What is interesting about the Case-Shiller monthly house prices, the house price-to-rent ratio, and the house price-to-income ratio is how the real estate crisis appears to have what option traders call "path dependency". That is a fancy term to indicate that how a price gets from point A to point B is as important as the fact that it went from point A to point B. As can be seen in these charts, housing prices were almost flat for about 15 years. Then they accelerated. Arguably this was just "catch up" after an extended flat period. The problem was that at the peak of the price curve, the supply of houses had dramatically increased, interest rates had dramatically decreased, purchases of houses dramatically increased, and finally, refinancings and second mortgages dramatically increased. A dramatic time was had by all. This is the equivalent of stock investors buying on extreme margin at the top of the Tech bubble. This explains the collapse of the real estate market, but not why there is a global credit strike. Plus, unlike the the Tech Bubble, the index is still 50% higher than the beginning of the decade.
(posted at 7:22 pm by Mike Rulle)
){kind=link}
Here is a slide show of some ugly pictures of today's S&P 500 bear market alongside the 1973-74 and 2000-02 bears and the Dow super-bear from 1929-32. The Short Analysis. Although the ultimate severity of today's bear is unknown, the rate of decline had been faster and deeper than the other post 1950 declines.
(posted at 7:00 pm by Mike Rulle)
Government announces new loan programs
A trillion here and a trillion there and pretty soon we are talking
about real money. This is remarkable. The Federal Reserve is now going
to purchase $500 billion of mortgage backed securities from banks. Why?
Please, can someone answer this question? They will also buy $100
billion from the Home Loan Banks, Fannie, and Freddie. Finally they
will buy $200 billion of consumer loans from various special purpose
vehicles. Bernanke runs the largest hedge fund that has ever existed.
But the Government is simply creating artificial prices. This is
Nixonian price controls, except at the center of the financial system.
I am pretty sure that makes it worse. One guy and his team is replacing
the global marketplace. We are simply kicking the can down the road. At
some point, somewhere, we are going to require real "price discovery".
This has the potential to be disasterous.
(posted at 7:37 pm by Mike Rulle)
In this article on Bernanke, A Reporter at Large: Anatomy of a Meltdown we see several interesting things. First, we see a guy who got 1590 on his SAT, went to Harvard College, got his PHD at MIT, had all the information possible available to him, thought explicitly about the subprime housing problem and still missed the coming crisis. Are academics dumb, or perhaps crisis really are unpredictable? Raising short term rates while home "flippers" in California were unwinding their teaser rate mortgages probably did not help. Still, how do we get from a housing crisis in Phoenix and San Francisco to a global calamity? Maybe we don't. Maybe things are not as bad as we think they are.
(posted at 6:25 pm by Mike Rulle)
This is starting to make my head hurt. Interactive Graphic: Sortable chart of banks that have gone bust. The WSJ Realtime Economics page is also succumbing to the Death Spiral Message of Change. If
you go to the link attached, you discover that with the exception of
IndyMac (which is being run by FDIC head, Sheila Bair, in some lab
experiment on mortgage restructuring) every bank that "has gone bust" was bought by another bank. Not quite the 30s just yet.
(posted at 2:40 pm by Mike Rulle)
Time magazine's covers for 2008. 23 for Obama versus 10 for McCain, but who's counting? Jim Geraghty of National Review
online's "Campaign Spot" predicts Obama will win Time's "Person of the
Year". I hope he does get the award, as it will feel artificial if he
does not. And still 2 months before he becomes president---boy I can't
wait till he actually gets to do something. Who knows, maybe he is the
Tiger Woods of politics---exceeding his fan's most wild expectations.
Time will tell (not the magazine, the other "time").
(posted at 10:01 am by Mike Rulle)
Why Do Bob Rubin & Co. Still Have Jobs?
I don't necessarily want to gang tackle Rubin, but the Journal makes an
obvious point. But I will return back to my theme here. Two of our most
respected market leaders, Buffett and Rubin, failed to predict this.
The knowing wise cracking cynic would say that time has passed them by
and that people who did real analysis understood the dangers. I am
really skeptical of that perspective. If one looked at the mortgage
market 2 years ago, one could see that the asset backed securities were
heavily laden with California, Arizona and Florida. So Hedge Fund
managers like John Paulson
were able to bet on prices declining and make fortunes. But that kind
of market prediction is made all the time (think back to the Tech
Bubble). It does not mean we are forecasting the Great Depression. We
are stuck in a meme, and we can't get out.
(posted at 9:45 am by Mike Rulle).
