My question is as always: as we've depended on consumption growth funded by credit to drive our economy while industry withered, what will be the driver to take us out of this recession?
If you knew that, you'd know how long, and how bad, the recession will be.
Of all Goldman's five key indicators, I think the one that is too often ignored (especially by Roubini) is "access to credit."
The lack of access, and the cost of access, is already producing devastating results among small businesses and small public companies. These are huge drivers of job creation and economic growth.
College financial aid (loan availability) for the 2008-09 year is a complete catastrophe.
Frozen HELOCs are going to result in a lot of bills going unpaid, including mortgages, taxes and utilities.
Just because the Fed Funds target rate is 2%...so what?
I know Goldman managed to get through the latest crunch smelling like restroom soap, but this isn't exactly rocket science. I'd like to see a little bit of prospective cashflow analysis showing when we turn the corner, or better yet when the downturn burns the commodity indexes.
Of course they probably save the good stuff for paying clients. Which begs the question (applicable to rating agencies too) why in God's name does anyone pay attention?
"College financial aid (loan availability) for the 2008-09 year is a complete catastrophe. "
I work at a public university; I'll keep a lookout for a bigger-than-usual gap between statements of intent to register (which should be in by now) and actual enrollment. That'd be big news around here.
A lot has been written about the drying up of private loan sources for college students (not federal loans). Several state programs for coordinating private loan placements have been shut down or suspended. If you don't get enough federal loan money from your FASFA, you're screwed this year.
I was thinking this morning about how the tax rebate mainly was a subsidy for fuel prices. At the same time, we still subsidize large SUV purchases by owners of small businesses...
It's the American way!
Things are going to have to get a lot worse here before any sort of positive change occurs.
this is the first comment i read where they talk about the rebates doing any actual stimulus...I do not believe that is a valid assessment..I think most people would have blown through their 1k by end of month let alone end of summer.
I work at a public university; I'll keep a lookout for a bigger-than-usual gap between statements of intent to register (which should be in by now) and actual enrollment.
Good idea. I'll see if I can the same infromation for UCSB.
Last month a Dubai fund, Boston Properties Inc. and Goldman Sachs Group Inc. paid $2.8 billion for the General Motors Building.
Japanese investors spent $78 billion on U.S. properties between the late 1980s and 1995. Many of these transactions, including Mitsubishi Estate's 1989 purchase of Manhattan's Rockefeller Center for $895 million, came just before a U.S. recession sent real estate values plummeting. As a result, the Japanese investors lost an estimated 50 percent to 80 percent of their money during the period.
Of course, we're going to go through a crushing unwind. But what an opportunity! For those prudential few who earned and salted away in the boom, deferred consumption until a bust, and will pick up for pennies on dollars uniquely valuable items on the flatline--Good times. Bright side? The deleterous effects of bust will scour out the deadwood weaklings, reinstill hard-work values, host a plethora of new innovation, (hopefully) gear people toward more harmony with environment. It will put the best and brightest back to work on technology, innovation, and hyperefficiency. Spending our best intellect dollars on consumptive investment, ecofinance, & speculation will go down as seriously misspent youth. Depression will clear all the mental garbage away and allow a clear view for future prosperity.
Several state programs for coordinating private loan placements have been shut down or suspended.
Which ones are they? I just finished teaching a summer session 1 class and no issues there. I've spoken to the dean about the fall, and enrollments are UP. So I'd like to know where you're getting your data...aside from blogs.
You know, I view Roubini as now just as bad as the bulls. No matter what happens, he'll scream doom. Everyone is fond of saying he was right, but I've been reading him for quite some time and, you know, if there's a drought and I keep saying it will rain, it eventually will. Even if I'm over 4 quarters and counting from the original call.
He's now the darling of the gloom and doom crown. In my experience, the truth always lies somewhere in the middle, so you'll excuse me if I continue to read and be amused slightly at him, while knocking back his predicitons by about 40%.
I just helped unload a large package for a employee. Guy delivering had a 53' trailer. Packed. I asked him how volumes have been. He mentioned volume was ahead of last year for them...
I see the same here. No great growth, but the huge drops never show.
The stimulus package probably delayed a bunch of loans from going nonperforming as well, which drags out the inevitable. At least Paulson is saying it's inevitable now, which is a good sign the administration isn't leaning bailout.
Which is, of course, good. Except that this administration is outgoing and the next one could still sign or fail to veto a bailout. Ick.
"You know, I view Roubini as now just as bad as the bulls. No matter what happens, he'll scream doom. Everyone is fond of saying he was right, but I've been reading him for quite some time and, you know, if there's a drought and I keep saying it will rain, it eventually will. Even if I'm over 4 quarters and counting from the original call.
He's now the darling of the gloom and doom crown. In my experience, the truth always lies somewhere in the middle, so you'll excuse me if I continue to read and be amused slightly at him, while knocking back his predicitons by about 40%."
You are right, we're still waiting to see the FIRST -ve GDP quarter.
Investors now demand 542 basis points of extra yield over government debt to buy so-called Tier 1 securities, which regulators demand banks hold to buffer depositors and senior bondholders against losses, according to Merrill Lynch & Co.'s Euro Sub-Debt Tier 1 Index.
The skyscraper at 405 Lexington Ave., the world's tallest building until 1931, was acquired yesterday by the Abu Dhabi Investment Council for an undisclosed price. Last month a Dubai fund, Boston Properties Inc. and Goldman Sachs Group Inc. paid $2.8 billion for the General Motors Building.
the top guy at Boston properties was quoted as saying that rents will only go up in NYC and they aren't making any more land.
Isn't it also true that as the economy retrenches, people head back to school to make themselves more employable? That's what I'm doing - age 50 and starting a graduate program in the fall. Or "The Fall," as history may remember this period.
I got my money market yield yesterday and it was 1.79%, which is fairly close to negative when you factor in service/mang fees and don't even think about IRS taxing you on this return!!! Not good! This type of safety in a liquidity trap will eat people alive, as stagflation destroys saving accounts.
The other option is to go buy a stock of a "cheap" bank stock and then take on the ownership of 10 years worth of dilution... no thanks wall street!
We need a real war and a New deal in the form of a New Ownership Society; we need you McCain, we need more debt!!
The chief enforcement officer of the US commodities and futures regulator resigned on Wednesday to return to private practice at a particularly critical time for the agency.
He will soon become a partner in the energy and derivatives markets practice group at the law firm McDermott Will & Emery.
La,
I also thought about making myself more employable. At 33, i had enough money to not work, or start a biz, or go to school. Friends always said, ' you should get your CFA'
my response was 'i don't need a cfa to be able to lie, I can do that just fine right now.
Gregory Mocek, 45, is the Director of Enforcement for the United States Commodity Futures Trading Commission in Washington, D.C. A native of Lafayette Louisiana, he was appointed to that position in 2002, and oversees approximately 150 attorneys and investigators in Washington, New York, Kansas City, and Chicago. Mr. Mocek is responsible for managing the Commissions investigations and enforcement litigation nationwide. The Commission's scope includes markets such as currency trading, financial futures contracts, agriculture, metals, and energy.
[T]he temporary drug of a $160 billion fiscal package including $100 billion of tax rebates will boost Q2 growth into positive territory (1% to 1.5% growth in Q2). But that boost is deceptive as it is entirely driven by such temporary tax rebates.
Let's also consider that artificially stimulating consumption may be counterproductive or outright dangerous if it further distinctivises (fake word of the day) productive economic activities and development of a competitive workforce instead of a competitive shopping force.
"OFHEO does not have the flexibility to ignore generally accepted accounting principles," Armando Falcon, who once headed the Office of Federal Housing Enterprise Oversight, told Reuters in an interview.
Shares of the two government-sponsored enterprises were punished on Monday as analysts warned that new accounting rules could force Fannie Mae and Freddie Mac to raise billions in fresh capital and so dilute shareholder wealth.
"OFHEO cannot ignore if generally accepted accounting principles required that they hold assets on balance sheet," said Falcon, who resigned in May 2005.
Rich
Decline from may 19 is unusually long, rally due, imo a short one around 2 weeks. Sharp drop usually the trigger, this time maybe declining oil...
Earnings ex-financial probably not so bad this q on rebates, energy bound to show great earnings even as/if oil falls... alcoa up .02 above lowered expectations was bullish... buyers are itchy.
College financial aid (loan availability) for the 2008-09 year is a complete catastrophe.
Any hard data on this?
4shzl | 07.09.08 - 12:26 pm
PHEAA (PA Higher Ed Assist Auth) ran into problems when the credit bond auctions froze up some months ago and subsequently announced that there would cutbacks for PA students as funds couldn't be obtained.
Of course, these are some assclowns who got caught spending $100K + to take their employees to an amusement park. After they got caught running up significant (6 figure) bills for trips to the CA wine country by the muckity mucks.
I too work at a public university. We are expecting enrollment to be UP, which is usually the case in bad economic times. If it isn't, that would be news.
I wonder how private universities, with their much higher tuitions, will fare. Also, I am curious whether their endowment funds have taken a hit lately.
I see the same here. No great growth, but the huge drops never show.
I hear you Chris. There seems to be just a slow-down, but not a huge lunge, as you'd expect to see if you read here or listen to Roubini too much. Sure, some people are getting smacked (look at hedgie returns...yeowza!) but people who are just, you know, "normal" are just feeling the effects of oil on prices mostly.
I will give you some anecdotal evidence of recession though...tourist traffic and spending is way down on Cape Cod. I'd estimate that foot/auto traffic is about 1/3 what it should be at this time of year. Restaurants are also suffering. I've been able to get a table at the most popular restaurants during prime times without an issue.
I think the real story here is look for items that people can either do without in tight times, or put off buying. Personally, I have two that I like: the mattress index, and BBQ grill index
The issues in financial aid lending will be in the private sector--each state has a lender of last resort for the Federal programs. The kids who will get nailed on this are those going to private institutions, particularly mid-range privates who are essentially run year to year on tuition revenue.
A class of institutions that will truly get tagged are Historically Black privates. A lot of them are in shaky situations now and I wouldn't be surprised to see a few of them fail in the next couple of years.
Dr. N, that's what I'm seeing too. Good Aid Departments can always find the money from somewhere. The issue is, frankly, not that there won't be money, but the money will be had at a higher cost than normal.
There are two ways to get money: federal student loans and private ones. The Fed money is cheap, but never covers everything as there are limits as to the amount per year. The rest is back-filled by other loan systems private or state-sponsored. These are at higher rates. And now the rates will be even higher.
Endowment funds will also take a massive hit. Even the H-bomb's fund isn't immune since most of these financial geniuses came from there. Couple declining returns with higher outlays and the situation will rapidly deteriorate there too.
this is the first comment i read where they talk about the rebates doing any actual stimulus...I do not believe that is a valid assessment..I think most people would have blown through their 1k by end of month let alone end of summer.
I just got my check yesterday so they are still writing checks. The assessment is that the effects of the checks would be over before the end of summer.
I think most people would have blown through their 1k by end of month let alone end of summer.
Guy number 1 gets his cash from the government, blows it on crack. The dealer spends his profits on sex. The whore spends hers on food. The grocer spends his on graffiti removal, and around it goes. On Wall Street, they call it 'velocity of money'. On Broadway, it's the 'circle of life'. Sure, there's significant losses on every transaction, but just because guy#1 spent his doesn't mean the stimulus effect disappears.
A class of institutions that will truly get tagged are Historically Black privates.
Actually the ones that will also get killed are the religious-affiliated ones too. There is one near me. Over-built and expanded and now its tuition rivals that of several near-by higher-rated schools. They are in a death spiral as people are going elsewhere for the money and now they are cancelling classes left and right. It's a shame because it was a nice place, but I don't think the Catholic Church can cover the losses any more.
I screwed up my subtraction on my taxes. Jerks at the IRS actually kept 56.00 of my stimulus. Oh well, I am taking my brothers,nephew and 2 step nephews on a deep sea fishing trip...Gonna catch me some Swordfish next Friday(I hope) !!!
"Personally, I have two that I like: the mattress index, and BBQ grill index ;)"
ipodius | 07.09.08 - 1:16 pm | #
I noticed at the Depot last week most all of the grills were gone. They had a couple of big sales and blew em all out. I have a sneaky feeling they will not be reordering as many. Oh well,my weedeater assploded last week so I guess I'll pick one up Saturday...
"but people who are just, you know, "normal" are just feeling the effects of oil on prices mostly."
What planet do you live on ?
EVERYONE I know is complaining about how their net worth is vanishing daily - home value, stock holdings, 401k, and their incomes are not keeping up draining liquid savings and cutting back on retirement savings to make ends meet.
ipodius writes: You know, I view Roubini as now just as bad as the bulls. No matter what happens, he'll scream doom. Everyone is fond of saying he was right, but I've been reading him for quite some time and, you know, if there's a drought and I keep saying it will rain, it eventually will. Even if I'm over 4 quarters and counting from the original call.
You might consider the possibility that he saw the imbalances building up long ago, and that's why he sounded the alarm early. Don't dismiss the likelihood of catostrophic events just because they haven't happened so far, and just because the same yahoos have been predicting them for a long time. Financial catastrophe does happen occasionally in history, and it sure looks like the time is ripe for another one.
Even the H-bomb's fund isn't immune since most of these financial geniuses came from there.
BTW, El-Erian used to run the H-Bomb's endowment. I echo the comments that the credit crunch will hit the private schools the hardest, especially at the graduate level, because the Fed guaranteed loans won't cover the full cost of tuition. The other issue is that many parents had been paying for tuition using HELOC lines, which may or may not be around come August.
Wow. I can tell you pretty closely that my expenses have risen less than 200.00(maybe 100?) over the last year. Even without the rent reductions that is pretty minor.
Yes,I am a cheap bastard. I just find it insane that people left themselves no room for error. And I mean NONE.
Why do people argue that so and so is too bearish, using evidence about the present, when the fundamentals are getting worse? It will take serious economic pain for the fundamentals to get better. If you want to argue that so and so is too bearish, you need to explain how incomes will grow, debt will be paid down, energy prices will decline or at least stabilize, etc.
ipodius, I see your proclaimed rationality as nothing but blind faith wrapped in a blanket of agreeable wording.
drob writes
no - Q of GDp -- such a comment belies your ignorance. You need to move beyond optics and actually looked at the compoents and where the growth 9and deflator are). nough said.
This is kind of hilarious. It's almost like a game of "hot potato" but with the homeowner's debt being passed around; I guess no bank wants to be holding the potato when the music goes BK.
I guess the FCB central banks are kind of doing that with Bucky as well...
"Wadsworth says the problems actually began last September, when Congress passed the College Cost Reduction and Access Act. It made more financial aid available to the neediest students and lowered the interest rates for new borrowers.
It paid for all this by cutting the interest that banks and private lenders earn on every student loan they make. Wadsworth says it also doubled the fees that lenders pay the federal government for every loan they issue."
The above article is to an NPR story from yesterday (see link). It seems as if the problem has been resolved (if temporarily).
My student loan from last year is 6.88%, but I believe I've read that the gov't wants to make the rate closer to 4%.
Oh well,my weedeater assploded last week so I guess I'll pick one up Saturday...
Same here with my lawnmower, so I will fork out the bucks to replace it. The good news is that they are now wicked cheap (said in my best bawston accent) because all you can hear in home depot now is crickets chirping.
barely, i hang out with some pretty well-heeled sorts at times and I can tell you that none of them are complaining about that. If you have to worry about the value of your house, you shouldn't be playing in these games.
I don't know. My gut tells me that the bottom is going to drop out on energy prices, BUT...
If I look at treasury receipts, I see that corporate taxes weren't that bad and that there is still some life in the old goat yet. Also, checking in with a lot of small banks, many have a lot of money they are trying to lend. These are obviously the conservative ones....
It's not going to be as devastating as some people think, largely because of capital flows. There's a US buy-in going on, and that will cushion us somewhat.
The real test for the US is what is happening now. I follow news from a range of countries, and everyone is revising growth projections down. As the real economies weaken, what will happen to US industry?
The markets and oil seem to be negatively correlated now. Oil seems to determine the direction of the market. Someone with the means to move oil prices can make a killing in the market -- ahh, if only I had a few dollars more...
Also, checking in with a lot of small banks, many have a lot of money they are trying to lend.
