Friday, September 30, 2011
Capital Markets Update
By Louis S. Barnes Friday, Spetember 30,2011
Take a deep breath. Two. Un-clench your hands. Let loose your shoulders. Look out at a brilliant fall sky. Leaves. Breathe again, but for scent.
Put this global financial political… whatever-it-is… put it down. Back away from it, and look at it from a long ways off.
Domestic US growth is marginal, but not recession. New weekly unemployment claims are steady near 400,000, no new wave of layoffs. Purchase mortgage applications are too low to work off excess inventory, but they are stable. The Chicago Fed's national index is a minus-43, below the long-term trend line at zero in their index but far above the minus-70 that would mark recession. Orders for durable goods were flat in August, but held the huge July gain.
Flat and soggy, but hardly over the cliff that you'd think from listening to media, and especially people in financial markets. These are normally the Pollyannas of the airwaves: upon any devastating flood, nuclear accident, or outbreak of war, they've got a loopy grin and a new investment for you to buy. Note how strange it is that finance types all sound ready to get in a warm tub and open an artery.
People in markets rarely get their panties in a wad all at the same time. Yet the brightest -- Roubini, Schiller, Shiller, Wolf, Goldman Sachs itself, Soros -- are engaged in depression leap-frog, every day finding some new reason that the world will be unable to save itself. Risk-averse markets become a self-fulfilling prophecy, imploding.
The most immediate threat is Europe. In 1999 Europe embarked on a common currency to remove the trade-inhibiting risk of volatile rates of currency exchange. That minor problem, easily hedged, has created an entirely new and gigantic one: the euro nations must synchronize not just their borrowing and trade, but their entire economic cultures. I don't think it will happen, but it may -- but whichever, this talk of "global depression" as the inevitable result of breakup and/or austerity is nuts.
Italy knows how to run Italy, odd as it is, and France can run France, and so for each of them. Germany does not know how to run Spain, nor Ireland how to run Germany. If the union blows, back these nations will go to dealing with their own affairs. Separation would be a relief.
Financial types howl, "It's all so inter-connected that taking it apart will be the end of life on earth!" Translation: we don’t know how to trade it, and we can't figure out who is exposed and how much. The European Commission in Brussels, the nascent pan-European government that ain't gonna happen, says every day that the euro must survive and of course it will because nothing is wrong -- useless freeloaders trying to keep their paychecks running. Poor Angela Merkel, a scientist trained in Soviet East Germany, hopelessly unprepared, neither wants change nor can grasp its elements, clutches at status quo.
Europe has no voice. Change is going to come, briefly chaotic, but rationalizing a hopelessly irrational situation. However, the Euro is only 12 years old, and the status quo ante is hardly a mystery lost in ancient times. The lurch will be quite something, but the locals know what they are doing.
The economic situation here is different, but the problem is the same. No voice. No voice at all. No one to explain, to trust. The most powerful forces in Great Depression recovery were FDR's grasp of the essential -- nothing mattered but the economy -- and his voice. My Okie parents and grandparents spoke for the rest of their lives about gathering in front of the RCA when FDR would speak. "Nothing to feah but feah itself!"
Here, as in Europe, the locals know what they're doing. Every state and town is doing what it must to get its budget under control, to raise revenue as it can, and to look after its citizens.
From a safe distance, staring at this predicament, please do not mistake the temporary incapacity of the largest governments for an inability to manage our affairs. We go on. We adapt. Collective arrangements come and go.
Take a deep breath. Two. Un-clench your hands. Let loose your shoulders. Look out at a brilliant fall sky. Leaves. Breathe again, but for scent.
Put this global financial political… whatever-it-is… put it down. Back away from it, and look at it from a long ways off.
Domestic US growth is marginal, but not recession. New weekly unemployment claims are steady near 400,000, no new wave of layoffs. Purchase mortgage applications are too low to work off excess inventory, but they are stable. The Chicago Fed's national index is a minus-43, below the long-term trend line at zero in their index but far above the minus-70 that would mark recession. Orders for durable goods were flat in August, but held the huge July gain.
Flat and soggy, but hardly over the cliff that you'd think from listening to media, and especially people in financial markets. These are normally the Pollyannas of the airwaves: upon any devastating flood, nuclear accident, or outbreak of war, they've got a loopy grin and a new investment for you to buy. Note how strange it is that finance types all sound ready to get in a warm tub and open an artery.
People in markets rarely get their panties in a wad all at the same time. Yet the brightest -- Roubini, Schiller, Shiller, Wolf, Goldman Sachs itself, Soros -- are engaged in depression leap-frog, every day finding some new reason that the world will be unable to save itself. Risk-averse markets become a self-fulfilling prophecy, imploding.