Jolting' the Economy This really gets at what I am beginning to think. Just like the
election coverage, where the media drowned us in tales of change, it
now drowns us in tales of complete and utter financial disaster. Thomas
Sowell seems to
think this is simply politics by another name. As he states in this
article "we can all use a few billion every now and then". I even saw Krauthammer
exaggerate the economic situation. On Fox News yesterday he stated that
the economy was going to be down 5% in the 4th quarter. That is
Goldman's forecast, but 5% is an annualized number. So it really will
be down 1.2% if they are correct. I agree with Sowell and Kling. There
is something here that's not quite right.
(posted at 9:29 am by Mike Rulle)
Recommended Reading on the Financial Crisis () I would add And the Darkest Hour is Just Before Dawn and Where is Cool Hand Luke When You Need Him?
(posted at 9:11 am by Mike Rulle)
Arnold Kling at EconLog states: "A major puzzle is how the markdowns in financial wealth came to be such a multiple of the decline in housing wealth. Looking at that multiple, I tend to think that overreaction is what got us where we are today". He made this statement after being generally positive about the Obama economics "team". He was countering Larry Summers view that the Government's stimulus needs to "overreact" in the current environment.
(posted at 9:10 am by Mike Rulle)
Tiger Woods cut by Buick Now we know things are getting desperate. I guess we have to show we believe advertising is just a con game when we apply for Government welfare.
(posted at 8:47 am by Mike Rulle)
BUFFETT: LET ME EXPLAIN You know things are unusual when Buffett has to go on the defensive describing his transactions and accounting for them. He apparently sold put options on the Standard and Poor's 500. They mature in 15-17 years on average. He is now saying the accounting methods give a false impression of their value. Hmm--if I were not biased against this view, I would say he sounds like a typical greedy lying CEO. He sold these before the market crashed. Bad timing--also shows it is hard to predict disaster and that there is a lot of cowboy in Buffett. His losses on a mark to market basis (he does not need to post any cash, so he is "safe" for 15 years) may total $10 billion or more.
(posted at 8:32 am by Mike Rulle)
NOVEMBER 24, 2008
Floyd Norris of the NY Times is also skeptical of the Citigroup bailout Another Crisis, Another Guarantee.
Like the speed with which the market moves, the blase approach to
another unexplained $300 billion of Citibank "guarantees" just keeps on
truckin'. What is this about and why?
(posted at 7:00 pm by Mike Rulle)
Standard and Poors 500 up 6.5% today. It is actually getting hard to
remember, but this used to be an enormous number that might occurr
every few years or so either up or down. It is now an almost daily
occurrence. Not good. Still not that cheap either. Real Time P/E
(posted at 6:47 pm by Mike Rulle)
Dr James Hansen is insane. The Global Warming fanatic, James Hansen: Man of Science and head of some obscure closet inside the basement of NASA, has defended eco-vandals in England.
(posted at 6:40 pm by Mike Rulle)
CBS News Uhh.
Out near where I grew up on Long Island, the Hempstead Ludlum
Elementary School has been renamed the Barack Obama Elementary School.
Officials say "it was the idea of the children". I wonder what other
ideas of "the children" are so easily followed in Hempstead?
(posted at 6:15 pm by Mike Rulle)
The Fed has become the hedge fund of last resort with its money market activity. It borrows at .50% and lends somewhere between 2-4%. The world does not want to lend without the Fed in the middle. Why? Heretical Thoughts by Arnold Kling is questioning the whole rescue plan. I find the whole thing analogous to welfare. If the Government is going to intermediate, it motivates investors to stay lazy. We keep waiting for someone else to step forward. If the Fed just stepped out of the way what would happen? I don't really know, but if maybe, just perhaps, if the freaks who are running things could simply explain the nature of the problem more intuitively then the fear might dissipate. The California banks are cleaning up the mess they made. Shouldn't we let the rest of the system do so too?
(posted at 6:05 pm by Mike Rulle)
Realty Trac has some interesting information. It is a pay per view site
so I cannot link it. But in their November 13th release, they have an
updated "heat map" on foreclosures. Once again the overwhelming
percentage of foreclosures are occurring in California, Florida,
Phoenix and Las Vegas. As I mentioned in my essay And the Darkest Hour is Just Before Dawn on October 18th, we have managed to take a large but mundane real
estate bubble in 2 states and 2 additional cities and turn it into "the
greatest crisis since the depression". I find this beyond belief. It
really must be a crisis of confidence issue almost completely. Sales do
seem to be bottoming out. One complaint is that a large portion of the
sales are from foreclosures. But who cares? As the banks have dropped
prices in California, sales have accelerated. And the prices are still
higher than 5 years ago. Shouldn't this be the primary strategy to fix
this mess? Keep in mind, when we do this we have "winners". They are
called "buyers".
