I agree the worst of the Credit crunch may be over, but things are not going to kick into gear for a while. I am looking for slow growth for an extended period of time.
To tie this to the previous post, the ongoing psychological toll of the housing slump will deepen the recession, just as irrational speculation inflated the bubble.
The only hope on the consumer psychology front is another super bubble. But bubble in what? Commodities? That hurts more than helps the avg household.
The stock market may be holding up for now, but the majority don't follow stocks closely ... they follow their household budgets/ credit limits.
The next leg down in the markets will be a killer, since the latest batch of buyers will get burned again and will really get out - big. BubbleVision is going to need to come up with some new tricks to sucker the dupes.
After reading Fleckensteins rap today I'm gonna have to tighten up my stops in the bank sector until I can get my head around HELOC exposures. The lord of the dark matter is suggesting that servicers are so far behind in their paperwork that HELOC's that should've been in maybe Q307 reports are just now coming to light.
That is not good.
Cue Sebastyanna's "no recession now and if they call one, it's already over, even if credit is still in the dumps because the TED spread is under 100bp and wright model B says it can't happen".
Nevermind that the 4 week average in UI claims is up 14% YoY, industrial production is down and the ISM outlook survey is forecasting below trend growth(ie contraction in real terms.)
This crisis will end when the housing market finally clears effectively and freely. Everything else is just delaying that day by regulatory stupidity, or delaying to allow inflation to cure the problem.
I do NOT agree that the worst of the credit crisis is over. Nowhere near it.
What are we on, like, our 3rd bank failure so far this year? Come on! Even the FDIC knows they'll be neck-deep in them before too long.
Sure, the FCs are running fast & furious, but a lot of resets are still in front of us. Throw in the up-and-coming destruction to be wrought in consumer credit lines, CRE loans, etc. and we have yet to see the real losses.
Paul is a really smart guy and his work is impeccable.
We have a small (less than 7,000 sq ft ) build to suit that we are trying to fund. The owner has super excellent credit and will occupy about a third of the building. Three calls to our bank have not been returned. Finally a response that there is no, nada, nyet construction financing available at ANY price. Didn't even want to talk about permanent.
We all know we are a credit economy and if banks cannot risk assess a no lose loan, we're doomed...
CR,
I don't understand how you can make the comment that the worst of the credit crisis is over. At best, it is at a stalemate that could go in either direction. I just don't understand that comment especially after having posted about the negative non-borrowed reserves. It is basically proof that the banking system on the whole is insolvent. How does that situation get resolved short of the debt being monetized by the Treasury or the banks being able to recapitalize fully very soon per Bernanke's latest comments???
What crises. Market ready to take off from here now. Broken all resistance levels. Keeps climbing the wall of worry. Expect DJ to be at new all time highs before end of 2nd quarter.
Posted this in prev. thread...perfect thread for it here.
Can you say media manipulation. Front page headling article replaced with this headline
Schwarzman Says Markets on the Mend, Sending Blackstone Higher May ... Schwarzman Says Markets on the Mend, Sending Blackstone Higher May 15 (Bloomberg) --
Blackstone Group LP Chief Executive Officer Stephen Schwarzman said ...
- 2008-05-15
Blackstone Says Markets May Be in Eye of Hurricane' (Update2) May ... Blackstone Says Markets May Be inEye of Hurricane' (Update2) May 15 (Bloomberg) --
Blackstone Group LP President Tony James said banks are mistaken if they ...
- 2008-05-15
Just in time. The Russell 2000 Small Cap index is at its 200-day simple moving average and exponential moving average. So is the S&P 500 Large Cap Index, and so is the Dow Jones Industrial Average. The anomaly is the S&P 400 Mid Cap Index. If anyone has an explanation for this, I would be interested in reading it.
The VIX and VXO have been dropping for 2 months.
Oh, and there is a full moon on Tuesday and this affects people's emotions (i.e. time for the shorts to throw in the towel).
In the fullness of time, the time is full. I am calling the top on this pullback to occur some time between now and the middle of next week.
"The worst of the "credit crisis" might be over, but the real effects of tighter lending, less capital spending, rising unemployment, and consumer defaults on credit cards and auto loans is just starting."