The most immediate threat is Europe. In 1999 Europe embarked on a common currency to remove the trade-inhibiting risk of volatile rates of currency exchange. That minor problem, easily hedged, has created an entirely new and gigantic one: the euro nations must synchronize not just their borrowing and trade, but their entire economic cultures. I don't think it will happen, but it may -- but whichever, this talk of "global depression" as the inevitable result of breakup and/or austerity is nuts.
Italy knows how to run Italy, odd as it is, and France can run France, and so for each of them. Germany does not know how to run Spain, nor Ireland how to run Germany. If the union blows, back these nations will go to dealing with their own affairs. Separation would be a relief.
Financial types howl, "It's all so inter-connected that taking it apart will be the end of life on earth!" Translation: we don’t know how to trade it, and we can't figure out who is exposed and how much. The European Commission in Brussels, the nascent pan-European government that ain't gonna happen, says every day that the euro must survive and of course it will because nothing is wrong -- useless freeloaders trying to keep their paychecks running. Poor Angela Merkel, a scientist trained in Soviet East Germany, hopelessly unprepared, neither wants change nor can grasp its elements, clutches at status quo.
Europe has no voice. Change is going to come, briefly chaotic, but rationalizing a hopelessly irrational situation. However, the Euro is only 12 years old, and the status quo ante is hardly a mystery lost in ancient times. The lurch will be quite something, but the locals know what they are doing.
The economic situation here is different, but the problem is the same. No voice. No voice at all. No one to explain, to trust. The most powerful forces in Great Depression recovery were FDR's grasp of the essential -- nothing mattered but the economy -- and his voice. My Okie parents and grandparents spoke for the rest of their lives about gathering in front of the RCA when FDR would speak. "Nothing to feah but feah itself!"
Here, as in Europe, the locals know what they're doing. Every state and town is doing what it must to get its budget under control, to raise revenue as it can, and to look after its citizens.
From a safe distance, staring at this predicament, please do not mistake the temporary incapacity of the largest governments for an inability to manage our affairs. We go on. We adapt. Collective arrangements come and go.
Friday, September 23, 2011
Capital Markets Update
By Louis S. Barnes Friday, September 23, 2011
Financial markets seemed to react badly to the Fed's announcement of two new but minor operations, net-neutral as to new money. Some say the Fed's grim statement of risks did the damage; others claim it was the absence of a big policy move (more QE).
There's a lot more to this week than the Fed. The best case for Europe is a nasty recession -- if austerity and unity prevail. If not, they'll have a sharper-deeper affair in a scramble back to local currencies (I am one of very few who sees that scramble as quickly beneficial). Also, markets suddenly get the odds in favor of a new US recession.
And, purely a matter of personal opinion: markets are shaken to their souls by the spectacle of the worst-ever peacetime performance by Western Democracy.
10-year T-note to 1.75% from 2.07% in a week. Mortgages at yesterday's low (up .125% now): if you are 670 Fico, low equity, 4.25%; if you are 800, 50% LTV, 3.875%. Whatever you are, if you don't have a vanilla job, you ain't nuthin'.
Old folks like to talk about history. Infected as a pre-teen, by age 62 mulling history feels to me like putting on a favorite, tattered pair of moccasins. Mark Twain's great line: "History does not repeat itself. But it does rhyme."
The 1920s and 1930s were perfect pre-running harmony for today, cast and script verbatim, only clothes, cars, and phones different. Political lessons stand out: first how terribly difficult it is for us to grasp that events have moved from normal to emergency; and when we do get it, we crave the illusive safety of old times and ways...gone.
We are very slow to understand that previous good times were false and temporary, the Roaring Twenties' bubble just like our '95-'07. After '29, public policy was exactly that of today's Republicans: let markets run, let banks close, balance the budget, and let an idle Fed collapse the money supply and 75% of banks. No bailouts for no body.
Treasury Secretary Andrew Mellon gave us this masterpiece: "Liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate...t will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people."By 1932, "Hoovervilles" entered our language.
The worse this gets, the deeper the Right digs in on old ground. So do Democrats -- rightly proud of the New Deal, government intervention and income redistribution, they have never learned a new trick. Once you discover that you can reward your constituents with the contents of someone else's pocket, falling onto a greasy slope to self-righteousness and decadence has been inevitable. Lost: the difference between stimulative borrowing and spending when you owe the world 10% of your GDP, and when you'll soon owe 100%. Parts of the New Deal would work today -- credit restoration via guarantee agencies -- but not adding to government unrecognizably bloated since the 1930s.
