Monday Melt-Up Blogging

At 11AM the quick credit market indicators are good - the three month T-bill is up in yield by about 10 bp and the TED spread has left low earth orbit and re-entered the upper stratosphere (we applaud its downward direction!).  Troublingly, financial stocks are mixed - the XLF index of major financial institutions is up 1.6% but the IAT regional bank index is down 0.9%.  Both lag the S&P 500, up 2.1% to 960.

ING got a 10 billion Euro investment from the Dutch government, which is helpful.  This seems to be a pre-emptive strike against rumor and innuendo rather than a response to a real capital deficiency, but that is fine with me.

AFTERNOON UPDATE: At 3:25 we have a great flight from quality going on in Treasuries, where the 3 mo bill is up in yield by 31 bp to 1.10%.  The S&P 500 is up 3.1% to 969 (+28).

Here is a story on regional bank woes:

NEW YORK (AP) -- Shares of regional banks were mixed Monday as signs of easing in the credit markets weren't enough to offset investors' concerns about the effects of a worsening economy on the financial sector.

...

But analysts and investors are still worried that a worsening economy will only further exacerbate banks' credit woes.

Barclays Capital analyst Andrea Jao said in a note to clients Monday that she expects higher credit costs and a weaker operating environment to weigh on the earnings of smaller regional banks.

At 3:30 the IAT is down 0.5%.

Comments

[bad]

This seems to be a pre-emptive strike against rumor and innuendo ..

Is Schumer dictating a letter?

[Rick Ballard]

Charlie wins. The TED dropped to 2.97. At least it happened the way I predicted - the 3 mo T shot up to 1.07.

Good call, Charlie.

When the Lehman CDS boogeyman leaves the building tomorrow LIBOR, should drop pretty hard. I'm hoping to see some good buying in the last hour today. The leading indicators report was decent and some bears have stopped growling and are looking in the closet for their horns.

[Charlie (Colorado)]

Good call, Charlie.

Yay me.

[clarice plumber]

I second that yeah.

[Rick Ballard]

SoCal Home Sales Pop 65%

Another huge drop in the median price - inventory at the bottom of the market is clearing much more quickly than the middle and upper levels. That $308.5 median for San Diego is right at 4:1 (price to median family income. That should make the Schiller-Case jerks happy.

[Charlie (Colorado)]

I'm thinking it's time for an article on "maybe there won't even BE a recession".

[clarice plumber]

Edit:I'm thinking it's time for an article on "maybe there won't even BE a recession UNLESS OBAMA IS ELECTED".

[Charlie (Colorado)]

Edit:I'm thinking it's time for an article on "maybe there won't even BE a recession UNLESS OBAMA IS ELECTED".

Point.

[Rick Ballard]

Charlie,

I dunno - you might be getting too close to actual reality if you try that one.

Fun Facts With Rick:

Did you know that the government has a method of determining the "Fair Market Rent" for every Metropolitan Statistical Area in the US? The Fair Market Rent for a 3 bedroom house in San Diego County is $24,804 per year. Some one with a little savvy in real estate investment might note that when you apply that rent to the median purchase price of $308,500 mentioned above you get what is known as a "cash on cash" return (ignoring ancillary expense for illustration) of 8% with a positive cash flow of over $6,000 on a 80/20 6.5% mortgage. The return on the 80/20 route would be 9.86%.

That's without a dime of appreciation and Fair Market Rent would have to drop 24.5% before you would hit a negative cash flow on the 80/20 deal.

And that's the reason the "housing could fall another 20%" stories are becoming rather risible.

[sbw whitman plumber jane]

maybe there won't even BE a recession UNLESS OBAMA IS ELECTED

As a business owner I participate in a fed survey each month. I make that point in the comments.

[Tom Maguire]

On the "no recession" front - first, the obvious - how great would that be?

Secondly, isn't it time to move Mickey's Faster Feiler Thesis from politics (people process info more quickly, compressing news cycles) over to the economic arena, giving us the Faster Failure Thesis - financial panics happen so quickly now that they are over before the real economy is affected.