Credit card debt and auto loans have been securitized, right? And the securities are held by a variety of financial institutions, right? So, the beat goes on. Or if it doesn't, why not?
The credit crisis for big banks is indeed almost over; now we will see actual losses, not writedowns.
The credit crisis is now moved into the general economy as suggested above; loans can't be had even if you had the credit record and cash on hand. Entire loan programs have been shuttered, banks are divesting CC & auto lending.
As Dryfly has noticed, PE firms are looking at walking away from firms they bought.
2nd tier banks with CRE exposure will see actual losses and go to the wall.
Here is some look-ahead:
Straight Line Drop of Homes Overpricing
In short, two leading measures of U.S. home prices, examined soundly, show inferred overpricings (latest: 39% and 46%) that have fallen steeply ca. on straight lines over the last 5 months. These two straight lines extrapolate to 0% inferred overpricing during 2010. Note that during 1997-2006, the same two inferred overpricings rose ca. on straight lines for as long as 101 months.
Alec said: "Cue Sebastyanna's "no recession now and if they call one, it's already over, even if credit is still in the dumps because the TED spread is under 100bp and wright model B says it can't happen"."
I don't follow the TED spread.
And I'm pretty much giving up on trying to convince the bears of anything, as a lost cause. They simply can't recognize that the bullish anthem "Everything's great and it's going to stay that way!" is just the opposite side of "Everythings's terrible and it's going to stay that way!"
They won't be able to get ahead of the curve on this, while CR and the entire cottage industry of housing-bear websites fan the flames and offer to sell gasoline to the hooligans ("If you'd like to subscribe...").
Oh, well, Sebastian, welcome to reality. Turns out that people really don't have good sense.
Alec said: "Alec writes:
Seb, so you have nothing for the other trends I mentioned?"
Quantify them, and their impact on the economy. Anyone can say "such and such is going to have such and such impact," but it's meaningless conjecture without having a way of applying it to economic/stock market activity.
Let's say you're right about the trends you mention. Who's to say that the economic slowdown hasn't already factored-in the impact? Who's to say that an -18% correction in the SP500 doesn't account for whatever risk there is to earnings? Who's to say that the impact on non-farm payrolls and the minor uptick in unemployment doesn't accurately reflect the damage and the risk?
Based on the levels and pattern of economic indicators in the past, there's excellent reason to think that all the damage and risk are factored-in. Economic slowdowns of this magnitude are significant, just like SP500 corrections of -18%. The bearish opinion that "it's not enough" is just an opinion.
Sebastian, What's priced in is a pick up in Q3 and Q4. What happens when that pick up turns out to be even greater contraction as the consumer, getting clobbered by food & energy along with increased debt service, gets their credit cards frozen for non payment.
Jwm In SD, I'm not sure if the "worst is over" or if the other side of the Eye might even be worse. I'm pretty sure the real effects haven't been felt yet. That is the point I was trying to make.
On the negative non-borrowed reserves, I thought I was clear that that was just an accounting issue. "False Alarm" was my take.
Seb says "Based on the levels and pattern of economic indicators in the past, there's excellent reason to think that all the damage and risk are factored-in"
If you believe that, then you have absolutely no idea about investment bankers. There is a LOT more interesting to come. People who believe the numbers the gov. puts out deserve to get broke. Seb, go long with ever thing. You can't loose. Its over, only up from here.
Sebastian, just for you. WaMu reduces home equity credit to homeowners
$6B negative stimulus...
"It's an effort to protect the borrower as well," said Donahoe-Wilmot. "We don't want them to have a line of credit that's higher than the value of their home."
According to a statement released by the company: "We will continue to evaluate home equity lines of credit in relationship to the amount of equity a customer has in their home and, if appropriate, will lower the line amount according to WaMu's line management guidelines."
WaMu's decision will affect consumers who were relying on home equity lines to finance major purchases, said Warmenhoven.
"So much of the spending and growth over the last several years has been tied to people using equity out of their homes," he said. "It's access to money that's no longer there." ]
Banker writes:
I agree the worst of the Credit crunch may be over, but things are not going to kick into gear for a while. I am looking for slow growth for an extended period of time.