Yes MOM. A lot of the smaller banks around here avoided the entire RE thing, and are now looking to lend to qualified buyers, especially on the mortgage front. And why not? They get premium rates and premium borrowers too. A friend that has an RE agency has told me repeatedly that most financing now is on the very local level and the buyers are all well-qualified. A bank can't make money unless it puts it to work, so I agree.
So I'll say it again. People are pulling back on discretionary purchases and putting things off, classic recessionary behavior. But large-scale depression-type evidence? No where to be found at this time. You know, sometimes you have to read the articles you don't agree with to get perspective. If you do nothing but read Kunstler and Roubini, you'll bury food in the back yard (remember the "there will be food riots everywhere! here?) and cut your wrists.
"no - Q of GDp -- such a comment belies your ignorance. You need to move beyond optics and actually looked at the compoents and where the growth 9and deflator are). nough said."
You'd have a point if people like Roubini actually put a disclaimer when they made their doomsday prediction - that people have to consider only part of the GDP or that the GDP has to be 'adjusted' to 'see the recession'. But they don't. They clearly predicted -ve GDP growth since Dec'07. In fact, they only started spinning after the GDP kept showing +ve numbers, then they started to talk about components, etc.
One TA point: I couldn't find a single index or ETF - one that had been in a decline since late May - that actually broke its upper downtrend line yesterday. Even the VIX pulled back to support.
"If you do nothing but read Kunstler and Roubini, you'll bury food in the back yard (remember the "there will be food riots everywhere! here?) and cut your wrists."
Ipodumbass, no one will cut their wrists, we'll cut the rich scumbags around us who caused this mess.
I mistakenly read one of your stupid posts, and find yet another stupid overdone comment. Still promoting those bottoming banks? Moron.
Being a pretty bearish person myself I try to read blogs and news articles that paint a more rosy scenario to bounce alternative views off my own mindset.
Here's the problem I have changing my bearish position.
Who's been right on the housing crash? The bears
Who's been right on the market taking another huge leg down? The bears
Who's been right on the credit crisis being far from over? The bears
Who's been right on the spillover into main-street? The bears
Paulson and Bernanke have publicly stated in the last two weeks that the financial system has to be put in a state to be able to handle the undwinding of a major financial institution.
I agree that we haven't hard a "true" recession yet.
But given that the bearish pundits and investors have been FAR more on the money then the Goldilocks crew I have to ask myself who should I follow for the end-game scenario?
And the end-game scenario IMO is atleast another 10% down from here.
I doubt you'll see a big drop off at UCSB, tuition is relatively cheap and the average student's parents bring in 6 figures....
and live in a house in Orange County...
I'm not saying they are going to pull their kids out of school, but there may be more competition for campus library jobs.
Hey that's some really great contributing analysis! Do you have more? I bet all you've got is ad hominem (you want me to say that slowly? I know it's multi-syllabic and Latin so you'll probably have to go and look up what it means).
The bears will continue to be right until they are wrong. Then the bulls will be right for a while. Then...
Of course, economies do not change overnight (unlike stock exchanges) and the current momentum favors the bear case. When things turn positive again, let me know.
drone, and who will be right on the recovery? the bulls. Eventually. Just like the bears were. Eventually. So the deal isn't bull or bear, or even right or wrong. The real deal is analysis and timing. You can be the anti-Roubini now. Just start calling for the recovery to begin in Q4. So what if it starts in Q4 a year later? Unthinking people who can't do their own analysis will call you a genius!
--
We must always remember CR's reassuring forecasts:
Recession will NOT be severe.
CRE is not as overbuilt as RRE.
Housing demand is 1.7M and since they are only building at 1.0M rate the inventory is being worked off, i.e., the most serious economic problem is being corrected.
The above being the case Roubini is way too bearish. And if we believe in Sebastian then Roubini is a nut case. Let us not forget Jamie Dimons forecast: Americas future is very very bright. Add to that the general belief that America is a great country and you have the making of a great bull market after this normal recession is out of the way.
As someone who watches the local real estate market closely and is privvy to the negotiations and financing of the deals, I agree with this statement:
A friend that has an RE agency has told me repeatedly that most financing now is on the very local level and the buyers are all well-qualified
Any buyers who can actually close a deal these days are well qualified. Local banks in my area have money to loan to well qualified buyers. However, they are being very strict about who is well qualified. The thing you might want to think about, when you use this info to comfort yourself and your rosy predictions, is that a majority of the real estate purchases in the past few years were done by unqualified buyers. So, if only well qualified buyers can buy, there will be far fewer buyers, which if supply and demand is still in effect means, down we go.
Obie will take over from Gregory Mocek, who will be leaving within 60 days after heading the enforcement division since 2002, the Washington-based agency said today.
Mocek, 46, said in June there is no evidence speculators are manipulating U.S. oil prices on foreign exchanges. He oversaw more than 100 investigators and staff members who monitor futures markets for manipulation and fraud.
when you use this info to comfort yourself and your rosy predictions
Where are my predictions rosy? What consitutes rosy? That I'm not in the depression camp? Last I checked I was firmly a bear. I'm just in the shallow but long crowd.
And that's what this means to me. I've said that I believed that, when the RE bottom was in, we'd be in the range of 27% to 30% off peak prices in real dollars. So far I seem to be on the money around these parts, and probably nationally. I don't call that rosy at all.
And, frankly, the "well-qualified" label applies to consultants with variable income because one of these, a friend, just got a sizeable mortgage from a local bank. So I have to wonder what the definition of "well-qualified" is. I'm using it in relation to what has happened. Frankly I probably wouldn't have given him the loan in this economic climate, but they did.
tranches of like writes:
"Oil and stocks going down at the same time."
The XOI and SPX (as an example) almost always move together. One leads the other.
Consumers, transport sectors and corporations will be choking on high prices until gas, diesel and material costs are down 30%. MSM inferences that small oil declines will boost the market is hi-octane pabulum.
The real test for the US is what is happening now. I follow news from a range of countries, and everyone is revising growth projections down. As the real economies weaken, what will happen to US industry?
IMO one real area of concern going forward is that the US really needs to get consumption and production back into balance by decreasing consumption and/or increasing production.
But if we have excess production capacity globally then maybe the latter isn't a viable alternative in the short-term -- that would put the burden of re-balancing on decreased consumption.
There are two ways to get money: federal student loans and private ones. -ipodus
It seems to me student loans are risky way to pay for college. If for some reason things don't work out, the student is stuck with that debt. The interest rate matters, but the real trouble is paying back the principal if something goes wrong. Students should weigh the benefits of an expensive college against these risks.
The best way to get money is to save a little money each year of a child's life. It's not that hard (for someone not near the poverty line) to save up enough money to pay for school.
I'm saying all this because 90% of the problems of an economic slowdown are caused by people not having their act together. Maybe 20% of families are at or near the poverty line. That's a real problem. We can debate the solution on another blog. For everyone else who is not poor, the only problem is poor planning. We all know the economy cycles up and down. What are people thinking who were counting on borrowing to pay for things they need? The result is I end up hearing about how everything's going to the devil because it's gotten harder to borrow money and GDP growth is near zero? What if GDP really went down, say, to what it was 30 years ago?
It won't. The economy is fine. It will keep growing. We'll have more and more per capita production each decade. I can't predict, though, whether bellyaching (e.g. But I based my life on the price of XYZ never changing!) will decrease as a result.
What gets me is how people sneer at workers and ask how they can "expect" to get paid more than the federal (or sometimes state) poverty rate, and how they can possibly expect "gold-plated benefits" - and then these same people turn around and wonder why the "consumer" is "fragile."
A $12/hr wage (significantly above both federal and state minimum wages) on a 40 hour week is a little less than $25,000 per year. Take away benefits (e.g. no retirement package and a health benefits co-pay of $500/month ($6,000). Result: peonage.
I agree with you Charles. But even though my undergrad was paid for in just the manner you state, my graduate school was financed because I was young and didn't have any money...and the pot was dry after my first master's degree. The cost of the education was, however, more than made up for by the increase in my salary, so it was a good investment.
But people who go into hock on undergrad should think twice and go to a less expensive option and work their butts off to go to a good grad school. Just my .02. Higher Ed costs have way outstripped the economic benefits for just an undergrad degree.
One TA point: I couldn't find a single index or ETF - one that had been in a decline since late May - that actually broke its upper downtrend line yesterday. Even the VIX pulled back to support.
Anonymouse,
zackattack sees SRS as a broken chart...what are your thoughts? Thank you.
Was that an ironic comment...? A lot of people here are bullish on US gov't debt yields. Just like a lot of people thought it ridiculous when I wrote yesterday, Don't forget to short the market tomorrow.
drone said: "I agree that we haven't hard a "true" recession yet."
A doughnut without a hole isn't a doughnut.
then said: "...But given that the bearish pundits and investors have been FAR more on the money then the Goldilocks crew I have to ask myself who should I follow for the end-game scenario?"
Seriously, though, conditions like we're seeing now can occur as a prelude to recession or as a prelude to stronger economic growth after a period of slower economic growth. Stock market corrections the same way, they can be this size (-20% off peak) in association with recession or not.
I had a similar discussion to this one with Jas Jain a couple of years back on a different message board. I suggested that he simply declare victory and take pride in the fact that he had accurately forecast a period of slower economic growth. Unfortunately, it was "recession or bust" with him and here we are still without a recession, even though conditions are arguably even worse.
This ought to be a wake-up call to everyone about how diversified the U.S. economy is, that even a near-catastrophe in one or two sectors isn't big enough to drag it into recession. Also that recession isn't brought on by an arbitrary X% slowdown in an economic indicator, it's a little more complex than that.
I look at the IYR for my analysis on SRS (it's been trading far longer and has more reliable volume stats).
All IYR is doing this week (just like the broad market) is pushing into its January/March weekly lows on strong volume - probably strong enough to break those lows and continue to the next level.
"Maybe 20% of families are at or near the poverty line. "
I have read that something like 30-40 percent are living from paycheck to paycheck. And some of them make fair money.
This doesn't obviate your "poor planning" argument. But it does suggest that there's another 15 percent or so of the population that is potentially on the edge of poverty -- but doesn't look like at a glance.
Not to mention that official gov't figures for poverty levels are a joke in most of the country. Some local expert figured that the actual poverty line income for a family of 4 in my area was somewhere between $50 and $60K.
I still think the value of a basic undergraduate or graduate degree in an excellent return on the time and money invested. OTOH, I don't know that is true for more expensive, second-rung private institutions.
As far as student loan debt goes, at least the Federal programs are reasonably benign. You can, for example, stop payments when unemployed. That's a darn nice benefit.
Roubini has got me almost completely convinced of a deflationary period not too far in the future. So I've never believed the Fed would raise rates while we're still in this mess. They'll probably keep talking about it though and hope that it has the desired effect on the gullible.
The Rising Risk of a Systemic Financial Meltdown: The Twelve Steps to Financial Disaster - Feb 5 2008 - Nouriel Roubini:
Why did the Fed ease the Fed Funds rate by a whopping 125bps in eight days this past January? It is true that most macro indicators are heading south and suggesting a deep and severe recession that has already started. But the flow of bad macro news in mid-January did not justify, by itself, such a radical inter-meeting emergency Fed action followed by another cut at the formal FOMC meeting.
To understand the Fed actions one has to realize that there is now a rising probability of a catastrophic financial and economic outcome, i.e. a vicious circle where a deep recession makes the financial losses more severe and where, in turn, large and growing financial losses and a financial meltdown make the recession even more severe. The Fed is seriously worried about this vicious circle and about the risks of a systemic financial meltdown.
That is the reason the Fed had thrown all caution to the wind after a year in which it was behind the curve and underplaying the economic and financial risks and has taken a very aggressive approach to risk management; this is a much more aggressive approach than the Greenspan one in spite of the initial views that the Bernanke Fed would be more cautious than Greenspan in reacting to economic and financial vulnerabilities.
To understand the risks that the financial system is facing today I present the nightmare or catastrophic scenario that the Fed and financial officials around the world are now worried about. Such a scenario however extreme has a rising and significant probability of occurring. Thus, it does not describe a very low probability event but rather an outcome that is quite possible.
Start first with the recession that is now enveloping the US economy. Let us assume as likely - that this recession that already started in December 2007 - will be worse than the mild ones that lasted 8 months that occurred in 1990-91 and 2001. The recession of 2008 will be more severe for several reasons: first, we have the biggest housing bust in US history with home prices likely to eventually fall 20 to 30%; second, because of a credit bubble that went beyond mortgages and because of reckless financial innovation and securitization the ongoing credit bust will lead to a severe credit crunch; third, US households whose consumption is over 70% of GDP - have spent well beyond their means for years now piling up a massive amount of debt, both mortgage and otherwise; now that home prices are falling and a severe credit crunch is emerging the retrenchment of private consumption will be serious and protracted. So let us suppose that the recession of 2008 will last at least four quarters and, possibly, up to six quarters. What will be the consequences of it?
Here are the twelve steps or stages of a scenario of systemic financial meltdown associated with this severe economic recession
First, this is the worst housing recession in US history and there is no sign it will bottom out any time soon. At this point it is clear that US home prices will fall between 20% and 30% from their bubbly peak; that would wipe out between $4 trillion and $6 trillion of household wealth. While the subprime meltdown is likely to cause about 2.2 million foreclosures, a 30% fall in home values would imply that over 10 million households would have negative equity in their homes and would have a big incentive to use jingle mail (i.e. default, put the home keys in an envelope and send it to their mortgage bank). Moreover, soon enough a few very large home builders will go bankrupt and join the dozens of other small ones that have already gone bankrupt thus leading to another free fall in home builders stock prices that have irrationally rallied in the last few weeks in spite of a worsening housing recession.
Second, losses for the financial system from the subprime disaster are now estimated to be as high as $250 to $300 billion. But the financial losses will not be only in subprime mortgages and the related RMBS and CDOs. They are now spreading to near prime and prime mortgages as the same reckless lending practices in subprime (no down-payment, no verification of income, jobs and assets (i.e. NINJA or LIAR loans), interest rate only, negative amortization, teaser rates, etc.) were occurring across the entire spectrum of mortgages; about 60% of all mortgage origination since 2005 through 2007 had these reckless and toxic features. So this is a generalized mortgage crisis and meltdown, not just a subprime one. And losses among all sorts of mortgages will sharply increase as home prices fall sharply and the economy spins into a serious recession. Goldman Sachs now estimates total mortgage credit losses of about $400 billion; but the eventual figures could be much larger if home prices fall more than 20%. Also, the RMBS and CDO markets for securitization of mortgages already dead for subprime and frozen for other mortgages - remain in a severe credit crunch, thus reducing further the ability of banks to originate mortgages. The mortgage credit crunch will become even more severe.
Also add to the woes and losses of the financial institutions the meltdown of hundreds of billions of off balance SIVs and conduits; this meltdown and the roll-off of the ABCP market has forced banks to bring back on balance sheet these toxic off balance sheet vehicles adding to the capital and liquidity crunch of the financial institutions and adding to their on balance sheet losses. And because of securitization the securitized toxic waste has been spread from banks to capital markets and their investors in the US and abroad, thus increasing rather than reducing systemic risk and making the credit crunch global.
Third, the recession will lead as it is already doing to a sharp increase in defaults on other forms of unsecured consumer debt: credit cards, auto loans, student loans. There are dozens of millions of subprime credit cards and subprime auto loans in the US. And again defaults in these consumer debt categories will not be limited to subprime borrowers. So add these losses to the financial losses of banks and of other financial institutions (as also these debts were securitized in ABS products), thus leading to a more severe credit crunch. As the Fed loan officers survey suggest the credit crunch is spreading throughout the mortgage market and from mortgages to consumer credit, and from large banks to smaller banks.
Fourth, while there is serious uncertainty about the losses that monolines will undertake on their insurance of RMBS, CDO and other toxic ABS products, it is now clear that such losses are much higher than the $10-15 billion rescue package that regulators are trying to patch up. Some monolines are actually borderline insolvent and none of them deserves at this point a AAA rating regardless of how much realistic recapitalization is provided. Any business that required an AAA rating to stay in business is a business that does not deserve such a rating in the first place. The monolines should be downgraded as no private rescue package short of an unlikely public bailout is realistic or feasible given the deep losses of the monolines on their insurance of toxic ABS products.