Now, that is mildly delusional - the stock market peaked a year ago and Bear went bust in March, so it is hard to say that this has been slow in coming. But the full panic of FNMA/Lehman/AIG is only a month old and the monetarists will note that if liquidity means anything at all, we should see good economic activity.

[clarice plumber]

Yes, it is time for the MFFThesis..with a caveat that Obama would certainly ruin that.

[Charlie (Colorado)]

Secondly, isn't it time to move Mickey's Faster Feiler Thesis from politics (people process info more quickly, compressing news cycles) over to the economic arena, giving us the Faster Failure Thesis - financial panics happen so quickly now that they are over before the real economy is affected.

I like it.

I think you've got a point. I'm not sure that even I believe that there will be no recession, or no recession-lite --- negative GDP growth that lasts less tan six months. But one of the points here is that we had a massive deflationary event, one that appears to have tried to reduce the money supply radically, and an almost immediate flood of new money. Has that ever happened before? I don't recall (if I ever knew) how much gasoline and fuel oil contribute to the "market cart" for CPI or PPI, but having the price drop by half would certainly be deflationary in effect.

Where are we now? By some measures, we're back to where we were a year ago, when GDP growth was in the neighborhood of 2 percent.

[Charlie (Colorado)]

Okay, here's another prediction: Dow breaks 9500 before the end of the week.

I'd predict "closes above" but I'm chicken.

[Charlie (Colorado)]

Closed up 405 on a billion shares.

They say it's "light trading", which kinda freaks me out: I remember when I worked there, we had a 600 million share day and wondered if the systems could take the strain.

[Rick Ballard]

The only government action hurdle to restoration of confidence that I see is regulatory elimination of the OTC CDS market with abrogation of existing contracts being declared due to their existence being contrary to the public good. That really needs to be done soon. Let the arsonists take their profits on the auctions to date and then close up shop - and go after them hammer and tongs for the naked short violations.

I don't care for this new talk of 'stimulus' because people will use the 'free money' just as they did last spring - to pay off credit. That August credit contraction was simply Uncle Sugar's spring gift working its way to a place where it really doesn't help economic growth. "If the government has to send me money then there must be something seriously wrong - I better pay off debt and stuff the rest under a mattress." It doesn't take an economics degree to figure out that reaction. Second, what the hell is the drop in gas prices that Charlie notes other than an "economic stimulus" all by its lonesome? I've seen annualized projections showing the gross affect of the price drop coming to around $180 billion. That's one of the reasons why I think the Christmas retail season might be surprisingly good. People will treat the unspent gas money much differently than they treated their handout.

Q4 might be negative but I'll be watching Nov and Dec housing permits. I think there's going to be a bump up and it may be high enough to move Q1 09 positive.

[hit and run]

maybe there won't even BE a recession UNLESS OBAMA IS ELECTED

perhaps you are unfamiliar with the Reality Based Community Organizers of Economic Speaking Truth to Power.

We have been in a recession for at least a year, if not the past seven, because more than one person in this country, even if voluntarily so, has been without health insurance. That is the accepted definition of a recession. In a Republican administration.

Were Obama to win on November 4th, we would immediately begin an economic recovery that would pull us completely out of recession by Jan 21st.

[Charlie (Colorado)]

Actually, I'll point out one more thing: the width of swings in the market indices are narrowing too. In fact, it looks like a damped sinusoidal (like sin(x)/x), which would be more or less characteristic of a control system finding equilibrium.

[Charlie (Colorado)]

Wasn't me!

[glenda waggoner]

is it safe to look at my 401k balances, yet?

[Charlie (Colorado)]

is it safe to look at my 401k balances, yet?

Depends: then did you look last?

[Charlie (Colorado)]

Oh, that was unfortunate: On Fox Bulls&Bears Happy Hour, they just teased a story as "The IMF has another sex scandal, just as they were poised to make a liquidity injection."