I'm not so sure the crunch is over. Even if it is, who wants to buy the S&P 500 with a PE of 22 on profit margins that are still above historical norms.
barely writes:
The next leg down in the markets will be a killer, since the latest batch of buyers will get burned again and will really get out - big. BubbleVision is going to need to come up with some new tricks to sucker the dupes.
Agreed. And I can't wait. Maybe then it will make economic sense to buy some good companies.
Alec writes:
After reading Fleckensteins rap today I'm gonna have to tighten up my stops in the bank sector until I can get my head around HELOC exposures. The lord of the dark matter is suggesting that servicers are so far behind in their paperwork that HELOC's that should've been in maybe Q307 reports are just now coming to light.
Notice how WB has been consistently losing ground. They have a large CA HELOC book from Golden West.
Banned By Ritholtz writes:
Paul is a really smart guy and his work is impeccable.
We have a small (less than 7,000 sq ft ) build to suit that we are trying to fund. The owner has super excellent credit and will occupy about a third of the building. Three calls to our bank have not been returned. Finally a response that there is no, nada, nyet construction financing available at ANY price. Didn't even want to talk about permanent.
Loan standards are going back to normal (1980's) standards. Any reduction in mortgage rates is more than offset by the increased lending standards.
Bizarro writes:
What crises. Market ready to take off from here now. Broken all resistance levels. Keeps climbing the wall of worry. Expect DJ to be at new all time highs before end of 2nd quarter.
How much money are you investing? I'd be happy to short your entire position.
Next year is gonna be memorable - and not in a good way.
You got it right , tj
What's the big deal with the resets? At current rates they may reset lower. However if they were interest only and are now going to principle and interest its a whole new level.
nanya writes:
Just in time. The Russell 2000 Small Cap index is at its 200-day simple moving average and exponential moving average. So is the S&P 500 Large Cap Index, and so is the Dow Jones Industrial Average. The anomaly is the S&P 400 Mid Cap Index. If anyone has an explanation for this, I would be interested in reading it.
The VIX and VXO have been dropping for 2 months.
With the VIX down it makes put options that much cheaper. However, given all the irrational speculating going on now the speculators may be able to keep it going longer than your expiration date.
The running joke here is that some bad news comes out, and then someone chirps up "The DJIA is up 200!".
But this is only unusual if you make the assumption that equity markets will react in a Pavolvian fashion to the latest news, or even the next few quarters growth.
In the bond market, there are no reliable ways of valuing a 30-year gov't bond, which is assumed to have risk-free, known future cash flows spread over a finite time span. A typical stock, however, has unknown cash flows, no clear discounting rate, and a theoretically infinite life span. Why should the aggregate market go up or down based on whatever news?
If equities did react in some mechanical fashion to news, it would imply a stable hedging ratio would exist, and people would be all over the market with nosebleed leverage. Of course the thing acts irrationally...
And I'm pretty much giving up on trying to convince the bears of anything, as a lost cause. They simply can't recognize that the bullish anthem "Everything's great and it's going to stay that way!" is just the opposite side of "Everythings's terrible and it's going to stay that way!"
Seb don't do that. Bears need someone to debate to make sure they have their facts straight. The opinion of someone who is always wrong has its value.
having grown up on the coast (houston, galveston, ft walton beach) i've always had a direct response to the imagery of a hurricane
as i've mentioned on another blog, it having used the "perfect storm" image in conjuction with "the eye of the hurricane," i don't believe we are in the eye
that these volatile times feel more like feeder bands, waves of wind and rain and rising storm; violent at times, shuddering the soul
but not yet, the sustained force facing the eye wall
not yet the respite that is the eye
the sustained force surrounding the eye doesn't raise fear, it is fear
it is the relinquishing of anticipation of the end of the crisis
the acceptance into the peace of the eye is not a v shaped return to before the storm - it's a gathering and repositioning for the full force still to come onto weakened supports, tired eyes, and the very human realization that the bottom, for some, is where it ends
Where do these guys come from. Did he notice that the bank and investment bank borrowings from the Fed hit their highest point ever this week. Hardly a sign of a robust credit market.
I keep thinking about a statistic I saw here a while back regarding the amount of consumer spending that was funded by HELOCs - was it 7% or some such? I have to think most of that lending is at an end. So doesn't that mean a noticeable hit to consumer spending even before recession effects? Either consumers give up that spending or they put it on the credit cards, right?