Next, the downgrade of the monolines will lead to another $150 of writedowns on ABS portfolios for financial institutions that have already massive losses. It will also lead to additional losses on their portfolio of muni bonds. The downgrade of the monolines will also lead to large losses and potential runs on the money market funds that invested in some of these toxic products. The money market funds that are backed by banks or that bought liquidity protection from banks against the risk of a fall in the NAV may avoid a run but such a rescue will exacerbate the capital and liquidity problems of their underwriters. The monolines downgrade will then also lead to another sharp drop in US equity markets that are already shaken by the risk of a severe recession and large losses in the financial system.
Fifth, the commercial real estate loan market will soon enter into a meltdown similar to the subprime one. Lending practices in commercial real estate were as reckless as those in residential real estate. The housing crisis will lead with a short lag to a bust in non-residential construction as no one will want to build offices, stores, shopping malls/centers in ghost towns. The CMBX index is already pricing a massive increase in credit spreads for non-residential mortgages/loans. And new origination of commercial real estate mortgages is already semi-frozen today; the commercial real estate mortgage market is already seizing up today.
Sixth, it is possible that some large regional or even national bank that is very exposed to mortgages, residential and commercial, will go bankrupt. Thus some big banks may join the 200 plus subprime lenders that have gone bankrupt. This, like in the case of Northern Rock, will lead to depositors panic and concerns about deposit insurance. The Fed will have to reaffirm the implicit doctrine that some banks are too big to be allowed to fail. But these bank bankruptcies will lead to severe fiscal losses of bank bailout and effective nationalization of the affected institutions. Already Countrywide an institution that was more likely insolvent than illiquid has been bailed out with public money via a $55 billion loan from the FHLB system, a semi-public system of funding of mortgage lenders. Banks bankruptcies will add to an already severe credit crunch.
Seventh, the banks losses on their portfolio of leveraged loans are already large and growing. The ability of financial institutions to syndicate and securitize their leveraged loans a good chunk of which were issued to finance very risky and reckless LBOs is now
I'm not predicting a depression. I am predicting a serious change in the american consumer's ability to spend. Seems like Goldman is on board with me there, too. Over at Sudden Debt, he had a good post recently about the #1 rule of banking.
"Only lend money to those who do not need it".
Good rule. What I'm seeing, and what I believe those local banks are seeing, is that if you follow the #1 rule these days you have very few potential borrowers.
bit of a find for the banks. and for those trying to buy or sell a house. And for the us economy that is based on Joe12Pack's ability to borrow.
90% of the problems of an economic slowdown are caused by people not having their act together. Maybe 20% of families are at or near the poverty line. That's a real problem. We can debate the solution on another blog. For everyone else who is not poor, the only problem is poor planning.
Poor planning? Really?
What should we plan for now? Is it good planning to bury food? Or is it good planning to plow money into "undervalued" financial stocks?
Both are reasonable plans given the highly uncertain information we have now about the future. Reasonable people are taking opposite actions and only time will tell which plan was "good" and which was not.
Planning is an uncertain science. Blaming people for not being good at it is ridiculous.
Since corprolations are also "people" too are you suggesting that their only problem was poor planning? Good planning will restore their profits? If only there were someone in the basement of Bear Stearns planning, they would not have gotten into such a mess!
a good chunk of which were issued to finance very risky and reckless LBOs is now at serious risk. And hundreds of billions of dollars of leveraged loans are now stuck on the balance sheet of financial institutions at values well below par (currently about 90 cents on the dollar but soon much lower). Add to this that many reckless LBOs (as senseless LBOs with debt to earnings ratio of seven or eight had become the norm during the go-go days of the credit bubble) have now been postponed, restructured or cancelled. And add to this problem the fact that some actual large LBOs will end up into bankruptcy as some of these corporations taken private are effectively bankrupt in a recession and given the repricing of risk; convenant-lite and PIK toggles may only postpone not avoid such bankruptcies and make them uglier when they do eventually occur. The leveraged loans mess is already leading to a freezing up of the CLO market and to growing losses for financial institutions.
Eighth, once a severe recession is underway a massive wave of corporate defaults will take place. In a typical year US corporate default rates are about 3.8% (average for 1971-2007); in 2006 and 2007 this figure was a puny 0.6%. And in a typical US recession such default rates surge above 10%. Also during such distressed periods the RGD or recovery given default rates are much lower, thus adding to the total losses from a default. Default rates were very low in the last two years because of a slosh of liquidity, easy credit conditions and very low spreads (with junk bond yields being only 260bps above Treasuries until mid June 2007). But now the repricing of risk has been massive: junk bond spreads close to 700bps, iTraxx and CDX indices pricing massive corporate default rates and the junk bond yield issuance market is now semi-frozen. While on average the US and European corporations are in better shape in terms of profitability and debt burden than in 2001 there is a large fat tail of corporations with very low profitability and that have piled up a mass of junk bond debt that will soon come to refinancing at much higher spreads. Corporate default rates will surge during the 2008 recession and peak well above 10% based on recent studies. And once defaults are higher and credit spreads higher massive losses will occur among the credit default swaps (CDS) that provided protection against corporate defaults. Estimates of the losses on a notional value of $50 trillion CDS against a bond base of $5 trillion are varied (from $20 billion to $250 billion with a number closer to the latter figure more likely). Losses on CDS do not represent only a transfer of wealth from those who sold protection to those who bought it. If losses are large some of the counterparties who sold protection possibly large institutions such as monolines, some hedge funds or a large broker dealer may go bankrupt leading to even greater systemic risk as those who bought protection may face counterparties who cannot pay.
Ninth, the shadow banking system (as defined by the PIMCO folks) or more precisely the shadow financial system (as it is composed by non-bank financial institutions) will soon get into serious trouble. This shadow financial system is composed of financial institutions that like banks borrow short and in liquid forms and lend or invest long in more illiquid assets. This system includes: SIVs, conduits, money market funds, monolines, investment banks, hedge funds and other non-bank financial institutions. All these institutions are subject to market risk, credit risk (given their risky investments) and especially liquidity/rollover risk as their short term liquid liabilities can be rolled off easily while their assets are more long term and illiquid. Unlike banks these non-bank financial institutions dont have direct or indirect access to the central banks lender of last resort support as they are not depository institutions. Thus, in the case of financial distress and/or illiquidity they may go bankrupt because of both insolvency and/or lack of liquidity and inability to roll over or refinance their short term liabilities. Deepening problems in the economy and in the financial markets and poor risk managements will lead some of these institutions to go belly up: a few large hedge funds, a few money market funds, the entire SIV system and, possibly, one or two large and systemically important broker dealers. Dealing with the distress of this shadow financial system will be very problematic as this system stressed by credit and liquidity problems - cannot be directly rescued by the central banks in the way that banks can.
Tenth, stock markets in the US and abroad will start pricing a severe US recession rather than a mild recession and a sharp global economic slowdown. The fall in stock markets after the late January 2008 rally fizzles out will resume as investors will soon realize that the economic downturn is more severe, that the monolines will not be rescued, that financial losses will mount, and that earnings will sharply drop in a recession not just among financial firms but also non financial ones. A few long equity hedge funds will go belly up in 2008 after the massive losses of many hedge funds in August, November and, again, January 2008. Large margin calls will be triggered for long equity investors and another round of massive equity shorting will take place. Long covering and margin calls will lead to a cascading fall in equity markets in the US and a transmission to global equity markets. US and global equity markets will enter into a persistent bear market as in a typical US recession the S&P500 falls by about 28%.
Eleventh, the worsening credit crunch that is affecting most credit markets and credit derivative markets will lead to a dry-up of liquidity in a variety of financial markets, including otherwise very liquid derivatives markets. Another round of credit crunch in interbank markets will ensue triggered by counterparty risk, lack of trust, liquidity premia and credit risk. A variety of interbank rates TED spreads, BOR-OIS spreads, BOT Tbill spreads, interbank-policy rate spreads, swap spreads, VIX and other gauges of investors risk aversion will massively widen again. Even the easing of the liquidity crunch after massive central banks actions in December and January will reverse as credit concerns keep interbank spread wide in spite of further injections of liquidity by central banks.
Twelfth, a vicious circle of losses, capital reduction, credit contraction, forced liquidation and fire sales of assets at below fundamental prices will ensue leading to a cascading and mounting cycle of losses and further credit contraction. In illiquid market actual market prices are now even lower than the lower fundamental value that they now have given the credit problems in the economy. Market prices include a large illiquidity discount on top of the discount due to the credit and fundamental problems of the underlying assets that are backing the distressed financial assets. Capital losses will lead to margin calls and further reduction of risk taking by a variety of financial institutions that are now forced to mark to market their positions. Such a forced fire sale of assets in illiquid markets will lead to further losses that will further contract credit and trigger further margin calls and disintermediation of credit. The triggering event for the next round of this cascade is the downgrade of the monolines and the ensuing sharp drop in equity markets; both will trigger margin calls and further credit disintermediation.
Based on estimates by Goldman Sachs $200 billion of losses in the financial system lead to a contraction of credit of $2 trillion given that institutions hold about $10 of assets per dollar of capital. The recapitalization of banks sovereign wealth funds about $80 billion so far will be unable to stop this credit disintermediation (the move from off balance sheet to on balance sheet and moves of assets and liabilities from the shadow banking system to the formal banking system) and the ensuing contraction in credit as the mounting losses will dominate by a large margin any bank recapitalization from SWFs. A contagious and cascading spiral of credit disintermediation, credit contraction, sharp fall in asset prices and sharp widening in credit spreads will then be transmitted to most parts of the financial system. This massive credit crunch will make the economic contraction more severe and lead to further financial losses. Total losses in the financial system will add up to more than $1 trillion and the economic recession will become deeper, more protracted and severe.
A near global economic recession will ensue as the financial and credit losses and the credit crunch spread around the world. Panic, fire sales, cascading fall in asset prices will exacerbate the financial and real economic distress as a number of large and systemically important financial institutions go bankrupt. A 1987 style stock market crash could occur leading to further panic and severe financial and economic distress. Monetary and fiscal easing will not be able to prevent a systemic financial meltdown as credit and insolvency problems trump illiquidity problems. The lack of trust in counterparties driven by the opacity and lack of transparency in financial markets, and uncertainty about the size of the losses and who is holding the toxic waste securities will add to the impotence of monetary policy and lead to massive hoarding of liquidity that will exacerbates the liquidity and credit crunch.
In this meltdown scenario US and global financial markets will experience their most severe crisis in the last quarter of a century.
Can the Fed and other financial officials avoid this nightmare scenario that keeps them awake at night? The answer to this question to be detailed in a follow-up
moving into SRS this morning seemed like a no-brainer play, I just want to know what happened to yesterday's market momentum on SRS and will that kind of death spiral return.
There are ways others than stimulus checks to soften the blow.
How about we finally take a serious look at the sorry state of our infrastructure and decided that upfixing it is not the deadly sin some stupid neocons would make us believe it would be?
This is not Japan circa 1990. We NEED to rebuild a lot of our basic infrastructure.
If we won't invest in ourselves as a country, who the hell will do it?
OT: Blink and you miss these bear market rallies.
Been looking for a simultaneous drop in oil, stocks, rates and the U$D. Ten year down .50, dollar down .40, but maybe it's all a fignewton of my imagination.
And then Benwaballs can pop up again early tomorrow and shoot some more peas at the elephant.
12th actually I agree with you, but my point of view is that certain areas will bear the brunt of this, and those aren't critical to the economy. Just like financial engineering will be seen to have provided no value add. "Luxury" items are shot. Gone. Zap. McMansions, 50k autos for the masses, boats, vacation homes, custom-made furniture, boob-jobs for housewives, and "luxury condo" markets will evaporate because, you know, the masses couldn't afford these items without massive amounts of leverage.
That leaves an awful lot intact. Look at the pull-back here. Certainly not hurting WalMart or Target, but hurting Home Depot, Lowes, SUV/Truck/Mid-level Luxury Vehicles (I mean, what will Porche do with the Cayenne after all the proles have their HELOCs yanked?) and the so-called "aspirational" retailers.
is this a bad thing? Does it lead to depression? does this mean our standard of living has decreased? or does it mean that born and bred American dopes are just returning from stupid?
Kuntsler should be REQUIRED reading for everyone in this country likely to be alive in the foreseeable future and especially our current crop of morons in Congress.
They can measure delta. They can measure vega. They can measure theta. They can measure gamma (or at least they think they can). They can estimate credit loss ratios. But what about liquidity? When you are quantifying factor exposures, how exactly do you model liquidity as other risk factors change?
Last two SSN digits: Payments will be mailed no later than (and received a few days after):
00 through 09 May 16
10 through 18 May 23
19 through 25
May 30
26 through 38 June 6
39 through 51 June 13
52 through 63 June 20
64 through 75 June 27
76 through 87 July 4
88 through 99 July 11
All of the checks will be cashed by the end of July. "Stimulus" over by end of August at the latest.
You know, I view Roubini as now just as bad as the bulls. No matter what happens, he'll scream doom. Everyone is fond of saying he was right, but I've been reading him for quite some time and, you know, if there's a drought and I keep saying it will rain, it eventually will. Even if I'm over 4 quarters and counting from the original call.
Drought and rain? That presumes that none of what is happening today is the result of what happened in the past. Yeah, it was all like - one day it rained!.
Try jumping off a cliff. At the bottom you can say "The guy who was saying I would go sphlaat! before I jumped off - Oh, he was soooooo wrong all that time till I went sphlaat!. Nope, the reason I went sphlaat! was not because I jumped off. I jumped, I went sphlaat! - what has one got to do with the other?"
ipodius cannot grasp cause-effect relations any more complicated than knee-jerking.
But as for spewing unmitigated crap, none can beat ipodius. Not even HWMNBN.
Serial correlation also results in overestimating performance rankings, which is confirmed by correcting for first order autocorrelation and comparing the results. There is a high degree of consistency between the rankings produced by the performance measures used in this thesis. However, particular rankings may be subject to the threshold or minimal acceptable return specified, as demonstrated by modelling the relationship between the Omega and the threshold used.
As of right now, Roubini is right. He has been predicting a slowdown, and we're in a big one. His timing wasn't perfect because the bad financial practices continued even after they were obvious to those of us who were paying attention. The way I see it, and most hear seem to also see it this way, the extended period of financial nonsense that caused Roubini to be "wrong" just means that he will be more right in the end, as the recession becomes longer and deeper.
Having said that, I do like CR much better than Roubini, who comes across as a bit of a tunnel vision know it all.
And there is no need for remarks such as those by Anonymous at 2:22pm. Let's show some respect for this wonderful blog...
12th actually I agree with you, but my point of view is that certain areas will bear the brunt of this, and those aren't critical to the economy.
I'm not sure everyone having to shop at Walmart is a good thing. I always laugh when the headlines say that stocks are up because Walmart's sales are up.
If the housing market continues down (it will) and all those neg am option loans have default rates that are well above what the smart guys/girls and their models predicted (they will) there comes a point where it could get very ugly. Obviously, no one has the ability to model or understand it all. But there seem to be a couple of facts for the next 12-24 months. 1) US consumer in bad shape. 2) Many more defaults coming.
These things can snowball. Will it? I'm expecting a rough recession at the very best. The well heeled people you hang out with will be fine (aside from those few who you find out were just well leveraged, not well heeled).
I don't think this is a bad thing unless the snowball gets too big. Most times an addict needs to bottom out to realize they have a problem. Americans are debt addicts.
I expect to buy their stuff cheap with cash.
My local bartender drives one of those Cayennes. I laugh every time I see it.
New California law offers a shield on mortgage defaults
... The new law also enables cities to impose fines of up to $1,000 a day on property owners who do not maintain vacant homes purchased in foreclosure, a tool aimed at preventing blight in hard-hit neighborhoods.
This could have quite a negative effect on the number of willing knife catchers.
12h, I find those vehicles funny. I mean, what is the point really? Too pw'd by the wife to buy a real sports car? Not enough cash to have two cars but looking for an ego boost?
I don't think everyone shopping at WalMart is a good thing, but my point is that $40 sneakers will do the same job as the $140 ones. The same goes for a lot of what was going on. We need to put the money to better uses than Nike's bottom line for over-priced shoes made with under-priced labor so that the mangement can take home bonuses to spend on Cayennes.