(posted at 5:55 pm by Mike Rulle)
Naked Capitalism has
a partial answer to the Bloomberg numeracy problem. The Bloomberg
reporters just added up a bunch of apples and oranges and came up with
a number for screwdrivers. $1.4 trillion included the increase in FDIC
insurance plus guarantees that were already on the books. It includes
the Federal Reserve's intermediation in the Commercial Paper and short
term bank lending market. Yes, these are risks and can result in
losses, but they are not losses. Further, according to Fed's November 20, 2008
release their balance sheet totaled $2.1 trillion. On November 24, 2007
they had $.9 trillion. That was normal for the prior several years. I
still am having a hard time getting to $7.7 trillion in Bloomberg's
report. Why do I think we are trying to make this seem worse than it
is?
(posted at 5:35 pm by Mike Rulle)
US Pledges Top $7.7 Trillion to Ease Frozen Credit (Update2) Nov. ... Bloomberg News now says that total government guarantees, purchases and investments equal over half the size of the annual output of the US. There is something wrong somewhere in this article. Apparently, $3.18 trillion has "already been tapped" by US financial institutions. When did this happen? There must be some numeracy problems somewhere. Paulson asked for $700 billion. He has allocated less than $300 billion. Total consumer mortgages outstanding are $11 trillion. If every single mortgage in the US foreclosed and each house was resold at the California foreclosure sale price of 35% of the peak value of each house, losses would be about $4-5 trillion. What are these guys talking about?
(posted at 5:15 pm by Mike Rulle)
NOVEMBER 23, 2008
In an article on the importance of "confidence" John Hempton tells us Why Sheila Bair must resign
as head of the FDIC. This really is one of the great mysteries of the
day. I call it a philosophical argument between the "Objectivists" and
the "Subjectivists". Is there an ultimate cause to the current economic
"crisis"? Is it yet really a crisis? Is there such a thing as an
ultimate solution? Or is it just "one of those things that happens from
time to time" (Origin of the Universe)? I will attempt to address this topic one of these days in my Essay blog.
(posted at 1:25 PM by Mike Rulle)
-
Economist Tyler Cowen warns against adopting certain New Deal Policies The New Deal Didn’t Always Work, Either.
In particular he warns against raising taxes, subsidizing various
industries, supporting certain industries at the expense of others, and
increasing the power of unions to raise wages as a cartel. Other than
the Democrats supporting subsidizing green technology (and all of
Congress with farm subsidies), supporting looking into limiting certain
free trade policies, supporting higher taxes, and supporting Card check - (Wikipedia, the free encyclopedia), I guess we should have no problem.
(posted at 1:00 PM by Mike Rulle)
Group Plans Ads to Counter Palin Critics Did any one actually see the MSNBC report on the Turkey Slaughter and Sarah Palin? I did. Reporter David Shuster appears to be what used to be called "dim". Back in February he became dimly famous for accusing Hillary of "pimping" her daughter Chelsea. Now he apparently is auditioning for replacing Amy Poehler on the SNL Weekly Update news segment. He appears genuinely shocked that Turkeys get killed before we eat them. He is also shocked that his own network would film it (I could not see anything), although he is too dim to realize it. It of course shows the brutality and inhumanity of Palin. Newsweek saw it as newsworthy too! Pro-Palin PACs are forming. Expect to see more of her.
(posted at 12:33 PM by Mike Rulle)
Anyone who thinks the left has not lost its marbles need only
read the NY Times. What is with these people? Byron York of National
Review points out the Times' editorial page Editor, Gail Collins suggested Bush
and Cheney resign so Pelosi can be president for 2 months. Editorial
writer, Tom Friedman, wants to amend the Constitution now so
Obama can be president sooner. Just what policies is Obama suggesting
that needs to be done now? These people are childish, ridiculous and
dangerous.
(posted at 11:49 AM by Mike Rulle)
"YOU THINK? Mark Halperin: “Extreme Pro-Obama Coverage” in the Press." Glenn Reynolds of Instapundit points at the elephant in the room. What is just absurd about all this is that after the election we have the Washington Post (Media Notes: A Giddy Sense of Boosterism) and now Time Magazine discuss the extreme nature of the media bias. It is beyond absurd.
(posted at 11:43 AM by Mike Rulle)
Who is Timothy Geithner?
(posted at 10:44 am by Mike Rulle)
(posted at 10:32am by Mike Rulle)
| Permalink | Comments (0) | TrackBack (0)
Comments