CR - thanks for posting this and drawing our attention to it. And your en passant comment that the worst of the real economic consequences is yet to come jibes with my assessment. In fact we aren't' "really" in a recession as yet and there seems too be a widespread mis-apprehension of the normal structure and timing lags of a business cycle among almost all commentators. Which doesn't mean that those talking their books are going to talk up a bear market rally for a while.
As it happens I've been using the stormfront analogy, comparing this to the Big Thompson event for for example, where the gust fronts pass on by and then the real storm comes on you. In that I like to look at combining the changes in real wages and employment growth. Real wages have been getting kicked badly and the tipping point in measured employment is coming (Paul's other point about the B/D adjustment pours kerosene on that particular fire). If you'd like to see some complementary charts and analysis to Paul and yours try this: http://tinyurl.com/4a529a
I think folks might be surprised at what the real underlying data is saying.
Quantify them, and their impact on the economy. Anyone can say "such and such is going to have such and such impact," but it's meaningless conjecture without having a way of applying it to economic/stock market activity.
Let's say you're right about the trends you mention. Who's to say that the economic slowdown hasn't already factored-in the impact? Who's to say that an -18% correction in the SP500 doesn't account for whatever risk there is to earnings? Who's to say that the impact on non-farm payrolls and the minor uptick in unemployment doesn't accurately reflect the damage and the risk?
Based on the levels and pattern of economic indicators in the past, there's excellent reason to think that all the damage and risk are factored-in. Economic slowdowns of this magnitude are significant, just like SP500 corrections of -18%. The bearish opinion that "it's not enough" is just an opinion.
Sebastian
Sebastian
IOTW, you don't know jack squat and can't be bothered to reply, because why would unemployment claims be up 14% and not be in recession? What dolt can't quantify a contraction in industrial production and not know which way the trend runs?
I never claimed to be omniscient, just looking at which way the wind is blowing(bar your hot air.)
You makes interesting points. Amerika spoiled, bad judgment, never have real suffering. Going to change. Learn to work with hands, sweat of brow. You live mirage. You pretty shiny world held up by offshore slavery and despair. Coming your shores, soon. Hurt even more because you leaders terrible liars. Back hurt, stomach empty, mind sore--now go back to mines like good and unseen lackey.
It's going to take some time for all of the faith-based-perma-optimists to have their respective moments of clarity.
So don't be surprised that you keep hearing their delusional self-hynoptic chants that "storm has passed", the "mission is accomplished", and "the worst is behind us".
Don't forget that these are probably the same people who voted for Bush TWICE. That's a lot of stupid to correct for....so don't follow THEIR lead and expect it to go away very soon.
I agree the worst of the Credit crunch may be over, but things are not going to kick into gear for a while. I am looking for slow growth for an extended period of time.
first
i like the oriole cookie metaphor, this is the creamy filling.
everything is great, look at S&P
last bagholders are getting traped,
btw, 1st?
To tie this to the previous post, the ongoing psychological toll of the housing slump will deepen the recession, just as irrational speculation inflated the bubble.
The only hope on the consumer psychology front is another super bubble. But bubble in what? Commodities? That hurts more than helps the avg household.
The stock market may be holding up for now, but the majority don't follow stocks closely ... they follow their household budgets/ credit limits.
The next leg down in the markets will be a killer, since the latest batch of buyers will get burned again and will really get out - big. BubbleVision is going to need to come up with some new tricks to sucker the dupes.
NEWS FLASH!!
The credit crisis is contained! We now return you to our regularly scheduled program.... er, recession.
After reading Fleckensteins rap today I'm gonna have to tighten up my stops in the bank sector until I can get my head around HELOC exposures. The lord of the dark matter is suggesting that servicers are so far behind in their paperwork that HELOC's that should've been in maybe Q307 reports are just now coming to light.
That is not good.
Cue Sebastyanna's "no recession now and if they call one, it's already over, even if credit is still in the dumps because the TED spread is under 100bp and wright model B says it can't happen".
Nevermind that the 4 week average in UI claims is up 14% YoY, industrial production is down and the ISM outlook survey is forecasting below trend growth(ie contraction in real terms.)