You know we've been on the downside of the curve here since August of 2005 and I keep looking for signs that this is killing they local economy and, frankly, they are absent. In fact we've grown jobs in the state since then. So I'm not sure what the effect is when housing peels back over 20% in real terms as it has here. I think too many suffer from CA-itis. Nor am I suggesting this is the norm, but somewhere in the middle.
I used to think that housing had to bottom before we'd get a turn around. Now I'm thinking it's the oil, stupid. Maybe it's some combo of both.
I thought his analysis of your commentary was cogent.
"What do you use to look at these data?"
I looked for some data in your posts and could not find any. This is a bit concerning because you typically refer to government inflation statistics at least once per thread. Are you feeling OK ipodius?
I thought his analysis of your commentary was cogent.
Cogent would imply there was analysis, which was lacking. In my thesaurus, invective isn't a synonym for cogent.
Squeezed, where is the data in your post? I've posted data, links to data, and lots of numbers and targets which, so far, are pretty much on the money. Remember the DOW at 11,200 call? The housing calls? The calls on the FFR? Again, where is yours?
I understand all the pessimism and the potential for recession but it has been asked before, and I will ask again,what is there to recess?
22 Million jobs were created in the 90's and then the tech bust, since then 6 million jobs have been created, there never was some big hiring binge, there wasn't some huge surge in inventories as more and more companies employed "just in time" supply chains.
I release there will be a big pull back in consumption economic fears slow spending and as credit tightens but as long as their isn't massive layoffs people will continue to work and continue to spend and keep things going, granted at a very slow anemic pace but still moving forward.
everyone didn't tap out their equityor take out bad loans and even those that did are just walking away and going rental but they still have jobs and they are still spending.
The only way I see things ending up as roubini predicts is if layoff start increasing. But we are seeing some industries moving back to the US as transportation costs spike companies are bringing jobs back because it is finally cheaper to pay the higher wage but not have to load everything onto a tanker and ship it halfway around the world. So that should help soak up some of the layoffs.
And while the US consumer might stop spending the Billions who are just now becoming middle class in China and India are unlikely to let up anytime soon and so exports will grow and help cushion the blows of housing and credit.
There are positives out there that will likely prevent roubini's vision from coming to fruition (IMHO).
Too much unproductive spending in this country, from unnecessary wars to energy inefficient transportation and giant homes and entertainment. Boob tube sez we have to have these things to be happy, so everyone strives to get them, even if it means going into a lifetime of debt. We can't build an economy based on consumer spending alone (especially when most of it comes from overseas), but we sure did try. When it started to come apart, we just funded it by borrowing more money. Now the bill arrives in the mail, and it's not pretty. Not only are so many Americans in debt, just like their government, but it's debt that will not lead to greater productivity in the future.
What's sad is that I see so many people get caught up in uber-consumerism and I watch them in despair as they struggle maintaining all the shit they own and giant house it takes to house it all and all the telephone calls from the debt collectors. They're not happy with the 'American Dream'; they're stressed and depressed. They are spending every free minute of their life managing physical possessions they don't have time to enjoy.
I'm more interested in seeing how the collective psychology will adapt to lower living standards than the actual economic numbers.
Well, for tech people tj, it was pretty much confined to SV and the greater Boston area in terms of massive job losses. Stock losses are felt equally. But that didnt' stop the economy either. It took some horrible events to do that.
There are wide sections of the country that are mostly unfazed by housing. There are some that are acutely in pain. Here in MA we are at the front of the housing deflation and were the only area to have had positive job growth last quarter. I'm not sure what it means on the whole, all I can say it that it appears that the price of housing isn't as directly tied to local economic health if the economic landscape is sufficiently diverse.
but that's kind of my point tj. most business didn't go on a hiring binge, outside of those sectors who is going to get laid off?
manufacturing actually appears to be picking up. foreign car makers are looking to open plants in the US instead of build the cars over seas and ship them here.
The growing middle class in other countries can now afford products made in the US and out exports are finally growing.
I don't think this will prevent the pain we all see coming but I do think that positives like these aren't part of roubini's analysis and shouldn't be ignored as positives for the US Economy.
Here in MA we are at the front of the housing deflation and were the only area to have had positive job growth last quarter.
I think you underestimate how long and protracted the ripples are. Several states (CA, MD, GA, etc), because they are struggling with revenue, are determined to poach one of MA's prized industries: biotech. While they'll not be able to fully compete with MA because of the lack of educational infrastructure, the increased competition will definitely escalate the race to the bottom.
There are wide sections of the country that are mostly unfazed by housing.
This is where you stray, ipodius.
Housing isn't the primary problem, it's just the most obvious manifestation of the problem. Make no mistake, it's a huge problem in and of itself -- you can't blow a multi-trillion asset bubble up and then burst it without severe consequences. However, focusing entirely on housing is missing the point.
And I'm not dissing you for this call ipod, even though I think you need to shave about 5000 pts off your target.
lol...well, that's where I said it should be trading at when it was over 13,000. Personally I don't think we'll see capitulation until we're approaching 10k, but maybe sooner. I think a dip below that would scare the crap out of everyone. But it all depends on oil i think at this point.
"Treasury Secretary Henry Paulson suggested Tuesday that many of the foreclosures now working through the nations housing system arent of the preventable variety."
Gee, Hank, what was your first clue?
"Even with a strong economy and strong housing market, we saw 800,000 foreclosures started in 2004, he said.
Although regrettable, this is normal, and attributable to life events, such as job loss. Public policy cannot be expected to prevent these foreclosures. "
Oh, yeah, option ARM, teaser rates and other means to allow folks to buy at at 5x to 10x income, along with ZERO regulation, had nothing to do with it, huh?
ipodius writes: Here in MA we are at the front of the housing deflation and were the only area to have had positive job growth last quarter.
Yeah, but...
Massachusetts' job growth has lagged all but one state's in recent years, according to a new study, raising the possibility that the state won't regain the jobs lost in the last recession before the next one begins.
The study, released today by the Massachusetts Institute for a New Economy, or MassINC, finds Massachusetts is still far from recovering the jobs lost in the recession that began in 2001. Six years later, the state still has 100,000 jobs to go.
This article from Nov 2007 is not as encouraging as ipodius' factoid.
but that's kind of my point tj. most business didn't go on a hiring binge, outside of those sectors who is going to get laid off?
Those sectors alone can easily lose everthing they've gained. Given the timing of state, county & city budgets, the layoffs are just starting.
Regardless, our economy is dominated by service jobs, most of them dependent upon discretionary income. A huge percentage of those jobs are gone, they just don't know it yet. For example, it's being reported that 20% of all martial arts studios have closed THIS YEAR.
Ipod,
Your comments seem balanced to this nonfinancial type. But I'm confused by the apparent conflicting datapoints-- consumer driven economy, consumer sentiment at all time low, (loss of) wealth effect of housing decline, absent wage increases, poor job creation for several years.... yet no recession. Is it possible that the upper quintile spend more than enough to keep consumer/financial boat from sinking despite the roughing up J6P is getting/will receive?
"Remember the DOW at 11,200 call? The housing calls? The calls on the FFR? Again, where is yours?"
First of all a call does not equal data. Secondly its not your opinions that are annoying but the obnoxious holier than though way in which you present them.
And since you want to discuss calls...
I distinctly remember your vociferous protestations that the ECB would not dare raise because money supply has not increased in Europe. Be a man and admit that you were very wrong on both counts.
This article from Nov 2007 is not as encouraging as ipodius' factoid.
A lot has happened since Nov of 2007. I have the MA report from last month. Can you be a little more up-to-date?
I don't know outlier. It could be that just the sheer size and diversity of the economy now keeps it at a certain level, and the "growth" was just for items that are discretionary. It could be that a lot of these items aren't made here anymore and we've reached a tipping point of sorts on employment. RE price declines only matter if you're over-leveraged or you need to sell. How many people really fit this?
If there isn't a spike in unemployment, then I don't see anything but a shallow and long recession. Especially if oil receeds. What I am looking for is where the growth will come from, and now, I'm not seeing where.
squeezed, i didn't think trichet would raise but he did. that doesn't mean it was smart and i will stand by my call that he will lower before the end of the year. Probably as soon as the beginning of Q4 as the EU grinds to a halt, as it now is. This will be an interesting game between the ECB and the Fed.
Frankly I think that the dollar will begin it's ascent now, oil will go down hard before the election, and the EU will stall big time, even going negative in the next quarter. High rates won't help.
And as far as the data goes, I've told you 100,000 times that I use only published, government data for any analysis, and and S&P historical feed for my sock analysis. The techniques are mine that lead to my opinions. And I don't give them away for free. That's MY advantage. You do what you will with yours.
And I might add, squeezed. It's not important to be right about everyting, you just have to be right, on balance, more than you are wrong. Just like you don't have to sell at the top and buy at the bottom to make money, just near them.
That's why all these "knife catcher" comments are just inane. If you buy within 10% of the low and sell within 10% of the high, depending on your horizon will you make money? Even if you buy at the top, can you make money? That's the point, not to have my political ideas justified by picking and choosing my datapoints or arguing that they are wrong because they don't fit my theories.
I don't start from any "this is the way I believe it ought to work because i am a democrat/republican/libertarian/nihilist/communist and then run my data series. I start with the data and let it tell me what is up. Here I tell the story I see in all this mass of data. I look at it every day and use it too.
Ralph Cramdown writes:
I think most people would have blown through their 1k by end of month let alone end of summer.
Guy number 1 gets his cash from the government, blows it on crack. The dealer spends his profits on sex. The whore spends hers on food. The grocer spends his on graffiti removal, and around it goes. On Wall Street, they call it 'velocity of money'. On Broadway, it's the 'circle of life'. Sure, there's significant losses on every transaction, but just because guy#1 spent his doesn't mean the stimulus effect disappears.
Ralph Cramdown | 07.09.08 - 1:25 pm | #
Good. Just so long as it continues to circulate in the local economy.
Yeah, we ain't seen nutin' yet. The "best" is still to come. How 'bout a real US fiscal collapse? A dollar panic, etc., etc. Let your imagination have free play.
Higher Ed costs have way outstripped the economic benefits for just an undergrad degree.
ipodius | 07.09.08 - 2:47 pm | #
Must disagree with you, ipodius. With employers filter out applicants who lack degrees, it's not a matter of career advancement - it's about getting your foot in the door at all.
fw bernanke raises rate this year. whatever bet you need to place on the market to take advantage of this fact, do it, because there is no f***ing way they raise rates. nfw
cash is king? inflation protected bonds? are you kidding me? cash ?????
heck, those bonds are not keeping up with inflation. you lose money when you have them. cash? heck, what is he talking about? if you have cash you still lose money because of the falling dollar. why is it none of these talking heads can dare say what needs to be said? we need to return to sound fiscal policy and that includes silver and gold .......
Any one has any idea where I can get full report of research note issued by Goldman Sach this week on "The Sorry State of US Consumer Fundamentals"? Thanks for help.
Yes. Posted this earlier
My question is as always: as we've depended on consumption growth funded by credit to drive our economy while industry withered, what will be the driver to take us out of this recession?
If you knew that, you'd know how long, and how bad, the recession will be.
(I won't cry "first;" haloscan is the trickster
)
Robini finally got a haircut -- he looks good but remains rightfully negative.
Reposting.
From CNBC.
Economic Views
Whether the pressure on the economy might not let up so quickly, with Nouriel Roubini.
Video - CNBC.com
El-Erian: Commodity Surge a Double-Edged Sword
http://www.cnbc.com/id/25600252
El-Erian is worth a read too.
indymac faces run on deposits:
IndyMac Bank Run
Of all Goldman's five key indicators, I think the one that is too often ignored (especially by Roubini) is "access to credit."
The lack of access, and the cost of access, is already producing devastating results among small businesses and small public companies. These are huge drivers of job creation and economic growth.
College financial aid (loan availability) for the 2008-09 year is a complete catastrophe.
Frozen HELOCs are going to result in a lot of bills going unpaid, including mortgages, taxes and utilities.
Just because the Fed Funds target rate is 2%...so what?
This ship is taking on water fast...what are the life rafts? Gold? Foreign dollars? I don't have any land to grow my own food....
What, you mean the economy is sputtering? Really?
I know Goldman managed to get through the latest crunch smelling like restroom soap, but this isn't exactly rocket science. I'd like to see a little bit of prospective cashflow analysis showing when we turn the corner, or better yet when the downturn burns the commodity indexes.
Of course they probably save the good stuff for paying clients. Which begs the question (applicable to rating agencies too) why in God's name does anyone pay attention?
When they get a 3 handle on this we will be getting close.
Of course they probably save the good stuff for paying clients.
Paying clients? Prop desk!
College financial aid (loan availability) for the 2008-09 year is a complete catastrophe.
Any hard data on this?
"what are the life rafts?"
Roots, bugs and berrys.
"College financial aid (loan availability) for the 2008-09 year is a complete catastrophe. "
I work at a public university; I'll keep a lookout for a bigger-than-usual gap between statements of intent to register (which should be in by now) and actual enrollment. That'd be big news around here.
A lot has been written about the drying up of private loan sources for college students (not federal loans). Several state programs for coordinating private loan placements have been shut down or suspended. If you don't get enough federal loan money from your FASFA, you're screwed this year.
I was thinking this morning about how the tax rebate mainly was a subsidy for fuel prices. At the same time, we still subsidize large SUV purchases by owners of small businesses...
It's the American way!
Things are going to have to get a lot worse here before any sort of positive change occurs.
"Things are going to have to get a lot worse here before any sort of positive change occurs."
Can't recall the quiote, but I just read in BusinessWeek this morning about someone talking about $12/gallon gas by 2015. Is that bad enough?
this is the first comment i read where they talk about the rebates doing any actual stimulus...I do not believe that is a valid assessment..I think most people would have blown through their 1k by end of month let alone end of summer.
I work at a public university; I'll keep a lookout for a bigger-than-usual gap between statements of intent to register (which should be in by now) and actual enrollment.
Good idea. I'll see if I can the same infromation for UCSB.
New York's Chrysler Building Bought by Abu Dhabi Fund
- Bloomberg.com
Last month a Dubai fund, Boston Properties Inc. and Goldman Sachs Group Inc. paid $2.8 billion for the General Motors Building.
Japanese investors spent $78 billion on U.S. properties between the late 1980s and 1995. Many of these transactions, including Mitsubishi Estate's 1989 purchase of Manhattan's Rockefeller Center for $895 million, came just before a U.S. recession sent real estate values plummeting. As a result, the Japanese investors lost an estimated 50 percent to 80 percent of their money during the period.
Of course, we're going to go through a crushing unwind. But what an opportunity! For those prudential few who earned and salted away in the boom, deferred consumption until a bust, and will pick up for pennies on dollars uniquely valuable items on the flatline--Good times. Bright side? The deleterous effects of bust will scour out the deadwood weaklings, reinstill hard-work values, host a plethora of new innovation, (hopefully) gear people toward more harmony with environment. It will put the best and brightest back to work on technology, innovation, and hyperefficiency. Spending our best intellect dollars on consumptive investment, ecofinance, & speculation will go down as seriously misspent youth. Depression will clear all the mental garbage away and allow a clear view for future prosperity.
Oil and stocks going down at the same time.
Then again the mob might just revolt and put axes in each others back; plague, famine, disease, and pestilence kill the remainder.
Several state programs for coordinating private loan placements have been shut down or suspended.
Which ones are they? I just finished teaching a summer session 1 class and no issues there. I've spoken to the dean about the fall, and enrollments are UP. So I'd like to know where you're getting your data...aside from blogs.
New York's Chrysler Building Bought by Abu Dhabi Fund
Yeah, I saw that story. Locals selling, furriners buying. Which side of the trade do you want to be on?
LOL.
Things are going to have to get a lot worse here before any sort of positive change occurs.
Bob_in_MA | 07.09.08 - 12:33 pm | #
Here here....
As sad as it sounds I think we need a depression and some rebuilding (mostly mental) to right this ship...
............
You know, I view Roubini as now just as bad as the bulls. No matter what happens, he'll scream doom. Everyone is fond of saying he was right, but I've been reading him for quite some time and, you know, if there's a drought and I keep saying it will rain, it eventually will. Even if I'm over 4 quarters and counting from the original call.