Someone on 6th Avenue is snickering in their office.

[bad]

Though she often turns the “mainstream media” into a punching bag on the stump, Palin clearly enjoys interacting with reporters.

----------------------------------------------

After her plane in Colorado Springs, Palin answered no less than 14 questions from the media. It took traveling press secretary Tracey Schmitt three attempts finally to get the governor to move along.

LUN

[glenda waggoner]

Charlie- I last looked the day after the big two falls, when it was at it's worst. And before that it was already down about 12% right about the time we evacuated due to Ike to the Hill Country( on 9/11/08)

[Charlie (Colorado)]

In that case, yeah, this would be a good time to look.

[Charlie (Colorado)]

NEW YORK (AP) - The economy's health improved for the first time in five months in September as supplier deliveries and new orders strengthened, a private research group said Monday.

The New York-based Conference Board said its monthly forecast of future economic activity rose 0.3 percent, a better reading than the 0.2 percent drop expected by Wall Street economists surveyed by Thomson/IFR.

The index had fallen a revised 0.9 percent in August and 0.7 percent in July.

"Leading Indicators Rise in September"

[Rick Ballard]

Charlie,

Take a look at this BEA Personal Consumption Table.

Wrt recession, I would say that we already have endured sector recessions in residential housing (not from that table but obvious) and autos, with the auto recession beginning Q2 and continuing through today. Twenty years ago cutbacks in those two sectors would have dragged the entire GDP into the red for a "real" recession. I would argue that housing isn't going any lower because demographic pressure just won't allow it to. Autos might drag us down but they didn't in Q3 and Q4 is retail, not autos. If they are still down in Q1 09 then maybe we would see a "real recession" with GDP actually down. Except that I think housing starts back up.

Note too, the drop in gasoline and oil expenditures in Q2. A 3% YOY drop in the face of rising prices is pretty significant. Every other item on the list shows YOY increases, with the biggest increase coming in recreation. That doesn't suggest a "real recession" at all. What it does suggest is a population which is actually much more thrifty than that which the business press has fun portraying.

I think the UAW would be justified in putting a bounty on the heads of Goldman Sachs commodities people. The phony oil run up killed auto sales and got people hunkered down against the non-existent threat that the "stimulus package" implied.

At any rate, I think we've already had the "recession" and the only thing that could turn it into a "real recession" would be the election of Obama. That would really get people to stuff cash under mattresses. And they would be justified doing so.

[Charlie (Colorado)]

More ...

The reason: This sharp drop in growth is due to a temporary drop in velocity due to a true credit crunch with some panic thrown in for good measure. It is not a typical recession caused by fundamental, economy-changing events such as higher tax rates, tighter money, protectionism, or other public policies that stifle innovation or entrepreneurship. [Emphasis mine.]

Pethokouis

[PaulL]

****``I have heard that people's attitudes are beginning to change from a period of intense concerns and, I would call it, near-panic, to being more relaxed,'' Bush said after meeting with local bankers and business leaders in Alexandria, Louisiana.****

He means the near-panic that he himself created (along with Charlie).

[Charlie (Colorado)]

He means the near-panic that he himself created (along with Charlie).

You know, I'm tired of coming up with creative responses.

Just bugger off. I've been right, you've been wrong. Consistently. Learn to cope.

[PaulL]

In your dreams, Mr. Charlie Soup Lines, Mr. No Payrolls, Mr. Bank Runs, Mr. Grow Your Own Food, Mr. My Mother Is Going To Starve.

[Charlie (Colorado)]

Uh, Paul, I don't know if you noticed, but the bailout passed.

[Charlie (Colorado)]

Oh, and we did have people with payroll problems, and bank runs. We just stopped them.

[PaulL]

****We just stopped them.****

Prove it. Or, if you can't prove it, call me a name.

I look at Bush's hysteria, that you totally bought into, as having handed Obama the election. If anything needed to be done, it could have been done in a non-panic-stricken way.