I like Calculated Risk. Informative, smart and nice.
Keep up the good work.
A critical mass of market participants concluded it was over in October. The Fed tossing in over $30B every month helps gloss over some problems.
Tragedy of the anticommons.
Tragedy of the anticommons - Wikipedia, the free encyclopedia
The next big problem to emerge from this financial crisis.
Foreclosed homes stripped of valuables
Illustrates the point exactly.
This crisis will end when the housing market finally clears effectively and freely. Everything else is just delaying that day by regulatory stupidity, or delaying to allow inflation to cure the problem.
Someday this war's gonna end...
I do NOT agree that the worst of the credit crisis is over. Nowhere near it.
What are we on, like, our 3rd bank failure so far this year? Come on! Even the FDIC knows they'll be neck-deep in them before too long.
Sure, the FCs are running fast & furious, but a lot of resets are still in front of us. Throw in the up-and-coming destruction to be wrought in consumer credit lines, CRE loans, etc. and we have yet to see the real losses.
Paul is a really smart guy and his work is impeccable.
We have a small (less than 7,000 sq ft ) build to suit that we are trying to fund. The owner has super excellent credit and will occupy about a third of the building. Three calls to our bank have not been returned. Finally a response that there is no, nada, nyet construction financing available at ANY price. Didn't even want to talk about permanent.
We all know we are a credit economy and if banks cannot risk assess a no lose loan, we're doomed...
Ross
CR,
I don't understand how you can make the comment that the worst of the credit crisis is over. At best, it is at a stalemate that could go in either direction. I just don't understand that comment especially after having posted about the negative non-borrowed reserves. It is basically proof that the banking system on the whole is insolvent. How does that situation get resolved short of the debt being monetized by the Treasury or the banks being able to recapitalize fully very soon per Bernanke's latest comments???
I honestly don't get it.
"we have yet to see the real losses"
Only because most are hiding in level 3.
What crises. Market ready to take off from here now. Broken all resistance levels. Keeps climbing the wall of worry. Expect DJ to be at new all time highs before end of 2nd quarter.
Posted this in prev. thread...perfect thread for it here.
Can you say media manipulation. Front page headling article replaced with this headline
Schwarzman Says Markets on the Mend, Sending Blackstone Higher May ... Schwarzman Says Markets on the Mend, Sending Blackstone Higher May 15 (Bloomberg) --
Blackstone Group LP Chief Executive Officer Stephen Schwarzman said ...
- 2008-05-15
Blackstone Says Markets May Be in Eye of Hurricane' (Update2) May ... Blackstone Says Markets May Be inEye of Hurricane' (Update2) May 15 (Bloomberg) --
Blackstone Group LP President Tony James said banks are mistaken if they ...
- 2008-05-15
I wonder if Tony is still there...
Just in time. The Russell 2000 Small Cap index is at its 200-day simple moving average and exponential moving average. So is the S&P 500 Large Cap Index, and so is the Dow Jones Industrial Average. The anomaly is the S&P 400 Mid Cap Index. If anyone has an explanation for this, I would be interested in reading it.
The VIX and VXO have been dropping for 2 months.
Oh, and there is a full moon on Tuesday and this affects people's emotions (i.e. time for the shorts to throw in the towel).
In the fullness of time, the time is full. I am calling the top on this pullback to occur some time between now and the middle of next week.
"It's the resets, stupid!"
Next year is gonna be memorable - and not in a good way.
You got it right , tj
"The worst of the "credit crisis" might be over, but the real effects of tighter lending, less capital spending, rising unemployment, and consumer defaults on credit cards and auto loans is just starting."
Credit card debt and auto loans have been securitized, right? And the securities are held by a variety of financial institutions, right? So, the beat goes on. Or if it doesn't, why not?
CAT 5 with winds of 195 MPH. In plain American: The Greater Depression.
Are you ready?
Jas
The credit crisis for big banks is indeed almost over; now we will see actual losses, not writedowns.
The credit crisis is now moved into the general economy as suggested above; loans can't be had even if you had the credit record and cash on hand. Entire loan programs have been shuttered, banks are divesting CC & auto lending.
As Dryfly has noticed, PE firms are looking at walking away from firms they bought.