He's now the darling of the gloom and doom crown. In my experience, the truth always lies somewhere in the middle, so you'll excuse me if I continue to read and be amused slightly at him, while knocking back his predicitons by about 40%.
ipodius | 07.09.08 - 12:44 pm |
I just helped unload a large package for a employee. Guy delivering had a 53' trailer. Packed. I asked him how volumes have been. He mentioned volume was ahead of last year for them...
I see the same here. No great growth, but the huge drops never show.
Who knows?
Chris
The stimulus package probably delayed a bunch of loans from going nonperforming as well, which drags out the inevitable. At least Paulson is saying it's inevitable now, which is a good sign the administration isn't leaning bailout.
Which is, of course, good. Except that this administration is outgoing and the next one could still sign or fail to veto a bailout. Ick.
"You know, I view Roubini as now just as bad as the bulls. No matter what happens, he'll scream doom. Everyone is fond of saying he was right, but I've been reading him for quite some time and, you know, if there's a drought and I keep saying it will rain, it eventually will. Even if I'm over 4 quarters and counting from the original call.
He's now the darling of the gloom and doom crown. In my experience, the truth always lies somewhere in the middle, so you'll excuse me if I continue to read and be amused slightly at him, while knocking back his predicitons by about 40%."
You are right, we're still waiting to see the FIRST -ve GDP quarter.
Banks Face Record-High Costs to Raise Tier 1 Capital Reserves
European Banks Face Record Costs for Tier 1 Capital (Update1) - Bloomberg.com
Investors now demand 542 basis points of extra yield over government debt to buy so-called Tier 1 securities, which regulators demand banks hold to buffer depositors and senior bondholders against losses, according to Merrill Lynch & Co.'s Euro Sub-Debt Tier 1 Index.
The index started the year at 284 basis points.
This Will hurt.
in NYC, the locals are overpaying as well.
The skyscraper at 405 Lexington Ave., the world's tallest building until 1931, was acquired yesterday by the Abu Dhabi Investment Council for an undisclosed price. Last month a Dubai fund, Boston Properties Inc. and Goldman Sachs Group Inc. paid $2.8 billion for the General Motors Building.
the top guy at Boston properties was quoted as saying that rents will only go up in NYC and they aren't making any more land.
Heard that sort of thing before?
Isn't it also true that as the economy retrenches, people head back to school to make themselves more employable? That's what I'm doing - age 50 and starting a graduate program in the fall. Or "The Fall," as history may remember this period.
I got my money market yield yesterday and it was 1.79%, which is fairly close to negative when you factor in service/mang fees and don't even think about IRS taxing you on this return!!! Not good! This type of safety in a liquidity trap will eat people alive, as stagflation destroys saving accounts.
The other option is to go buy a stock of a "cheap" bank stock and then take on the ownership of 10 years worth of dilution... no thanks wall street!
We need a real war and a New deal in the form of a New Ownership Society; we need you McCain, we need more debt!!
Top CFTC investigator resigns
FT.com / US & Canada - CFTC loses its lead fraud enforcer
The chief enforcement officer of the US commodities and futures regulator resigned on Wednesday to return to private practice at a particularly critical time for the agency.
He will soon become a partner in the energy and derivatives markets practice group at the law firm McDermott Will & Emery.
Interesting no?
La,
I also thought about making myself more employable. At 33, i had enough money to not work, or start a biz, or go to school. Friends always said, ' you should get your CFA'
my response was 'i don't need a cfa to be able to lie, I can do that just fine right now.
Time to investigate this Katrina Boy!!!
Gregory Mocek, 45, is the Director of Enforcement for the United States Commodity Futures Trading Commission in Washington, D.C. A native of Lafayette Louisiana, he was appointed to that position in 2002, and oversees approximately 150 attorneys and investigators in Washington, New York, Kansas City, and Chicago. Mr. Mocek is responsible for managing the Commissions investigations and enforcement litigation nationwide. The Commission's scope includes markets such as currency trading, financial futures contracts, agriculture, metals, and energy.
Fannie Mae Pays Record Yield Spreads on Sale of Two-Year Notes
Fannie Mae Pays Record Spreads on Two-Year Note Sale (Update3) - Bloomberg.com
Failing but too big to fail.
[T]he temporary drug of a $160 billion fiscal package including $100 billion of tax rebates will boost Q2 growth into positive territory (1% to 1.5% growth in Q2). But that boost is deceptive as it is entirely driven by such temporary tax rebates.
Let's also consider that artificially stimulating consumption may be counterproductive or outright dangerous if it further distinctivises (fake word of the day) productive economic activities and development of a competitive workforce instead of a competitive shopping force.
"OFHEO does not have the flexibility to ignore generally accepted accounting principles," Armando Falcon, who once headed the Office of Federal Housing Enterprise Oversight, told Reuters in an interview.
Shares of the two government-sponsored enterprises were punished on Monday as analysts warned that new accounting rules could force Fannie Mae and Freddie Mac to raise billions in fresh capital and so dilute shareholder wealth.
UPDATE 1-GSEs must abide tougher accounting - ex-regulator
| Reuters
"OFHEO cannot ignore if generally accepted accounting principles required that they hold assets on balance sheet," said Falcon, who resigned in May 2005.
Good an adult showed up and about damn time.
Good an adult showed up and about damn time.
Falcon saw what was coming and bailed at the perfect time to avoid being a fall guy. I'm glad to see he's still in the wings.
Rich
Decline from may 19 is unusually long, rally due, imo a short one around 2 weeks. Sharp drop usually the trigger, this time maybe declining oil...
Earnings ex-financial probably not so bad this q on rebates, energy bound to show great earnings even as/if oil falls... alcoa up .02 above lowered expectations was bullish... buyers are itchy.
"But that boost is deceptive as it is entirely driven by such temporary tax rebates."
They forgot all of that money was borrowed launching the May 08 budget deficit higher then all of 07 combined. There ain't no free frickin Lucho.
College financial aid (loan availability) for the 2008-09 year is a complete catastrophe.
Any hard data on this?
4shzl | 07.09.08 - 12:26 pm
PHEAA (PA Higher Ed Assist Auth) ran into problems when the credit bond auctions froze up some months ago and subsequently announced that there would cutbacks for PA students as funds couldn't be obtained.
Of course, these are some assclowns who got caught spending $100K + to take their employees to an amusement park. After they got caught running up significant (6 figure) bills for trips to the CA wine country by the muckity mucks.
A close friend's kid is going to get screwed.
Pigs.
I too work at a public university. We are expecting enrollment to be UP, which is usually the case in bad economic times. If it isn't, that would be news.
I wonder how private universities, with their much higher tuitions, will fare. Also, I am curious whether their endowment funds have taken a hit lately.
I see the same here. No great growth, but the huge drops never show.
I hear you Chris. There seems to be just a slow-down, but not a huge lunge, as you'd expect to see if you read here or listen to Roubini too much. Sure, some people are getting smacked (look at hedgie returns...yeowza!) but people who are just, you know, "normal" are just feeling the effects of oil on prices mostly.
I will give you some anecdotal evidence of recession though...tourist traffic and spending is way down on Cape Cod. I'd estimate that foot/auto traffic is about 1/3 what it should be at this time of year. Restaurants are also suffering. I've been able to get a table at the most popular restaurants during prime times without an issue.
I think the real story here is look for items that people can either do without in tight times, or put off buying. Personally, I have two that I like: the mattress index, and BBQ grill index
When listening to someone with a heavy accent does anyone else just hear--- ...blah, blah blah...?
The issues in financial aid lending will be in the private sector--each state has a lender of last resort for the Federal programs. The kids who will get nailed on this are those going to private institutions, particularly mid-range privates who are essentially run year to year on tuition revenue.
A class of institutions that will truly get tagged are Historically Black privates. A lot of them are in shaky situations now and I wouldn't be surprised to see a few of them fail in the next couple of years.
Dr. N, that's what I'm seeing too. Good Aid Departments can always find the money from somewhere. The issue is, frankly, not that there won't be money, but the money will be had at a higher cost than normal.
There are two ways to get money: federal student loans and private ones. The Fed money is cheap, but never covers everything as there are limits as to the amount per year. The rest is back-filled by other loan systems private or state-sponsored. These are at higher rates. And now the rates will be even higher.
Endowment funds will also take a massive hit. Even the H-bomb's fund isn't immune since most of these financial geniuses came from there. Couple declining returns with higher outlays and the situation will rapidly deteriorate there too.
this is the first comment i read where they talk about the rebates doing any actual stimulus...I do not believe that is a valid assessment..I think most people would have blown through their 1k by end of month let alone end of summer.
I just got my check yesterday so they are still writing checks. The assessment is that the effects of the checks would be over before the end of summer.
I think most people would have blown through their 1k by end of month let alone end of summer.
Guy number 1 gets his cash from the government, blows it on crack. The dealer spends his profits on sex. The whore spends hers on food. The grocer spends his on graffiti removal, and around it goes. On Wall Street, they call it 'velocity of money'. On Broadway, it's the 'circle of life'. Sure, there's significant losses on every transaction, but just because guy#1 spent his doesn't mean the stimulus effect disappears.
A class of institutions that will truly get tagged are Historically Black privates.
Actually the ones that will also get killed are the religious-affiliated ones too. There is one near me. Over-built and expanded and now its tuition rivals that of several near-by higher-rated schools. They are in a death spiral as people are going elsewhere for the money and now they are cancelling classes left and right. It's a shame because it was a nice place, but I don't think the Catholic Church can cover the losses any more.
so all good and/or useful information comes in standard English? Well, I guess it was good enough for Jesus, so ...
corpus christy | 07.09.08 - 1:24 pm
I screwed up my subtraction on my taxes. Jerks at the IRS actually kept 56.00 of my stimulus. Oh well, I am taking my brothers,nephew and 2 step nephews on a deep sea fishing trip...Gonna catch me some Swordfish next Friday(I hope) !!!
"Personally, I have two that I like: the mattress index, and BBQ grill index ;)"
ipodius | 07.09.08 - 1:16 pm | #
I noticed at the Depot last week most all of the grills were gone. They had a couple of big sales and blew em all out. I have a sneaky feeling they will not be reordering as many. Oh well,my weedeater assploded last week so I guess I'll pick one up Saturday...
Chris
Ralph Cramdown
Then OPEC says we know what your doing now hand it over and make sure you get that interest payment to us on time. Ain't no free frickin lunco.
"but people who are just, you know, "normal" are just feeling the effects of oil on prices mostly."
What planet do you live on ?
EVERYONE I know is complaining about how their net worth is vanishing daily - home value, stock holdings, 401k, and their incomes are not keeping up draining liquid savings and cutting back on retirement savings to make ends meet.
ipodius writes:
You know, I view Roubini as now just as bad as the bulls. No matter what happens, he'll scream doom. Everyone is fond of saying he was right, but I've been reading him for quite some time and, you know, if there's a drought and I keep saying it will rain, it eventually will. Even if I'm over 4 quarters and counting from the original call.
You might consider the possibility that he saw the imbalances building up long ago, and that's why he sounded the alarm early. Don't dismiss the likelihood of catostrophic events just because they haven't happened so far, and just because the same yahoos have been predicting them for a long time. Financial catastrophe does happen occasionally in history, and it sure looks like the time is ripe for another one.
good to see a fellow gaucho up this early...
I doubt you'll see a big drop off at UCSB, tuition is relatively cheap and the average student's parents bring in 6 figures.
Even the H-bomb's fund isn't immune since most of these financial geniuses came from there.
BTW, El-Erian used to run the H-Bomb's endowment. I echo the comments that the credit crunch will hit the private schools the hardest, especially at the graduate level, because the Fed guaranteed loans won't cover the full cost of tuition. The other issue is that many parents had been paying for tuition using HELOC lines, which may or may not be around come August.
barely | 07.09.08 - 1:32 pm |
Wow. I can tell you pretty closely that my expenses have risen less than 200.00(maybe 100?) over the last year. Even without the rent reductions that is pretty minor.
Yes,I am a cheap bastard. I just find it insane that people left themselves no room for error. And I mean NONE.
Chris
Rubini has been too optimistic now he is coming back to reality:-)
Why do people argue that so and so is too bearish, using evidence about the present, when the fundamentals are getting worse? It will take serious economic pain for the fundamentals to get better. If you want to argue that so and so is too bearish, you need to explain how incomes will grow, debt will be paid down, energy prices will decline or at least stabilize, etc.
ipodius, I see your proclaimed rationality as nothing but blind faith wrapped in a blanket of agreeable wording.
drob writes
no - Q of GDp -- such a comment belies your ignorance. You need to move beyond optics and actually looked at the compoents and where the growth 9and deflator are). nough said.
Ipodius,
You are painful
OT: From Housing Wire, Paying Mortgages with Credit Cards
This is kind of hilarious. It's almost like a game of "hot potato" but with the homeowner's debt being passed around; I guess no bank wants to be holding the potato when the music goes BK.
I guess the FCB central banks are kind of doing that with Bucky as well...
"Wadsworth says the problems actually began last September, when Congress passed the College Cost Reduction and Access Act. It made more financial aid available to the neediest students and lowered the interest rates for new borrowers.
It paid for all this by cutting the interest that banks and private lenders earn on every student loan they make. Wadsworth says it also doubled the fees that lenders pay the federal government for every loan they issue."
The above article is to an NPR story from yesterday (see link). It seems as if the problem has been resolved (if temporarily).
My student loan from last year is 6.88%, but I believe I've read that the gov't wants to make the rate closer to 4%.
Oh well,my weedeater assploded last week so I guess I'll pick one up Saturday...
Same here with my lawnmower, so I will fork out the bucks to replace it. The good news is that they are now wicked cheap (said in my best bawston accent) because all you can hear in home depot now is crickets chirping.
barely, i hang out with some pretty well-heeled sorts at times and I can tell you that none of them are complaining about that. If you have to worry about the value of your house, you shouldn't be playing in these games.
boob, i think you are wrong. full stop.
Wouldn't it be fun to play hockey against politicians, regulators, Goldman Sachs & Co., lenders, re agents? Much more satisfying than paintball.
Deutsche Bank, Goldman Players Check Frustration on Ice Rink - Bloomberg.com
I don't know. My gut tells me that the bottom is going to drop out on energy prices, BUT...
If I look at treasury receipts, I see that corporate taxes weren't that bad and that there is still some life in the old goat yet. Also, checking in with a lot of small banks, many have a lot of money they are trying to lend. These are obviously the conservative ones....
It's not going to be as devastating as some people think, largely because of capital flows. There's a US buy-in going on, and that will cushion us somewhat.
The real test for the US is what is happening now. I follow news from a range of countries, and everyone is revising growth projections down. As the real economies weaken, what will happen to US industry?
Dollar is incredibly resilient despite the facts.. never mind there's always tomorrow.
The markets and oil seem to be negatively correlated now. Oil seems to determine the direction of the market. Someone with the means to move oil prices can make a killing in the market -- ahh, if only I had a few dollars more...
If you ever get tired of Roubini, there's always Kunstler to cheer us up.
shanondoah writes:
if only I had a few dollars more...
Might wanna rephrase that dollars bit.
Might wanna rephrase that dollars bit.
Yes, but euro didn't exist in the '60's, when Sergio and Clint made that movie
Also, checking in with a lot of small banks, many have a lot of money they are trying to lend.
Yes MOM. A lot of the smaller banks around here avoided the entire RE thing, and are now looking to lend to qualified buyers, especially on the mortgage front. And why not? They get premium rates and premium borrowers too. A friend that has an RE agency has told me repeatedly that most financing now is on the very local level and the buyers are all well-qualified. A bank can't make money unless it puts it to work, so I agree.
So I'll say it again. People are pulling back on discretionary purchases and putting things off, classic recessionary behavior. But large-scale depression-type evidence? No where to be found at this time. You know, sometimes you have to read the articles you don't agree with to get perspective. If you do nothing but read Kunstler and Roubini, you'll bury food in the back yard (remember the "there will be food riots everywhere! here?) and cut your wrists.
If you guys don't start spending soon, the FED is going to have to lower rates.
El Cliffo writes:
If you ever get tired of Roubini, there's always Kunstler to cheer us up.
jhk often gets a bad wrap for being real negative.
YouTube - James Howard Kunstler: The tragedy of suburbia
but if you watch this, it's hard to bash him when he speaks about our environment and is an advocate for IMPROVEMENT!