[sbw]

PaulL, there is no reason to call you a name, when all that is required is to point out how you move the conversation forward. You speak for yourself.

Loudly.

[glenda waggoner]

PaulL child--you need to respect your betters..*

Charlie- I've decided to peek in the morning after today's numbers--they always post as of day before..let u know % move

[Charlie (Colorado)]

Paul, I'm glad that you're so much smarter than Bush, Bernanke, Paulson, the TED spread, the Wall Street Journal, the LIBOR rate, the commercial credit markets, Barron's Magazine, and so on.

Imagine if you were to turn that to the forces of good, instead of kibitzing ignorantly from the back seat.

[glasater]

Bless John Stossel. His Politically Incorrect Guide Politics are just wonderful.

[Pofarmer]

IIRC, the only bank runs were in Iceland? Was there a run on a bank in the U.S.? And, yes, there were companies talking about "possibly" having trouble making payroll, just like California was talking about "possibly" having trouble selling short term paper. Let's hope that the actors involved there are changing their behavior, but, I imagine Uncle Sugar's involvement has obviated that. We need to get off business models, and govt models, built entirely on debt, instead, the govt encourages them. Not good business or politics. You can get phenomenal growth untill you hit that bump then.............And now we've partially nationalized our largest banks. Lovely. So, instead of decentralizing the system, which is what a these big players going out would have done, we've taken a few of them out and the govt has bought into the rest and now we've FURTHER concentrated the power in the banking sector. Not smart.

And you know, that if Obama is elected, he's gonna use this as a precedent to shove more of it down our throats.

[PaulL]

****I look at Bush's hysteria, that you totally bought into, as having handed Obama the election. If anything needed to be done, it could have been done in a non-panic-stricken way.****

Obviously you don't want to deal with what I said, and instead get all huffy about the threat to your ego.

[sbw whitman plumber jane]

PaulL, I'm reaching for Trollblocker. Add constructively to the discussion or disappear into the ether.

[kim]

Paul's put a lot of good stuff up here. The crisis was worldwide; had Bush not pushed the button someone else would have, and then we'd have been even further behind the eight ball.
================================

[kim]

And, of course, from my peculiar point of view, I'm blaming global cooling. This might have been avoided had Lehman not failed, and Lehman might not have failed had they not been way overextended in a bubbled alternate energy market, and they might not have been that way had they not been advised by the likes of James Hansen and the Gorebellied Fool. For lack of a nail a shoe was lost.
======================================

[Rick Ballard]

Pofarmer,

I'm pretty sure you don't mean debt. You don't run your business debt free from what you said about the seed loan offer. If you're saying that the leverage model used by the banks was way out of whack, then I would have to really stand up and applaud. The banks justified their leverage by the same alchemy used to justify MBS and CDS - mystical models which function quite well in a rising market and theoretically have a Magic Button to be pushed when the market turns.

The only player of note that has demonstrated that the wires attached to their Magic Button actually lead to something which worked is JPM and they didn't get out wholly unscathed (nor did they plan to).

I won't claim that Paulson and Bernankes came up with the only or even the best solution but I will claim that inaction that allowed the freeze to continue would have hit Main Street just as hard if not harder than Wall Street. You're never going to have a local banker tell you "we're worried" or "we're not loaning to anybody" but the questions you were asking were wrong. The right question is "Did you make any loans last week?" followed by "did you make as many loans last month as you did in September last year?".

The Ohio regionals reported this morning and they all took hits. Do you really think the Ohio locals avoided damage?

The other factor that I have not seen analyzed by anyone on the "let it burn" side is consideration that the whole mess was planned economic terrorism which exploited the glaringly obvious hole created by allowing the unregulated OTC CDS market to flourish. The combination of the CDS play and illegal naked short selling which was focused on Morgan Stanley and Goldman Sachs after Lehman tipped over may have been the actual trigger for Paulson and Bernanke. Remember, Soros is a destroyer, that's how he makes his money. That scummy little hedge fund jerk who wrote the 'f you' goodbye letter was a Soros acolyte and I would wholly unsurprised if he wasn't part of a coordinated group of hedge hogs who had destruction of the system as the center piece to their plan.