2nd tier banks with CRE exposure will see actual losses and go to the wall.
Here is some look-ahead:
Straight Line Drop of Homes Overpricing
In short, two leading measures of U.S. home prices, examined soundly, show inferred overpricings (latest: 39% and 46%) that have fallen steeply ca. on straight lines over the last 5 months. These two straight lines extrapolate to 0% inferred overpricing during 2010. Note that during 1997-2006, the same two inferred overpricings rose ca. on straight lines for as long as 101 months.
You probably would like to see a picture!
For further explanation plus chart, look here:
Homes Mispricing: Straight Lines!
Homes’ Mispricing: Straight Lines! / Futures
which includes reference to:
Real Dow & Real Homes & Personal Saving & Debt Burden
Real Dow & Real Homes & Personal Saving & Debt Burden
Alec said: "Cue Sebastyanna's "no recession now and if they call one, it's already over, even if credit is still in the dumps because the TED spread is under 100bp and wright model B says it can't happen"."
I don't follow the TED spread.
And I'm pretty much giving up on trying to convince the bears of anything, as a lost cause. They simply can't recognize that the bullish anthem "Everything's great and it's going to stay that way!" is just the opposite side of "Everythings's terrible and it's going to stay that way!"
They won't be able to get ahead of the curve on this, while CR and the entire cottage industry of housing-bear websites fan the flames and offer to sell gasoline to the hooligans ("If you'd like to subscribe...").
Oh, well, Sebastian, welcome to reality. Turns out that people really don't have good sense.
Sebastia
Seb, so you have nothing for the other trends I mentioned?
Seb deftly fells the straw man and glories in his triumph, while the big bad arguments lie untouched all around the ring.
Alec said: "Alec writes:
Seb, so you have nothing for the other trends I mentioned?"
Quantify them, and their impact on the economy. Anyone can say "such and such is going to have such and such impact," but it's meaningless conjecture without having a way of applying it to economic/stock market activity.
Let's say you're right about the trends you mention. Who's to say that the economic slowdown hasn't already factored-in the impact? Who's to say that an -18% correction in the SP500 doesn't account for whatever risk there is to earnings? Who's to say that the impact on non-farm payrolls and the minor uptick in unemployment doesn't accurately reflect the damage and the risk?
Based on the levels and pattern of economic indicators in the past, there's excellent reason to think that all the damage and risk are factored-in. Economic slowdowns of this magnitude are significant, just like SP500 corrections of -18%. The bearish opinion that "it's not enough" is just an opinion.
Sebastia
Sebastian, What's priced in is a pick up in Q3 and Q4. What happens when that pick up turns out to be even greater contraction as the consumer, getting clobbered by food & energy along with increased debt service, gets their credit cards frozen for non payment.
The bulls are taking the bait, on light volume.
Jwm In SD, I'm not sure if the "worst is over" or if the other side of the Eye might even be worse. I'm pretty sure the real effects haven't been felt yet. That is the point I was trying to make.
On the negative non-borrowed reserves, I thought I was clear that that was just an accounting issue. "False Alarm"
was my take.
Best to all.
Seb says "Based on the levels and pattern of economic indicators in the past, there's excellent reason to think that all the damage and risk are factored-in"
If you believe that, then you have absolutely no idea about investment bankers. There is a LOT more interesting to come. People who believe the numbers the gov. puts out deserve to get broke. Seb, go long with ever thing. You can't loose. Its over, only up from here.
Sebastian, just for you. WaMu reduces home equity credit to homeowners
$6B negative stimulus...
"It's an effort to protect the borrower as well," said Donahoe-Wilmot. "We don't want them to have a line of credit that's higher than the value of their home."
According to a statement released by the company: "We will continue to evaluate home equity lines of credit in relationship to the amount of equity a customer has in their home and, if appropriate, will lower the line amount according to WaMu's line management guidelines."
WaMu's decision will affect consumers who were relying on home equity lines to finance major purchases, said Warmenhoven.
"So much of the spending and growth over the last several years has been tied to people using equity out of their homes," he said. "It's access to money that's no longer there." ]
Banker writes:
I agree the worst of the Credit crunch may be over, but things are not going to kick into gear for a while. I am looking for slow growth for an extended period of time.