"no - Q of GDp -- such a comment belies your ignorance. You need to move beyond optics and actually looked at the compoents and where the growth 9and deflator are). nough said."
You'd have a point if people like Roubini actually put a disclaimer when they made their doomsday prediction - that people have to consider only part of the GDP or that the GDP has to be 'adjusted' to 'see the recession'. But they don't. They clearly predicted -ve GDP growth since Dec'07. In fact, they only started spinning after the GDP kept showing +ve numbers, then they started to talk about components, etc.
A sense of Place
A place to CARE about
Public REALM
dwelling places
civic life
culture of civic desig
a hopeful PRESENT
shanondoah writes: The markets and oil seem to be negatively correlated now. Oil seems to determine the direction of the market.
It's not as strongly correclated as the USD/JPY movements, but its nonetheless powerful.
As I said yesterday, don't forget to short the market. This Intermediate Decline is no where near done.
The market action thus far today portends immediate lower prices Thursday and Friday.
One TA point: I couldn't find a single index or ETF - one that had been in a decline since late May - that actually broke its upper downtrend line yesterday. Even the VIX pulled back to support.
Oh. And the TNX/TYX are at multiweek lows.
Anonymouse writes:
As I said yesterday, don't forget to short the market.
Ohh you said short, now it's just going to have to rally and close positive.
"If you do nothing but read Kunstler and Roubini, you'll bury food in the back yard (remember the "there will be food riots everywhere! here?) and cut your wrists."
Ipodumbass, no one will cut their wrists, we'll cut the rich scumbags around us who caused this mess.
I mistakenly read one of your stupid posts, and find yet another stupid overdone comment. Still promoting those bottoming banks? Moron.
Doom and Gloom versus Goldilocks economy.
Being a pretty bearish person myself I try to read blogs and news articles that paint a more rosy scenario to bounce alternative views off my own mindset.
Here's the problem I have changing my bearish position.
Who's been right on the housing crash? The bears
Who's been right on the market taking another huge leg down? The bears
Who's been right on the credit crisis being far from over? The bears
Who's been right on the spillover into main-street? The bears
Paulson and Bernanke have publicly stated in the last two weeks that the financial system has to be put in a state to be able to handle the undwinding of a major financial institution.
I agree that we haven't hard a "true" recession yet.
But given that the bearish pundits and investors have been FAR more on the money then the Goldilocks crew I have to ask myself who should I follow for the end-game scenario?
And the end-game scenario IMO is atleast another 10% down from here.
I doubt you'll see a big drop off at UCSB, tuition is relatively cheap and the average student's parents bring in 6 figures....
and live in a house in Orange County...
I'm not saying they are going to pull their kids out of school, but there may be more competition for campus library jobs.
Anonymous @ 2:22 pm
Hey that's some really great contributing analysis! Do you have more? I bet all you've got is ad hominem (you want me to say that slowly? I know it's multi-syllabic and Latin so you'll probably have to go and look up what it means).
So what've you got anonymous besides nothing?
The bears will continue to be right until they are wrong. Then the bulls will be right for a while. Then...
Of course, economies do not change overnight (unlike stock exchanges) and the current momentum favors the bear case. When things turn positive again, let me know.
drone, and who will be right on the recovery? the bulls. Eventually. Just like the bears were. Eventually. So the deal isn't bull or bear, or even right or wrong. The real deal is analysis and timing. You can be the anti-Roubini now. Just start calling for the recovery to begin in Q4. So what if it starts in Q4 a year later? Unthinking people who can't do their own analysis will call you a genius!
--
We must always remember CR's reassuring forecasts:
The above being the case Roubini is way too bearish. And if we believe in Sebastian then Roubini is a nut case. Let us not forget Jamie Dimons forecast: Americas future is very very bright. Add to that the general belief that America is a great country and you have the making of a great bull market after this normal recession is out of the way.
Jas
As someone who watches the local real estate market closely and is privvy to the negotiations and financing of the deals, I agree with this statement:
A friend that has an RE agency has told me repeatedly that most financing now is on the very local level and the buyers are all well-qualified
Any buyers who can actually close a deal these days are well qualified. Local banks in my area have money to loan to well qualified buyers. However, they are being very strict about who is well qualified. The thing you might want to think about, when you use this info to comfort yourself and your rosy predictions, is that a majority of the real estate purchases in the past few years were done by unqualified buyers. So, if only well qualified buyers can buy, there will be far fewer buyers, which if supply and demand is still in effect means, down we go.
Jas... is that you?
Update on that CFTC story:-
CFTC's New Enforcement Head to Face Political Unrest
CFTC's New Enforcement Head to Face Political Unrest (Update1) - Bloomberg.com
Obie will take over from Gregory Mocek, who will be leaving within 60 days after heading the enforcement division since 2002, the Washington-based agency said today.
Mocek, 46, said in June there is no evidence speculators are manipulating U.S. oil prices on foreign exchanges. He oversaw more than 100 investigators and staff members who monitor futures markets for manipulation and fraud.
when you use this info to comfort yourself and your rosy predictions
Where are my predictions rosy? What consitutes rosy? That I'm not in the depression camp? Last I checked I was firmly a bear. I'm just in the shallow but long crowd.
And that's what this means to me. I've said that I believed that, when the RE bottom was in, we'd be in the range of 27% to 30% off peak prices in real dollars. So far I seem to be on the money around these parts, and probably nationally. I don't call that rosy at all.
And, frankly, the "well-qualified" label applies to consultants with variable income because one of these, a friend, just got a sizeable mortgage from a local bank. So I have to wonder what the definition of "well-qualified" is. I'm using it in relation to what has happened. Frankly I probably wouldn't have given him the loan in this economic climate, but they did.
tranches of like writes:
"Oil and stocks going down at the same time."
The XOI and SPX (as an example) almost always move together. One leads the other.
Consumers, transport sectors and corporations will be choking on high prices until gas, diesel and material costs are down 30%. MSM inferences that small oil declines will boost the market is hi-octane pabulum.
"the [household] balance sheet looks especially fragile."
My balance sheet is in great shape but I still ain't spending a nickle, no since screwing up a good deflation by doing something stupid.
The real test for the US is what is happening now. I follow news from a range of countries, and everyone is revising growth projections down. As the real economies weaken, what will happen to US industry?
IMO one real area of concern going forward is that the US really needs to get consumption and production back into balance by decreasing consumption and/or increasing production.
But if we have excess production capacity globally then maybe the latter isn't a viable alternative in the short-term -- that would put the burden of re-balancing on decreased consumption.
There are two ways to get money: federal student loans and private ones. -ipodus
It seems to me student loans are risky way to pay for college. If for some reason things don't work out, the student is stuck with that debt. The interest rate matters, but the real trouble is paying back the principal if something goes wrong. Students should weigh the benefits of an expensive college against these risks.
The best way to get money is to save a little money each year of a child's life. It's not that hard (for someone not near the poverty line) to save up enough money to pay for school.
I'm saying all this because 90% of the problems of an economic slowdown are caused by people not having their act together. Maybe 20% of families are at or near the poverty line. That's a real problem. We can debate the solution on another blog. For everyone else who is not poor, the only problem is poor planning. We all know the economy cycles up and down. What are people thinking who were counting on borrowing to pay for things they need? The result is I end up hearing about how everything's going to the devil because it's gotten harder to borrow money and GDP growth is near zero? What if GDP really went down, say, to what it was 30 years ago?
It won't. The economy is fine. It will keep growing. We'll have more and more per capita production each decade. I can't predict, though, whether bellyaching (e.g. But I based my life on the price of XYZ never changing!) will decrease as a result.
What gets me is how people sneer at workers and ask how they can "expect" to get paid more than the federal (or sometimes state) poverty rate, and how they can possibly expect "gold-plated benefits" - and then these same people turn around and wonder why the "consumer" is "fragile."
A $12/hr wage (significantly above both federal and state minimum wages) on a 40 hour week is a little less than $25,000 per year. Take away benefits (e.g. no retirement package and a health benefits co-pay of $500/month ($6,000). Result: peonage.
Sue (Capital S) writes:
Result: peonage.
US opens it's eyes to the rest of the world. (or most of it anyway)
FYI - TNX (10 year note yields) just broke their June lows.
So much for the forecasts here (and elsewhere) to expect higher interest rates.
I agree with you Charles. But even though my undergrad was paid for in just the manner you state, my graduate school was financed because I was young and didn't have any money...and the pot was dry after my first master's degree. The cost of the education was, however, more than made up for by the increase in my salary, so it was a good investment.
But people who go into hock on undergrad should think twice and go to a less expensive option and work their butts off to go to a good grad school. Just my .02. Higher Ed costs have way outstripped the economic benefits for just an undergrad degree.
So much for the forecasts here (and elsewhere) to expect higher interest rates.
Only "the worst is behind us" crowd expects higher rates in the near future. They seem to be wrong
One TA point: I couldn't find a single index or ETF - one that had been in a decline since late May - that actually broke its upper downtrend line yesterday. Even the VIX pulled back to support.
Anonymouse,
zackattack sees SRS as a broken chart...what are your thoughts? Thank you.
shanondoah,
Was that an ironic comment...? A lot of people here are bullish on US gov't debt yields. Just like a lot of people thought it ridiculous when I wrote yesterday, Don't forget to short the market tomorrow.
Goldman analysts then present evidence that all five factors are negative for consumer spending.
Good thing our economy isn't dependent upon consumer spending. Oh, wait...
stand clear
TradingStats writes:
stand clear
What's the S&P target ?
drone said: "I agree that we haven't hard a "true" recession yet."
A doughnut without a hole isn't a doughnut.
then said: "...But given that the bearish pundits and investors have been FAR more on the money then the Goldilocks crew I have to ask myself who should I follow for the end-game scenario?"
Seriously, though, conditions like we're seeing now can occur as a prelude to recession or as a prelude to stronger economic growth after a period of slower economic growth. Stock market corrections the same way, they can be this size (-20% off peak) in association with recession or not.
I had a similar discussion to this one with Jas Jain a couple of years back on a different message board. I suggested that he simply declare victory and take pride in the fact that he had accurately forecast a period of slower economic growth. Unfortunately, it was "recession or bust" with him and here we are still without a recession, even though conditions are arguably even worse.
This ought to be a wake-up call to everyone about how diversified the U.S. economy is, that even a near-catastrophe in one or two sectors isn't big enough to drag it into recession. Also that recession isn't brought on by an arbitrary X% slowdown in an economic indicator, it's a little more complex than that.
JMO.
Sebastia
fried,
I look at the IYR for my analysis on SRS (it's been trading far longer and has more reliable volume stats).
All IYR is doing this week (just like the broad market) is pushing into its January/March weekly lows on strong volume - probably strong enough to break those lows and continue to the next level.
That's bullish for SRS.
"Maybe 20% of families are at or near the poverty line. "
I have read that something like 30-40 percent are living from paycheck to paycheck. And some of them make fair money.
This doesn't obviate your "poor planning" argument. But it does suggest that there's another 15 percent or so of the population that is potentially on the edge of poverty -- but doesn't look like at a glance.
Not to mention that official gov't figures for poverty levels are a joke in most of the country. Some local expert figured that the actual poverty line income for a family of 4 in my area was somewhere between $50 and $60K.
I still think the value of a basic undergraduate or graduate degree in an excellent return on the time and money invested. OTOH, I don't know that is true for more expensive, second-rung private institutions.
As far as student loan debt goes, at least the Federal programs are reasonably benign. You can, for example, stop payments when unemployed. That's a darn nice benefit.
Anonymouse,
Roubini has got me almost completely convinced of a deflationary period not too far in the future. So I've never believed the Fed would raise rates while we're still in this mess. They'll probably keep talking about it though and hope that it has the desired effect on the gullible.
My gut tells me that the bottom is going to drop out on energy prices, BUT...
The demand destruction necessary to truly gut energy would signal an out-an-out depression.
If I look at treasury receipts, I see that corporate taxes weren't that bad and that there is still some life in the old goat yet.
Lagging indicator.
Also, checking in with a lot of small banks, many have a lot of money they are trying to lend. These are obviously the conservative ones....
Yeah, but they'll only lend to those who don't need it, and those people are smart enough to know not to borrow right now.
It's not going to be as devastating as some people think, largely because of capital flows.
It's the capital in people's pocketbooks that matter, and it simply isn't there. This'll be a lot more devastating than most think.
You are right, we're still waiting to see the FIRST -ve GDP quarter.
Technicality. Simpson's still looking for the real murderer, too.
"A doughnut without a hole isn't a doughnut.:)"
I had a donught the other day without a hole. A nice Maple Bar...YUM!
The Rising Risk of a Systemic Financial Meltdown: The Twelve Steps to Financial Disaster - Feb 5 2008 - Nouriel Roubini:
Why did the Fed ease the Fed Funds rate by a whopping 125bps in eight days this past January? It is true that most macro indicators are heading south and suggesting a deep and severe recession that has already started. But the flow of bad macro news in mid-January did not justify, by itself, such a radical inter-meeting emergency Fed action followed by another cut at the formal FOMC meeting.
To understand the Fed actions one has to realize that there is now a rising probability of a catastrophic financial and economic outcome, i.e. a vicious circle where a deep recession makes the financial losses more severe and where, in turn, large and growing financial losses and a financial meltdown make the recession even more severe. The Fed is seriously worried about this vicious circle and about the risks of a systemic financial meltdown.
That is the reason the Fed had thrown all caution to the wind after a year in which it was behind the curve and underplaying the economic and financial risks and has taken a very aggressive approach to risk management; this is a much more aggressive approach than the Greenspan one in spite of the initial views that the Bernanke Fed would be more cautious than Greenspan in reacting to economic and financial vulnerabilities.
To understand the risks that the financial system is facing today I present the nightmare or catastrophic scenario that the Fed and financial officials around the world are now worried about. Such a scenario however extreme has a rising and significant probability of occurring. Thus, it does not describe a very low probability event but rather an outcome that is quite possible.
Start first with the recession that is now enveloping the US economy. Let us assume as likely - that this recession that already started in December 2007 - will be worse than the mild ones that lasted 8 months that occurred in 1990-91 and 2001. The recession of 2008 will be more severe for several reasons: first, we have the biggest housing bust in US history with home prices likely to eventually fall 20 to 30%; second, because of a credit bubble that went beyond mortgages and because of reckless financial innovation and securitization the ongoing credit bust will lead to a severe credit crunch; third, US households whose consumption is over 70% of GDP - have spent well beyond their means for years now piling up a massive amount of debt, both mortgage and otherwise; now that home prices are falling and a severe credit crunch is emerging the retrenchment of private consumption will be serious and protracted. So let us suppose that the recession of 2008 will last at least four quarters and, possibly, up to six quarters. What will be the consequences of it?
Here are the twelve steps or stages of a scenario of systemic financial meltdown associated with this severe economic recession
First, this is the worst housing recession in US history and there is no sign it will bottom out any time soon. At this point it is clear that US home prices will fall between 20% and 30% from their bubbly peak; that would wipe out between $4 trillion and $6 trillion of household wealth. While the subprime meltdown is likely to cause about 2.2 million foreclosures, a 30% fall in home values would imply that over 10 million households would have negative equity in their homes and would have a big incentive to use jingle mail (i.e. default, put the home keys in an envelope and send it to their mortgage bank). Moreover, soon enough a few very large home builders will go bankrupt and join the dozens of other small ones that have already gone bankrupt thus leading to another free fall in home builders stock prices that have irrationally rallied in the last few weeks in spite of a worsening housing recession.
Second, losses for the financial system from the subprime disaster are now estimated to be as high as $250 to $300 billion. But the financial losses will not be only in subprime mortgages and the related RMBS and CDOs. They are now spreading to near prime and prime mortgages as the same reckless lending practices in subprime (no down-payment, no verification of income, jobs and assets (i.e. NINJA or LIAR loans), interest rate only, negative amortization, teaser rates, etc.) were occurring across the entire spectrum of mortgages; about 60% of all mortgage origination since 2005 through 2007 had these reckless and toxic features. So this is a generalized mortgage crisis and meltdown, not just a subprime one. And losses among all sorts of mortgages will sharply increase as home prices fall sharply and the economy spins into a serious recession. Goldman Sachs now estimates total mortgage credit losses of about $400 billion; but the eventual figures could be much larger if home prices fall more than 20%. Also, the RMBS and CDO markets for securitization of mortgages already dead for subprime and frozen for other mortgages - remain in a severe credit crunch, thus reducing further the ability of banks to originate mortgages. The mortgage credit crunch will become even more severe.
