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14 comments:
HIGH FEE INCOME?
THEY'VE ALL STOPPED LENDING MONEY!
Hi roger
Loved your blog at first. Understand your approach of not being emotional and plannung ahead. But after a while the same message gets a tiresome. Basicly, can read one of your blogs from any time in the past on an interchangable basis.where the meat?
I must confess that I am beginning to fear that this time is different and it is going to be much worst going forward. Why? Record declines in housing. Record bad lending by financial institutions, meaning record losses, and probably more to come. Is the injection of capital from all these foreign sources a positive? I guess we have to be happy that it is there, but what does it say about the state of our financial system? Record lows in the dollar. Record highs in the price of gasoline. Commodities soaring. The worst January stock market performance on record. There are probably more negatives. You have to admit, this does seem to be bad news and even worse news. Have we really faced this many problems in past market environments. It seems to be snowballing and gaining momentum. Maybe the global economy can save the day?
anon 922,
anything is possible, of course.
the thing to keep in mind is that the sentiment you articulated is a part of every single scary event the market confronts.
i believe the sentiment was much worse in 2002 than it is now. many people question whether it is now different.
the crash of 1987 elicited a much worse reaction to what has happen thus far from 2007 forward.
there have been other big financial failures in the past and varying sorts of problems in the RE market.
the dollar has had other wild rides down too (although the circumstance was different).
i have talked many times about what I will do if this time is somehow different; more gold, more foreign currency less domestic exposure.
For those trying to game the financials, the Fast Money traders had an interesting tell on their show the other night. They said to wait until companies begin "write ups," signaling that their kitchen sink write downs were overdone and asset quality is improving. Such visibility, they opined, probably wouldn't come for at least another quarter.
i would think banks would be very slow to write up assets. i think there might be some fundamentals tells before we hear too much about write ups.
The naked capitalism blog reports that we are undergoing a covert selective nationalization of the banking system (http://www.nakedcapitalism.com/2008/03/covert-nationalization-of-banking.html ) , noting "Steve Waldman, in a terrific post at Interfluidity, concludes that nationalization is underway, via the expansion of the Term Auction Facility and Fed's new 28 day repo program."
In a nutshell, the Fed is now covertly recapitalizing the banks through 28 day repos: that are being indefinitely rolled over; that are increasing in amount; that will never have to be repaid until (if) the banks want to repay; and that are backed by paper that is far less secure than Treasuries. I would agree with your view that it is much too early to invest in financials. Before I become interested in this group I would like to see a reduction in the amount of repos as this would be an indication that at least some banks are making repayments while the continued expansion of repo amounts indicates the opposite.
I wonder if the Fed has enough capital to continue this process or whether it has some covert understanding with Treasury for its own bailout if the need should arise.
Lessmore
Hi Roger
I'm a relatively recent arivee to your blog and have found it very interesting and informative. Thx for all the time you put into it.
You talk frequently about a normal yield curve. A few weeks ago you made a comment about the current yield curve being normal is some ways, not in others. Can you elaborate just a bit on what you feel a normal yield curve would look like. I can appreciate the basics (i.e. higher rates at longer maturities) but would be interested in any "benchmarks" or specifics you look for. Do you focus on the slope of the curve and/or specific yield spreads, or the overall level of the curve or other things? Thx very much.
fed funds at 3% compared to 13 week at 1.40 is way out of whack.
Fed funds should have a slight yield premium not this.
2-10 does look good generically speaking but the totality of everything going on in bond land for now makes 2-10 less relevant IMO, and as I said in the video no bearing on how banks lend money.
Roger,
I agree that the yield curve is starting to look normal, but didn't you say that the 2 yr needs to be above 2.2% and the Fed Funds rate should be lower than the 2 year rate? By the way, as soon as the other guest started talking about the yield curve i knew she was in big trouble and I immediately started to look at your expression. It was polite, but classic. I know you tried real hard to not interrupt, but you couldn't help yourself. It was a public service comment.
Good Job!!!!
BWJR
fed funds less than the 2 year yes but i don't recall ever saying something specific about 2.2%.
I'm not sure what the exact proportions s/b but fed funds needs to be slightly above 13 week t bills and the 200 beeps between 2 and ten is good but 3% fed funds versus the current 13 week and two year is rough.
This might get me banned from going on again but in the pre-interview I was encouraged to speak up so i assume she was too.
thank you for the kind word.
Roger,
One part will always be true; there will always be newcomers to the market for whom the (then) current "unpleasantness" is simply unprecedented (in experience). It's hard to appreciate just how "unprecedented" feels by reading about it, so anyone who wasn't there (with money at risk) in '73 and '74 (oil shocks, gas lines), '79-'81 (recession, runaway inflation, malaise), '87 (October), '92 (housing), '98 (LTCM), 2001-2003 (9/11, dotcom, corporate defaults) will be hard pressed to believe that despite the unique set of facts, it's deja vu all over again.
Doug Kass recently pointed out that it probably is time to start thinking about defense against the bottom rallies when forced liquidations begin to accelerate. It's classic market theory, really: weak hands give to strong hands. The margin calls we're seeing (as with the sov wealth investments) might thus be seen as the necessary transfer to strong hands.
I think there is still is some downside out there - the room is still filled with the blue smoke of the doobies favored by those that have been enjoying the 5 yr run of ever higher markets. The air will clear, the google boards will empty (of those expecting [name your favorite long] to find its way to double digit returns), and the slow reformation of capital will begin.
Same as it ever was.
R in NY
R in NY, true. Although I have only been really 'aware' of the markets from '87 it does feel a bit deja vu-ish. It seems like a classic bear market with the financials taking the early hits, followed by those companies initiating reduced liquidity and higher margins forcing down the prices of the wider market. Then there is all the noise of war, housing and debt clouding what is a natural part of the economic cycle. Share prices should start to recover within 12-18 months at the maximum. Property prices, not so much.
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