I'm not so sure the crunch is over. Even if it is, who wants to buy the S&P 500 with a PE of 22 on profit margins that are still above historical norms.
Well the money sure wasn't from wage increases
barely writes:
The next leg down in the markets will be a killer, since the latest batch of buyers will get burned again and will really get out - big. BubbleVision is going to need to come up with some new tricks to sucker the dupes.
Agreed. And I can't wait. Maybe then it will make economic sense to buy some good companies.
What is this "sense"..........haven't witnessed it a very long time
Alec writes:
After reading Fleckensteins rap today I'm gonna have to tighten up my stops in the bank sector until I can get my head around HELOC exposures. The lord of the dark matter is suggesting that servicers are so far behind in their paperwork that HELOC's that should've been in maybe Q307 reports are just now coming to light.
Notice how WB has been consistently losing ground. They have a large CA HELOC book from Golden West.
Renodino writes:
I like Calculated Risk. Informative, smart and nice.
Keep up the good work.
Same. I'd like to see CR get paid a lil more too. He deserves it.
Banned By Ritholtz writes:
Paul is a really smart guy and his work is impeccable.
We have a small (less than 7,000 sq ft ) build to suit that we are trying to fund. The owner has super excellent credit and will occupy about a third of the building. Three calls to our bank have not been returned. Finally a response that there is no, nada, nyet construction financing available at ANY price. Didn't even want to talk about permanent.
Loan standards are going back to normal (1980's) standards. Any reduction in mortgage rates is more than offset by the increased lending standards.
What'd BR ban you for?
tj & the bear writes:
I do NOT agree that the worst of the credit crisis is over. Nowhere near it.
What are we on, like, our 3rd bank failure so far this year? Come on! Even the FDIC knows they'll be neck-deep in them before too long.
Agreed.
Banks that do not have a huge derivatives book will not be bailed out:NCC, WM, CFC, etc.
squeezed writes:
"we have yet to see the real losses"
Only because most are hiding in level 3.
No joke. Someone needs to put together a nice table of level 3 assets for all the banks from 2007 to now.
Bizarro writes:
What crises. Market ready to take off from here now. Broken all resistance levels. Keeps climbing the wall of worry. Expect DJ to be at new all time highs before end of 2nd quarter.
How much money are you investing? I'd be happy to short your entire position.
UnEasyOne writes:
"It's the resets, stupid!"
Next year is gonna be memorable - and not in a good way.
You got it right , tj
What's the big deal with the resets? At current rates they may reset lower. However if they were interest only and are now going to principle and interest its a whole new level.
nanya writes:
Just in time. The Russell 2000 Small Cap index is at its 200-day simple moving average and exponential moving average. So is the S&P 500 Large Cap Index, and so is the Dow Jones Industrial Average. The anomaly is the S&P 400 Mid Cap Index. If anyone has an explanation for this, I would be interested in reading it.
The VIX and VXO have been dropping for 2 months.
With the VIX down it makes put options that much cheaper. However, given all the irrational speculating going on now the speculators may be able to keep it going longer than your expiration date.
How much money are you investing? I'd be happy to short your entire position.
Sarcasm is tough to detect on the internets.
The running joke here is that some bad news comes out, and then someone chirps up "The DJIA is up 200!".
But this is only unusual if you make the assumption that equity markets will react in a Pavolvian fashion to the latest news, or even the next few quarters growth.
In the bond market, there are no reliable ways of valuing a 30-year gov't bond, which is assumed to have risk-free, known future cash flows spread over a finite time span. A typical stock, however, has unknown cash flows, no clear discounting rate, and a theoretically infinite life span. Why should the aggregate market go up or down based on whatever news?
If equities did react in some mechanical fashion to news, it would imply a stable hedging ratio would exist, and people would be all over the market with nosebleed leverage. Of course the thing acts irrationally...
And I'm pretty much giving up on trying to convince the bears of anything, as a lost cause. They simply can't recognize that the bullish anthem "Everything's great and it's going to stay that way!" is just the opposite side of "Everythings's terrible and it's going to stay that way!"