Also add to the woes and losses of the financial institutions the meltdown of hundreds of billions of off balance SIVs and conduits; this meltdown and the roll-off of the ABCP market has forced banks to bring back on balance sheet these toxic off balance sheet vehicles adding to the capital and liquidity crunch of the financial institutions and adding to their on balance sheet losses. And because of securitization the securitized toxic waste has been spread from banks to capital markets and their investors in the US and abroad, thus increasing rather than reducing systemic risk and making the credit crunch global.
Third, the recession will lead as it is already doing to a sharp increase in defaults on other forms of unsecured consumer debt: credit cards, auto loans, student loans. There are dozens of millions of subprime credit cards and subprime auto loans in the US. And again defaults in these consumer debt categories will not be limited to subprime borrowers. So add these losses to the financial losses of banks and of other financial institutions (as also these debts were securitized in ABS products), thus leading to a more severe credit crunch. As the Fed loan officers survey suggest the credit crunch is spreading throughout the mortgage market and from mortgages to consumer credit, and from large banks to smaller banks.
Fourth, while there is serious uncertainty about the losses that monolines will undertake on their insurance of RMBS, CDO and other toxic ABS products, it is now clear that such losses are much higher than the $10-15 billion rescue package that regulators are trying to patch up. Some monolines are actually borderline insolvent and none of them deserves at this point a AAA rating regardless of how much realistic recapitalization is provided. Any business that required an AAA rating to stay in business is a business that does not deserve such a rating in the first place. The monolines should be downgraded as no private rescue package short of an unlikely public bailout is realistic or feasible given the deep losses of the monolines on their insurance of toxic ABS products.
Next, the downgrade of the monolines will lead to another $150 of writedowns on ABS portfolios for financial institutions that have already massive losses. It will also lead to additional losses on their portfolio of muni bonds. The downgrade of the monolines will also lead to large losses and potential runs on the money market funds that invested in some of these toxic products. The money market funds that are backed by banks or that bought liquidity protection from banks against the risk of a fall in the NAV may avoid a run but such a rescue will exacerbate the capital and liquidity problems of their underwriters. The monolines downgrade will then also lead to another sharp drop in US equity markets that are already shaken by the risk of a severe recession and large losses in the financial system.
Fifth, the commercial real estate loan market will soon enter into a meltdown similar to the subprime one. Lending practices in commercial real estate were as reckless as those in residential real estate. The housing crisis will lead with a short lag to a bust in non-residential construction as no one will want to build offices, stores, shopping malls/centers in ghost towns. The CMBX index is already pricing a massive increase in credit spreads for non-residential mortgages/loans. And new origination of commercial real estate mortgages is already semi-frozen today; the commercial real estate mortgage market is already seizing up today.
Sixth, it is possible that some large regional or even national bank that is very exposed to mortgages, residential and commercial, will go bankrupt. Thus some big banks may join the 200 plus subprime lenders that have gone bankrupt. This, like in the case of Northern Rock, will lead to depositors panic and concerns about deposit insurance. The Fed will have to reaffirm the implicit doctrine that some banks are too big to be allowed to fail. But these bank bankruptcies will lead to severe fiscal losses of bank bailout and effective nationalization of the affected institutions. Already Countrywide an institution that was more likely insolvent than illiquid has been bailed out with public money via a $55 billion loan from the FHLB system, a semi-public system of funding of mortgage lenders. Banks bankruptcies will add to an already severe credit crunch.
Seventh, the banks losses on their portfolio of leveraged loans are already large and growing. The ability of financial institutions to syndicate and securitize their leveraged loans a good chunk of which were issued to finance very risky and reckless LBOs is now
Ipodius
I'm not predicting a depression. I am predicting a serious change in the american consumer's ability to spend. Seems like Goldman is on board with me there, too. Over at Sudden Debt
, he had a good post recently about the #1 rule of banking.
"Only lend money to those who do not need it".
Good rule. What I'm seeing, and what I believe those local banks are seeing, is that if you follow the #1 rule these days you have very few potential borrowers.
bit of a find for the banks. and for those trying to buy or sell a house. And for the us economy that is based on Joe12Pack's ability to borrow.
Look out BELOWWWW
No targets now...was using 1270 as a trade around. after yesterday's low's, this immediate weakness not so good
i was small long in a few dow names tues.. out now, and LEH is breaking fast!
king chambers rattled
90% of the problems of an economic slowdown are caused by people not having their act together. Maybe 20% of families are at or near the poverty line. That's a real problem. We can debate the solution on another blog. For everyone else who is not poor, the only problem is poor planning.
Poor planning? Really?
What should we plan for now? Is it good planning to bury food? Or is it good planning to plow money into "undervalued" financial stocks?
Both are reasonable plans given the highly uncertain information we have now about the future. Reasonable people are taking opposite actions and only time will tell which plan was "good" and which was not.
Planning is an uncertain science. Blaming people for not being good at it is ridiculous.
Since corprolations are also "people" too are you suggesting that their only problem was poor planning? Good planning will restore their profits? If only there were someone in the basement of Bear Stearns planning, they would not have gotten into such a mess!
Whoops. Someone just dropped the market.
a good chunk of which were issued to finance very risky and reckless LBOs is now at serious risk. And hundreds of billions of dollars of leveraged loans are now stuck on the balance sheet of financial institutions at values well below par (currently about 90 cents on the dollar but soon much lower). Add to this that many reckless LBOs (as senseless LBOs with debt to earnings ratio of seven or eight had become the norm during the go-go days of the credit bubble) have now been postponed, restructured or cancelled. And add to this problem the fact that some actual large LBOs will end up into bankruptcy as some of these corporations taken private are effectively bankrupt in a recession and given the repricing of risk; convenant-lite and PIK toggles may only postpone not avoid such bankruptcies and make them uglier when they do eventually occur. The leveraged loans mess is already leading to a freezing up of the CLO market and to growing losses for financial institutions.
Eighth, once a severe recession is underway a massive wave of corporate defaults will take place. In a typical year US corporate default rates are about 3.8% (average for 1971-2007); in 2006 and 2007 this figure was a puny 0.6%. And in a typical US recession such default rates surge above 10%. Also during such distressed periods the RGD or recovery given default rates are much lower, thus adding to the total losses from a default. Default rates were very low in the last two years because of a slosh of liquidity, easy credit conditions and very low spreads (with junk bond yields being only 260bps above Treasuries until mid June 2007). But now the repricing of risk has been massive: junk bond spreads close to 700bps, iTraxx and CDX indices pricing massive corporate default rates and the junk bond yield issuance market is now semi-frozen. While on average the US and European corporations are in better shape in terms of profitability and debt burden than in 2001 there is a large fat tail of corporations with very low profitability and that have piled up a mass of junk bond debt that will soon come to refinancing at much higher spreads. Corporate default rates will surge during the 2008 recession and peak well above 10% based on recent studies. And once defaults are higher and credit spreads higher massive losses will occur among the credit default swaps (CDS) that provided protection against corporate defaults. Estimates of the losses on a notional value of $50 trillion CDS against a bond base of $5 trillion are varied (from $20 billion to $250 billion with a number closer to the latter figure more likely). Losses on CDS do not represent only a transfer of wealth from those who sold protection to those who bought it. If losses are large some of the counterparties who sold protection possibly large institutions such as monolines, some hedge funds or a large broker dealer may go bankrupt leading to even greater systemic risk as those who bought protection may face counterparties who cannot pay.
Ninth, the shadow banking system (as defined by the PIMCO folks) or more precisely the shadow financial system (as it is composed by non-bank financial institutions) will soon get into serious trouble. This shadow financial system is composed of financial institutions that like banks borrow short and in liquid forms and lend or invest long in more illiquid assets. This system includes: SIVs, conduits, money market funds, monolines, investment banks, hedge funds and other non-bank financial institutions. All these institutions are subject to market risk, credit risk (given their risky investments) and especially liquidity/rollover risk as their short term liquid liabilities can be rolled off easily while their assets are more long term and illiquid. Unlike banks these non-bank financial institutions dont have direct or indirect access to the central banks lender of last resort support as they are not depository institutions. Thus, in the case of financial distress and/or illiquidity they may go bankrupt because of both insolvency and/or lack of liquidity and inability to roll over or refinance their short term liabilities. Deepening problems in the economy and in the financial markets and poor risk managements will lead some of these institutions to go belly up: a few large hedge funds, a few money market funds, the entire SIV system and, possibly, one or two large and systemically important broker dealers. Dealing with the distress of this shadow financial system will be very problematic as this system stressed by credit and liquidity problems - cannot be directly rescued by the central banks in the way that banks can.
Tenth, stock markets in the US and abroad will start pricing a severe US recession rather than a mild recession and a sharp global economic slowdown. The fall in stock markets after the late January 2008 rally fizzles out will resume as investors will soon realize that the economic downturn is more severe, that the monolines will not be rescued, that financial losses will mount, and that earnings will sharply drop in a recession not just among financial firms but also non financial ones. A few long equity hedge funds will go belly up in 2008 after the massive losses of many hedge funds in August, November and, again, January 2008. Large margin calls will be triggered for long equity investors and another round of massive equity shorting will take place. Long covering and margin calls will lead to a cascading fall in equity markets in the US and a transmission to global equity markets. US and global equity markets will enter into a persistent bear market as in a typical US recession the S&P500 falls by about 28%.
Eleventh, the worsening credit crunch that is affecting most credit markets and credit derivative markets will lead to a dry-up of liquidity in a variety of financial markets, including otherwise very liquid derivatives markets. Another round of credit crunch in interbank markets will ensue triggered by counterparty risk, lack of trust, liquidity premia and credit risk. A variety of interbank rates TED spreads, BOR-OIS spreads, BOT Tbill spreads, interbank-policy rate spreads, swap spreads, VIX and other gauges of investors risk aversion will massively widen again. Even the easing of the liquidity crunch after massive central banks actions in December and January will reverse as credit concerns keep interbank spread wide in spite of further injections of liquidity by central banks.
Twelfth, a vicious circle of losses, capital reduction, credit contraction, forced liquidation and fire sales of assets at below fundamental prices will ensue leading to a cascading and mounting cycle of losses and further credit contraction. In illiquid market actual market prices are now even lower than the lower fundamental value that they now have given the credit problems in the economy. Market prices include a large illiquidity discount on top of the discount due to the credit and fundamental problems of the underlying assets that are backing the distressed financial assets. Capital losses will lead to margin calls and further reduction of risk taking by a variety of financial institutions that are now forced to mark to market their positions. Such a forced fire sale of assets in illiquid markets will lead to further losses that will further contract credit and trigger further margin calls and disintermediation of credit. The triggering event for the next round of this cascade is the downgrade of the monolines and the ensuing sharp drop in equity markets; both will trigger margin calls and further credit disintermediation.
Based on estimates by Goldman Sachs $200 billion of losses in the financial system lead to a contraction of credit of $2 trillion given that institutions hold about $10 of assets per dollar of capital. The recapitalization of banks sovereign wealth funds about $80 billion so far will be unable to stop this credit disintermediation (the move from off balance sheet to on balance sheet and moves of assets and liabilities from the shadow banking system to the formal banking system) and the ensuing contraction in credit as the mounting losses will dominate by a large margin any bank recapitalization from SWFs. A contagious and cascading spiral of credit disintermediation, credit contraction, sharp fall in asset prices and sharp widening in credit spreads will then be transmitted to most parts of the financial system. This massive credit crunch will make the economic contraction more severe and lead to further financial losses. Total losses in the financial system will add up to more than $1 trillion and the economic recession will become deeper, more protracted and severe.
A near global economic recession will ensue as the financial and credit losses and the credit crunch spread around the world. Panic, fire sales, cascading fall in asset prices will exacerbate the financial and real economic distress as a number of large and systemically important financial institutions go bankrupt. A 1987 style stock market crash could occur leading to further panic and severe financial and economic distress. Monetary and fiscal easing will not be able to prevent a systemic financial meltdown as credit and insolvency problems trump illiquidity problems. The lack of trust in counterparties driven by the opacity and lack of transparency in financial markets, and uncertainty about the size of the losses and who is holding the toxic waste securities will add to the impotence of monetary policy and lead to massive hoarding of liquidity that will exacerbates the liquidity and credit crunch.
In this meltdown scenario US and global financial markets will experience their most severe crisis in the last quarter of a century.
Can the Fed and other financial officials avoid this nightmare scenario that keeps them awake at night? The answer to this question to be detailed in a follow-up
I'm just in the shallow but long crowd.
ipodius, you shouldn't dish out straight lines like that!
Whoocoodanode
HaloScan.com - Comments
Robini finally got a haircut -- he looks good but remains rightfully negative.
Genius is usually accompanied by bad hair.
I figured on a board like this we could at least get our Caddy Shack quotes correct.
"A flute with no holes isn't a flute,
a donut with no holes is a danish"
anonymouse,
thank you for your answer. Much appreciated.
Whoocoodanode
moving into SRS this morning seemed like a no-brainer play, I just want to know what happened to yesterday's market momentum on SRS and will that kind of death spiral return.
There are ways others than stimulus checks to soften the blow.
How about we finally take a serious look at the sorry state of our infrastructure and decided that upfixing it is not the deadly sin some stupid neocons would make us believe it would be?
This is not Japan circa 1990. We NEED to rebuild a lot of our basic infrastructure.
If we won't invest in ourselves as a country, who the hell will do it?
Just spotted this:
New California law offers a shield on mortgage defaults
OT: Blink and you miss these bear market rallies.
Been looking for a simultaneous drop in oil, stocks, rates and the U$D. Ten year down .50, dollar down .40, but maybe it's all a fignewton of my imagination.
And then Benwaballs can pop up again early tomorrow and shoot some more peas at the elephant.
There isn't a straight line in me tj
12th actually I agree with you, but my point of view is that certain areas will bear the brunt of this, and those aren't critical to the economy. Just like financial engineering will be seen to have provided no value add. "Luxury" items are shot. Gone. Zap. McMansions, 50k autos for the masses, boats, vacation homes, custom-made furniture, boob-jobs for housewives, and "luxury condo" markets will evaporate because, you know, the masses couldn't afford these items without massive amounts of leverage.
That leaves an awful lot intact. Look at the pull-back here. Certainly not hurting WalMart or Target, but hurting Home Depot, Lowes, SUV/Truck/Mid-level Luxury Vehicles (I mean, what will Porche do with the Cayenne after all the proles have their HELOCs yanked?) and the so-called "aspirational" retailers.
is this a bad thing? Does it lead to depression? does this mean our standard of living has decreased? or does it mean that born and bred American dopes are just returning from stupid?
Kuntsler should be REQUIRED reading for everyone in this country likely to be alive in the foreseeable future and especially our current crop of morons in Congress.
Anonymouse writes:
Whoops. Someone just dropped the market.
Nice call, grats.
"If we won't invest in ourselves as a country, who the hell will do it?"
The new owners and it ain't gonna be us.
Straight-talk on FAS 157: Blackstone and their Banker Buddies Have it Wrong
Information Arbitrage: Straight-talk on FAS 157: Blackstone and their Banker Buddies Have it Wrong
They can measure delta. They can measure vega. They can measure theta. They can measure gamma (or at least they think they can). They can estimate credit loss ratios. But what about liquidity? When you are quantifying factor exposures, how exactly do you model liquidity as other risk factors change?
ysrrbob,
Required reading should start like this
in the ninth grade
'The prize'
tenth grade
'long emergency'
11th grade
'collapse'
senior year
'old testament'
Rebate check schedule from the IRS website
PAPER CHECK
Last two SSN digits: Payments will be mailed no later than (and received a few days after):
00 through 09 May 16
10 through 18 May 23
19 through 25
May 30
26 through 38 June 6
39 through 51 June 13
52 through 63 June 20
64 through 75 June 27
76 through 87 July 4
88 through 99 July 11
All of the checks will be cashed by the end of July. "Stimulus" over by end of August at the latest.
ipodius
You know, I view Roubini as now just as bad as the bulls. No matter what happens, he'll scream doom. Everyone is fond of saying he was right, but I've been reading him for quite some time and, you know, if there's a drought and I keep saying it will rain, it eventually will. Even if I'm over 4 quarters and counting from the original call.
