.
If you can't pay, they won't need you coming around. It's happened before, and it happens again.
Tip of the day: get out of that luxury SUV. You will not believe how much a set of tires is going to hurt. Got an extra $2G burning a hole in your pocket? Think about 20 tanks of gas, in one day, taken out of your paycheck.
Last time this happened, it did no good to have good tires. They disappeared in the middle of the night (but I got 4 new concrete blocks under my car, in exchange).
Asked:
Ralph Cramdown writes:
Do we need to redefine recession?
No. But it would be nice to coin a word for the six months when we start to realize we're in one,
Answered:
I much prefer the term downclimb.
safe_as_apartments | 03.24.08 - 8:53 pm | #