Seb don't do that. Bears need someone to debate to make sure they have their facts straight. The opinion of someone who is always wrong has its value.
having grown up on the coast (houston, galveston, ft walton beach) i've always had a direct response to the imagery of a hurricane
as i've mentioned on another blog, it having used the "perfect storm" image in conjuction with "the eye of the hurricane," i don't believe we are in the eye
that these volatile times feel more like feeder bands, waves of wind and rain and rising storm; violent at times, shuddering the soul
but not yet, the sustained force facing the eye wall
not yet the respite that is the eye
the sustained force surrounding the eye doesn't raise fear, it is fear
it is the relinquishing of anticipation of the end of the crisis
the acceptance into the peace of the eye is not a v shaped return to before the storm - it's a gathering and repositioning for the full force still to come onto weakened supports, tired eyes, and the very human realization that the bottom, for some, is where it ends
Where do these guys come from. Did he notice that the bank and investment bank borrowings from the Fed hit their highest point ever this week. Hardly a sign of a robust credit market.
I keep thinking about a statistic I saw here a while back regarding the amount of consumer spending that was funded by HELOCs - was it 7% or some such? I have to think most of that lending is at an end. So doesn't that mean a noticeable hit to consumer spending even before recession effects? Either consumers give up that spending or they put it on the credit cards, right?
"the sustained force surrounding the eye doesn't raise fear, it is fear"
Well, a shiver just ran up my spine.
CR - thanks for posting this and drawing our attention to it. And your en passant comment that the worst of the real economic consequences is yet to come jibes with my assessment. In fact we aren't' "really" in a recession as yet and there seems too be a widespread mis-apprehension of the normal structure and timing lags of a business cycle among almost all commentators. Which doesn't mean that those talking their books are going to talk up a bear market rally for a while.
As it happens I've been using the stormfront analogy, comparing this to the Big Thompson event for for example, where the gust fronts pass on by and then the real storm comes on you. In that I like to look at combining the changes in real wages and employment growth. Real wages have been getting kicked badly and the tipping point in measured employment is coming (Paul's other point about the B/D adjustment pours kerosene on that particular fire). If you'd like to see some complementary charts and analysis to Paul and yours try this:
http://tinyurl.com/4a529a
I think folks might be surprised at what the real underlying data is saying.
Quantify them, and their impact on the economy. Anyone can say "such and such is going to have such and such impact," but it's meaningless conjecture without having a way of applying it to economic/stock market activity.
Let's say you're right about the trends you mention. Who's to say that the economic slowdown hasn't already factored-in the impact? Who's to say that an -18% correction in the SP500 doesn't account for whatever risk there is to earnings? Who's to say that the impact on non-farm payrolls and the minor uptick in unemployment doesn't accurately reflect the damage and the risk?
Based on the levels and pattern of economic indicators in the past, there's excellent reason to think that all the damage and risk are factored-in. Economic slowdowns of this magnitude are significant, just like SP500 corrections of -18%. The bearish opinion that "it's not enough" is just an opinion.
Sebastian
Sebastian
IOTW, you don't know jack squat and can't be bothered to reply, because why would unemployment claims be up 14% and not be in recession? What dolt can't quantify a contraction in industrial production and not know which way the trend runs?
I never claimed to be omniscient, just looking at which way the wind is blowing(bar your hot air.)
Sorry you're too thick to read a road map.
You makes interesting points. Amerika spoiled, bad judgment, never have real suffering. Going to change. Learn to work with hands, sweat of brow. You live mirage. You pretty shiny world held up by offshore slavery and despair. Coming your shores, soon. Hurt even more because you leaders terrible liars. Back hurt, stomach empty, mind sore--now go back to mines like good and unseen lackey.
"No joke. Someone needs to put together a nice table of level 3 assets for all the banks from 2007 to now."
I did: Level 3 Bombs
I did: Level 3 Bombs
It takes a ninja to catch a ninja!
Thanks for the info shinobi-sama!
It's going to take some time for all of the faith-based-perma-optimists to have their respective moments of clarity.
So don't be surprised that you keep hearing their delusional self-hynoptic chants that "storm has passed", the "mission is accomplished", and "the worst is behind us".
Don't forget that these are probably the same people who voted for Bush TWICE. That's a lot of stupid to correct for....so don't follow THEIR lead and expect it to go away very soon.