Drought and rain? That presumes that none of what is happening today is the result of what happened in the past. Yeah, it was all like - one day it rained!.
Try jumping off a cliff. At the bottom you can say "The guy who was saying I would go sphlaat! before I jumped off - Oh, he was soooooo wrong all that time till I went sphlaat!. Nope, the reason I went sphlaat! was not because I jumped off. I jumped, I went sphlaat! - what has one got to do with the other?"
ipodius cannot grasp cause-effect relations any more complicated than knee-jerking.
But as for spewing unmitigated crap, none can beat ipodius. Not even HWMNBN.
Serial correlation also results in overestimating performance rankings, which is confirmed by correcting for first order autocorrelation and comparing the results. There is a high degree of consistency between the rankings produced by the performance measures used in this thesis. However, particular rankings may be subject to the threshold or minimal acceptable return specified, as demonstrated by modelling the relationship between the Omega and the threshold used.
https://dspace.lib.cranfield.ac.uk/bitstream/1826/2082/1/Hedge%20Fund%20Performance%20Measurement.pdf
"That leaves an awful lot intact."
BWAHAHAHAHA!
I wonder what CR is working on. Usually when he goes this long without a new post the next one is great.
As of right now, Roubini is right. He has been predicting a slowdown, and we're in a big one. His timing wasn't perfect because the bad financial practices continued even after they were obvious to those of us who were paying attention. The way I see it, and most hear seem to also see it this way, the extended period of financial nonsense that caused Roubini to be "wrong" just means that he will be more right in the end, as the recession becomes longer and deeper.
Having said that, I do like CR much better than Roubini, who comes across as a bit of a tunnel vision know it all.
And there is no need for remarks such as those by Anonymous at 2:22pm. Let's show some respect for this wonderful blog...
oops, should have been "most here"...
12th actually I agree with you, but my point of view is that certain areas will bear the brunt of this, and those aren't critical to the economy.
I'm not sure everyone having to shop at Walmart is a good thing. I always laugh when the headlines say that stocks are up because Walmart's sales are up.
If the housing market continues down (it will) and all those neg am option loans have default rates that are well above what the smart guys/girls and their models predicted (they will) there comes a point where it could get very ugly. Obviously, no one has the ability to model or understand it all. But there seem to be a couple of facts for the next 12-24 months. 1) US consumer in bad shape. 2) Many more defaults coming.
These things can snowball. Will it? I'm expecting a rough recession at the very best. The well heeled people you hang out with will be fine (aside from those few who you find out were just well leveraged, not well heeled).
I don't think this is a bad thing unless the snowball gets too big. Most times an addict needs to bottom out to realize they have a problem. Americans are debt addicts.
I expect to buy their stuff cheap with cash.
My local bartender drives one of those Cayennes. I laugh every time I see it.
But as for spewing unmitigated crap, none can beat ipodius. Not even HWMNBN.
Well burgandy, what's you analysis of this? What do you use to look at these data? What do you have to contribute to the thread other than ad hominem?
Per CNBC - B of A will assume all of CFC loans anyday...Good luck Ken Lewis.
ben bernanke has abandoned titanic. rrrrrrrrrrrrun for your lifeboats before it's too late people!
New thread alert.
from the link about the new California law:
New California law offers a shield on mortgage defaults
... The new law also enables cities to impose fines of up to $1,000 a day on property owners who do not maintain vacant homes purchased in foreclosure, a tool aimed at preventing blight in hard-hit neighborhoods.
This could have quite a negative effect on the number of willing knife catchers.
I don't see the difference between IMB offering 4% and GE interest Plus offering 3-4% ..
the cash is either going to be used to lend on overpriced housing or overpriced leased asset's
12h, I find those vehicles funny. I mean, what is the point really? Too pw'd by the wife to buy a real sports car? Not enough cash to have two cars but looking for an ego boost?
I don't think everyone shopping at WalMart is a good thing, but my point is that $40 sneakers will do the same job as the $140 ones. The same goes for a lot of what was going on. We need to put the money to better uses than Nike's bottom line for over-priced shoes made with under-priced labor so that the mangement can take home bonuses to spend on Cayennes.
You know we've been on the downside of the curve here since August of 2005 and I keep looking for signs that this is killing they local economy and, frankly, they are absent. In fact we've grown jobs in the state since then. So I'm not sure what the effect is when housing peels back over 20% in real terms as it has here. I think too many suffer from CA-itis. Nor am I suggesting this is the norm, but somewhere in the middle.
I used to think that housing had to bottom before we'd get a turn around. Now I'm thinking it's the oil, stupid. Maybe it's some combo of both.
"what's you analysis of this?"
I thought his analysis of your commentary was cogent.
"What do you use to look at these data?"
I looked for some data in your posts and could not find any. This is a bit concerning because you typically refer to government inflation statistics at least once per thread. Are you feeling OK ipodius?
I think too many suffer from CA-itis.
By that thinking all the pain from dot-com should've been contained to Silicon Valley.
I thought his analysis of your commentary was cogent.
Cogent would imply there was analysis, which was lacking. In my thesaurus, invective isn't a synonym for cogent.
Squeezed, where is the data in your post? I've posted data, links to data, and lots of numbers and targets which, so far, are pretty much on the money. Remember the DOW at 11,200 call? The housing calls? The calls on the FFR? Again, where is yours?
I understand all the pessimism and the potential for recession but it has been asked before, and I will ask again,what is there to recess?
22 Million jobs were created in the 90's and then the tech bust, since then 6 million jobs have been created, there never was some big hiring binge, there wasn't some huge surge in inventories as more and more companies employed "just in time" supply chains.
I release there will be a big pull back in consumption economic fears slow spending and as credit tightens but as long as their isn't massive layoffs people will continue to work and continue to spend and keep things going, granted at a very slow anemic pace but still moving forward.
everyone didn't tap out their equityor take out bad loans and even those that did are just walking away and going rental but they still have jobs and they are still spending.
The only way I see things ending up as roubini predicts is if layoff start increasing. But we are seeing some industries moving back to the US as transportation costs spike companies are bringing jobs back because it is finally cheaper to pay the higher wage but not have to load everything onto a tanker and ship it halfway around the world. So that should help soak up some of the layoffs.
And while the US consumer might stop spending the Billions who are just now becoming middle class in China and India are unlikely to let up anytime soon and so exports will grow and help cushion the blows of housing and credit.
There are positives out there that will likely prevent roubini's vision from coming to fruition (IMHO).
Too much unproductive spending in this country, from unnecessary wars to energy inefficient transportation and giant homes and entertainment. Boob tube sez we have to have these things to be happy, so everyone strives to get them, even if it means going into a lifetime of debt. We can't build an economy based on consumer spending alone (especially when most of it comes from overseas), but we sure did try. When it started to come apart, we just funded it by borrowing more money. Now the bill arrives in the mail, and it's not pretty. Not only are so many Americans in debt, just like their government, but it's debt that will not lead to greater productivity in the future.
What's sad is that I see so many people get caught up in uber-consumerism and I watch them in despair as they struggle maintaining all the shit they own and giant house it takes to house it all and all the telephone calls from the debt collectors. They're not happy with the 'American Dream'; they're stressed and depressed. They are spending every free minute of their life managing physical possessions they don't have time to enjoy.
I'm more interested in seeing how the collective psychology will adapt to lower living standards than the actual economic numbers.
Well, for tech people tj, it was pretty much confined to SV and the greater Boston area in terms of massive job losses. Stock losses are felt equally. But that didnt' stop the economy either. It took some horrible events to do that.
There are wide sections of the country that are mostly unfazed by housing. There are some that are acutely in pain. Here in MA we are at the front of the housing deflation and were the only area to have had positive job growth last quarter. I'm not sure what it means on the whole, all I can say it that it appears that the price of housing isn't as directly tied to local economic health if the economic landscape is sufficiently diverse.
since then 6 million jobs have been created
All in government, REIC & finance. Say good night, Gracie.
There are positives out there that will likely prevent roubini's vision from coming to fruition (IMHO).
Somebody on another blog said it best:
"I see debt people."
but that's kind of my point tj. most business didn't go on a hiring binge, outside of those sectors who is going to get laid off?
manufacturing actually appears to be picking up. foreign car makers are looking to open plants in the US instead of build the cars over seas and ship them here.
The growing middle class in other countries can now afford products made in the US and out exports are finally growing.
I don't think this will prevent the pain we all see coming but I do think that positives like these aren't part of roubini's analysis and shouldn't be ignored as positives for the US Economy.
Here in MA we are at the front of the housing deflation and were the only area to have had positive job growth last quarter.
I think you underestimate how long and protracted the ripples are. Several states (CA, MD, GA, etc), because they are struggling with revenue, are determined to poach one of MA's prized industries: biotech. While they'll not be able to fully compete with MA because of the lack of educational infrastructure, the increased competition will definitely escalate the race to the bottom.
Remember the DOW at 11,200 call?
So much for that!
And I'm not dissing you for this call ipod, even though I think you need to shave about 5000 pts off your target.
Just got back from lunch at the doughnut shack, and well, what happened to yesterdays rally? I thought the second half rally started?
There are wide sections of the country that are mostly unfazed by housing.
This is where you stray, ipodius.
Housing isn't the primary problem, it's just the most obvious manifestation of the problem. Make no mistake, it's a huge problem in and of itself -- you can't blow a multi-trillion asset bubble up and then burst it without severe consequences. However, focusing entirely on housing is missing the point.
And I'm not dissing you for this call ipod, even though I think you need to shave about 5000 pts off your target.
lol...well, that's where I said it should be trading at when it was over 13,000. Personally I don't think we'll see capitulation until we're approaching 10k, but maybe sooner. I think a dip below that would scare the crap out of everyone. But it all depends on oil i think at this point.
Dylan seems to have put on extra pommade today, so something must be happening on Bubblevision.
From Housing Wire:
"Treasury Secretary Henry Paulson suggested Tuesday that many of the foreclosures now working through the nations housing system arent of the preventable variety."
Gee, Hank, what was your first clue?
"Even with a strong economy and strong housing market, we saw 800,000 foreclosures started in 2004, he said.
Although regrettable, this is normal, and attributable to life events, such as job loss. Public policy cannot be expected to prevent these foreclosures. "
Oh, yeah, option ARM, teaser rates and other means to allow folks to buy at at 5x to 10x income, along with ZERO regulation, had nothing to do with it, huh?
What a schmuck.
ipodius writes:
Here in MA we are at the front of the housing deflation and were the only area to have had positive job growth last quarter.
Yeah, but...
Massachusetts' job growth has lagged all but one state's in recent years, according to a new study, raising the possibility that the state won't regain the jobs lost in the last recession before the next one begins.
The study, released today by the Massachusetts Institute for a New Economy, or MassINC, finds Massachusetts is still far from recovering the jobs lost in the recession that began in 2001. Six years later, the state still has 100,000 jobs to go.
This article from Nov 2007 is not as encouraging as ipodius' factoid.
but that's kind of my point tj. most business didn't go on a hiring binge, outside of those sectors who is going to get laid off?
Those sectors alone can easily lose everthing they've gained. Given the timing of state, county & city budgets, the layoffs are just starting.
Regardless, our economy is dominated by service jobs, most of them dependent upon discretionary income. A huge percentage of those jobs are gone, they just don't know it yet. For example, it's being reported that 20% of all martial arts studios have closed THIS YEAR.
Ipod,
Your comments seem balanced to this nonfinancial type. But I'm confused by the apparent conflicting datapoints-- consumer driven economy, consumer sentiment at all time low, (loss of) wealth effect of housing decline, absent wage increases, poor job creation for several years.... yet no recession. Is it possible that the upper quintile spend more than enough to keep consumer/financial boat from sinking despite the roughing up J6P is getting/will receive?
"Remember the DOW at 11,200 call? The housing calls? The calls on the FFR? Again, where is yours?"
First of all a call does not equal data. Secondly its not your opinions that are annoying but the obnoxious holier than though way in which you present them.
And since you want to discuss calls...
I distinctly remember your vociferous protestations that the ECB would not dare raise because money supply has not increased in Europe. Be a man and admit that you were very wrong on both counts.
This article from Nov 2007 is not as encouraging as ipodius' factoid.
A lot has happened since Nov of 2007. I have the MA report from last month. Can you be a little more up-to-date?
I don't know outlier. It could be that just the sheer size and diversity of the economy now keeps it at a certain level, and the "growth" was just for items that are discretionary. It could be that a lot of these items aren't made here anymore and we've reached a tipping point of sorts on employment. RE price declines only matter if you're over-leveraged or you need to sell. How many people really fit this?
If there isn't a spike in unemployment, then I don't see anything but a shallow and long recession. Especially if oil receeds. What I am looking for is where the growth will come from, and now, I'm not seeing where.
If there isn't a spike in unemployment, then I don't see anything but a shallow and long recession.
It's not an if, it's a when.
squeezed, i didn't think trichet would raise but he did. that doesn't mean it was smart and i will stand by my call that he will lower before the end of the year. Probably as soon as the beginning of Q4 as the EU grinds to a halt, as it now is. This will be an interesting game between the ECB and the Fed.
Frankly I think that the dollar will begin it's ascent now, oil will go down hard before the election, and the EU will stall big time, even going negative in the next quarter. High rates won't help.
And as far as the data goes, I've told you 100,000 times that I use only published, government data for any analysis, and and S&P historical feed for my sock analysis. The techniques are mine that lead to my opinions. And I don't give them away for free. That's MY advantage. You do what you will with yours.
If there isn't a spike in unemployment, then I don't see anything but a shallow and long recession.
Work force participation rates have probably peaked and are going to be heading down for years to come.
Depending on how things play out for the boomers we could have low unemployment even with declining GDP.
And I might add, squeezed. It's not important to be right about everyting, you just have to be right, on balance, more than you are wrong. Just like you don't have to sell at the top and buy at the bottom to make money, just near them.
That's why all these "knife catcher" comments are just inane. If you buy within 10% of the low and sell within 10% of the high, depending on your horizon will you make money? Even if you buy at the top, can you make money? That's the point, not to have my political ideas justified by picking and choosing my datapoints or arguing that they are wrong because they don't fit my theories.
I don't start from any "this is the way I believe it ought to work because i am a democrat/republican/libertarian/nihilist/communist and then run my data series. I start with the data and let it tell me what is up. Here I tell the story I see in all this mass of data. I look at it every day and use it too.
Ralph Cramdown writes:
I think most people would have blown through their 1k by end of month let alone end of summer.
Guy number 1 gets his cash from the government, blows it on crack. The dealer spends his profits on sex. The whore spends hers on food. The grocer spends his on graffiti removal, and around it goes. On Wall Street, they call it 'velocity of money'. On Broadway, it's the 'circle of life'. Sure, there's significant losses on every transaction, but just because guy#1 spent his doesn't mean the stimulus effect disappears.
Ralph Cramdown | 07.09.08 - 1:25 pm | #
Good. Just so long as it continues to circulate in the local economy.
"Goldman analysts then present evidence that all five factors are negative for consumer spending."
Nice pickup Captain Obvious
Yeah, we ain't seen nutin' yet. The "best" is still to come. How 'bout a real US fiscal collapse? A dollar panic, etc., etc. Let your imagination have free play.
Higher Ed costs have way outstripped the economic benefits for just an undergrad degree.
ipodius | 07.09.08 - 2:47 pm | #
Must disagree with you, ipodius. With employers filter out applicants who lack degrees, it's not a matter of career advancement - it's about getting your foot in the door at all.
fw bernanke raises rate this year. whatever bet you need to place on the market to take advantage of this fact, do it, because there is no f***ing way they raise rates. nfw
cash is king? inflation protected bonds? are you kidding me? cash ?????
heck, those bonds are not keeping up with inflation. you lose money when you have them. cash? heck, what is he talking about? if you have cash you still lose money because of the falling dollar. why is it none of these talking heads can dare say what needs to be said? we need to return to sound fiscal policy and that includes silver and gold .......
Good. Just so long as it continues to circulate in the local economy.
Guy #12,450 ends up buying the frickin' Chysler Building.
Any one has any idea where I can get full report of research note issued by Goldman Sach this week on "The Sorry State of US Consumer Fundamentals"? Thanks for help.