The last time the credit system was destroyed the world wound up with four 'President's for life', Roosevelt, Mussolini, Hitler and Stalin. None of them were any better than the others and it took a world war to straighten things out - 17 years after a credit crisis. Lots of burning was involved.

[PaulL]

Thanks, Kim.

I'd welcome it if SBW could no longer read my posts. Then SBW wouldn't comment on my posts either.

It is sad when otherwise intelligent people get all Canadian-like the second anyone disagrees with them, and want to shut down their free speech.

[glenda waggoner]

charlie-sent you an email @ markets

[Rick Ballard]

I'm not sure that cutting out tiresome drivel from view constitutes a shut down. What SBW said is that you add nothing. I consider that a very fair evaluation.

Kim didn't cite any specifics, did she? She has also said previously that TCO added to the conversation. The value of her comment concerning you must be weighed in light of that fact.

[PaulL]

I thought you were better than uttering cheap insults, Rick. Your posts don't have the hysteria in them that several hundred of Charlie's did, so I am surprised.

For all your obvious economic knowledge, you are incredibly naive if you think that this had nothing to do with the election coming up in a month.

Oh well, if you can't handle someone who doesn't stick to the "party line" here, too bad. I'm not leaving.

[kim]

Hey, TCO's busy adding to conversations at Watt's Up and Tamino's Open Mind. About half the time he is civil. He's even been using aliases for fear of improving his reputation.

But who's civil constantly? A few.
======================

[kim]

You forget, Rick, that I also said that TCO has something to subtract, too. He's worth listening to, to see which one he's at.
=========================================

[kim]

Poisonally, I think Paul has initiated some discussion about the timing of this crisis, which has led to insights that I would not have had otherwise. So thanks, Paul, even though I think you are wrong about Bush panicking.
==================================

[kim]

Everybody yaps about housing, but alternative energy and carbon trading schemes have taken a big hit lately, too, and Lehman was highly exposed. Are the energy schemes just victims of this whole mess, or did the fragility of the schemes based on global warming get exposed in a cooling world.

I'm about half serious here. I think this aspect of the crisis of confidence has been underappreciated.

When the globe cools when you expect it to warm, that can fundamentally undermine confidence which can sneak into the market unconsciously.

So, you all quit bickering, and consider the impact of the effect I'm suggesting.
==============================

[PaulL]

Thanks again, Kim. This Monday thread is over for me, since we now have the Tuesday one.

Did you mean "poisonally"? I like that.

[Rick Ballard]

PaulL,

Tiresome drivel refers to repeating the same thing ten times without adding information. It's an observation, not an insult. When the noise to signal ratio gets back to what you're capable of doing, then it will cease to be tiresome. I think it quite possible that Bush's reference to 'panic' had to do with the fellows who set LIBOR rates every day rather than to the public at large.

Paulson and Bernanke reacted to "seasoned professionals" behaving like people in a theater with blocked exits responding to a cry of Fire!. The naked short selling in combination with the CDS 'profitable arson' policies was seen by the banks for precisely what it was - an attempt to burn out the system. The banks couldn't put the fire out so they 'turned turtle' and sucked up in their shells. They knew that if MS and GS were successfully destroyed, the resulting payoffs on the arson fire would be impossible to handle - triggering another wave of failure.

I would have preferred to see P & B declare CDS contracts to be "against public interest" and voided but that would only have applied in the US - leaving the rest of the world to fight the fire with a tea cup. There really isn't any "simple solution" to what happened and "let it burn" isn't a solution at all.

The action by Paulson and Bernanke stopped a cascading failure, they bulldozed a fire break. We won't know if it was actually successful for five years or so. If you could point to an example of "let it burn" that has produced a "return to reality" in short order, please do so.

[sophy]

Please do not hesitate to have runescape gold . It is funny.