Finding a Bottom
24 October 2008I watched the CNBC crew cast around this afternoon with ten or twenty pundits trying to figure out the market, after listening all day to various radio faux-experts (sorry, NPR was the worst) explaining that the markets were going down around the world because people now thought, as compared to before, that there would Really be a recession, or some such thing.
Bottoms are really impossible to call.
But, if you are a technical / chartist type, you “know” that we had not hit the bottom yet, because most bottoms form a W, and we had only experienced the first of these two legs down.
I would guess that we have to see a lower low than the last one, and then we at least have a shot at a market return. Keeping in mind, as always, that the market and the economy live on different, if neighboring, planets.
7 Responses to “Finding a Bottom”
October 25th, 2008 at 5:58 pm
Exchange rate bubble bursts – Yen view.
http://www.ft.com/cms/bfba2c48-5588-11dc-b971-0000779fd2ac.html?_i_referralObject=903157677&fromSearch=n
October 26th, 2008 at 7:24 am
A Big Broom Proposal for Mortgages
Finding a bottom implies doing research, clearing the decks, seeing wood for trees, shutting down smoke and mirrors games, etc., etc.
With this in mind I wonder how successful Hank Paulson has been in getting all US banks (including Wall Street) to drop their trousers and fully reveal the precise state of their exposure to mortgage related alphabet soup of toxic waste?
If they are still not fully co-operating I think such assets will have to be confiscated, housed in a Fed warehouse (ASS, Alphabet Soup Store), and kept in isolation until a market for such paper re-emerges, when it can be slowly sold off or held to term or default. I guess the FFMs could be folded into ASS.
No bank should get any payment for such assets until they are sold by the Fed. As a first step towards cleaning up this seems to me to be pretty straightforward. Putting fresh capital into banks without stripping out the crap (mark to zero) seems to perpetuate a very unsatisfactory situation and stupid from an investor’s point of view.
I think I would go further and make the same guys running ASS the sole depository for all future US home mortgages (including re-sets), except for those originating lenders that hold the full loan on their own books to term. The banks would be licensed ASS agents following strict loan approval rules, regulations and rates set by ASS.
The above should not be an optional program. The management of ASS should not be privatised; it should be run by civil servants whose job is to get a real handle on the entire US home mortgage market. Would they serve US citizens worse than the private sector has done to date, I doubt it?
Getting rid of this part of the bank solvency question might help those concerned with providing a little more credit to their customers to oil the wheels of commerce and industry, large and small.
A failure to respond would mean they will be reduced to just running ATMs connected to data lines; voice (and warm bodies) no longer being required.
Tim
October 26th, 2008 at 8:18 am
A Big Broom Proposal for Mortgages (correction)
No bank should get any payment for such assets until they are sold by the ASS (delete the Fed).
Tim
October 26th, 2008 at 2:53 pm
De-leveraging – Fairy Tale Endings
by Satyajit Das October 20, 2008
In the “Arabian Nights,” the beautiful princess Scheherazade buys one day of life at a time by recounting fantastic fables that enchant the King who has condemned her to die. Investors and traders are currently telling each other fairy tales to buy one day at a time to stave off the inevitable.
Source: http://www.prudentbear.com/index.php/commentary/featuredcommentary?art_id=10136
October 31st, 2008 at 8:36 am
Artificial markets: the bailout isn’t working
Or at least, it’s not working in the way that it’s being made out to.
If the objective – or rather, objectives – of the world’s governments through their suite of emergency financial measures is to sustainably normalise markets and stabilise the world economy, then they are palpably failing.
What the bailouts are doing is bailing out: at an incredible rate. The headline result of that is a normalisation, but of course, it’s artificial. The real test of the success of the bailout would be working out what would happen if you took it away again.
http://ftalphaville.ft.com/blog/2008/10/31/17683/artificial-markets-the-bailout-isnt-working/
As Sam says, “The problem with all of the current liquidity measures – in the US and abroad – is the same as that with the Fed’s other lending facilities: those like the TAF or the PDCF, which have been in operation for over a year. The facilities do not restore confidence, they simply nurture dependence.”
At some point, maybe next year with a new administration in place, some big moves may be needed (like ASS, above) to clear the decks. Separating Commercial (boring) from Investment (Casino) banking is also inevitable as are new forms of taxation on the activities of the casinos.
The present bailout program is merely a duct tape remedy pending some bold changes to tax and regulation of the financial sector of the economy. I hope I’m right. Tim
November 8th, 2008 at 8:25 am
Fed Stonewalling on Giving Details About Collateral Accepted for Loans
In case you somehow managed to miss it, our friendly pawnbroker of last resort central bank has been taking lots of crap collateral in return for loans under its alphabet soup of facilities. As we are learaning in our housing meltdown, collateral may not prove to be worth as much as it was said to be at the time the loan was made. Inquiring minds are curious as to what, exactly the Fed has taken, particularly as the numbers are becoming stratospheric.
Bloomberg has asked nicely for some of this information, and is now being forced to sue under to the Freedom of Information Act, and the Fed intends to fight! This ought to be a scandal, but after the TARP, the electorate is seems resigned to taxpayer money being thrown at floundering financial enterprises with little in the way of checks or prudence. If the Fed indeed was taking conservatively valued collateral as it has always claimed it was, there would be no reason for it to attempt to squash this request. The Fed’s argument, as I infer, is the loans were made by the Federal Reserve Bank of New York, which isn’t a federal agency and thus not subject to the FOIA
http://www.nakedcapitalism.com/2008/11/fed-stonewalling-on-giving-details.html
This is so predictable and why the US taxpayer should not be paying for such crap. See comment 2 above. Tim
November 29th, 2008 at 10:35 pm
Speaking as a retired military man and a former civil servant (admittedly a bit disgruntled) I believe that the government does somethings well, but one of them is not business. There is no incentive to maximise return and minimize cost and get the best return for resources involved.
I can support the government becoming involved to prevent the failure of organizations that, should they fail, would have disastrous effect on the fabric of the country, but beyond that, let them take their medicine.