All leadership looks bad. Republican officials in Congress this week sent a Mellonian demand to the Fed that it do nothing; the Three Blind Mice dissenting at the Fed were happy to accommodate. Mr. Obama's last three weeks, the phony jobs bill and so-old so-dead tax plan, was a performance so petulant and juvenile that he has become irrelevant without even knowing it. Republican candidates appeal to the deep American Populist desperation for protective simplicity: "I'm ignorant and I'm proud of it!"
There is hope. More than that. The people see all of this, the political center jaw-dropped at it. As a people, we tend to reject extremism and demagoguery (might google Father Coughlin and Huey Long). And the media are getting it. The toughest criticism and exposure of the President this week came from the Washington Post. The WSJ now runs stories on the cost of abandoning housing. Reporters who have listened to the same Right and Left nostrums for five years now think, "Wait a minute...."
Left and Right do not need to compromise with each other, they must compromise with history. Drop the peripheral and the old, and get to inventing, trying, and testing new approaches. Lots of them. And plenty damned quick.
Financial markets seemed to react badly to the Fed's announcement of two new but minor operations, net-neutral as to new money. Some say the Fed's grim statement of risks did the damage; others claim it was the absence of a big policy move (more QE).
There's a lot more to this week than the Fed. The best case for Europe is a nasty recession -- if austerity and unity prevail. If not, they'll have a sharper-deeper affair in a scramble back to local currencies (I am one of very few who sees that scramble as quickly beneficial). Also, markets suddenly get the odds in favor of a new US recession.
And, purely a matter of personal opinion: markets are shaken to their souls by the spectacle of the worst-ever peacetime performance by Western Democracy.
10-year T-note to 1.75% from 2.07% in a week. Mortgages at yesterday's low (up .125% now): if you are 670 Fico, low equity, 4.25%; if you are 800, 50% LTV, 3.875%. Whatever you are, if you don't have a vanilla job, you ain't nuthin'.
Old folks like to talk about history. Infected as a pre-teen, by age 62 mulling history feels to me like putting on a favorite, tattered pair of moccasins. Mark Twain's great line: "History does not repeat itself. But it does rhyme."
The 1920s and 1930s were perfect pre-running harmony for today, cast and script verbatim, only clothes, cars, and phones different. Political lessons stand out: first how terribly difficult it is for us to grasp that events have moved from normal to emergency; and when we do get it, we crave the illusive safety of old times and ways...gone.
We are very slow to understand that previous good times were false and temporary, the Roaring Twenties' bubble just like our '95-'07. After '29, public policy was exactly that of today's Republicans: let markets run, let banks close, balance the budget, and let an idle Fed collapse the money supply and 75% of banks. No bailouts for no body.
Treasury Secretary Andrew Mellon gave us this masterpiece: "Liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate...t will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people."By 1932, "Hoovervilles" entered our language.
The worse this gets, the deeper the Right digs in on old ground. So do Democrats -- rightly proud of the New Deal, government intervention and income redistribution, they have never learned a new trick. Once you discover that you can reward your constituents with the contents of someone else's pocket, falling onto a greasy slope to self-righteousness and decadence has been inevitable. Lost: the difference between stimulative borrowing and spending when you owe the world 10% of your GDP, and when you'll soon owe 100%. Parts of the New Deal would work today -- credit restoration via guarantee agencies -- but not adding to government unrecognizably bloated since the 1930s.
All leadership looks bad. Republican officials in Congress this week sent a Mellonian demand to the Fed that it do nothing; the Three Blind Mice dissenting at the Fed were happy to accommodate. Mr. Obama's last three weeks, the phony jobs bill and so-old so-dead tax plan, was a performance so petulant and juvenile that he has become irrelevant without even knowing it. Republican candidates appeal to the deep American Populist desperation for protective simplicity: "I'm ignorant and I'm proud of it!"
There is hope. More than that. The people see all of this, the political center jaw-dropped at it. As a people, we tend to reject extremism and demagoguery (might google Father Coughlin and Huey Long). And the media are getting it. The toughest criticism and exposure of the President this week came from the Washington Post. The WSJ now runs stories on the cost of abandoning housing. Reporters who have listened to the same Right and Left nostrums for five years now think, "Wait a minute...."
Left and Right do not need to compromise with each other, they must compromise with history. Drop the peripheral and the old, and get to inventing, trying, and testing new approaches. Lots of them. And plenty damned quick.
Friday, September 16, 2011
Capital Markets Update
by Louis S. Barnes Friday September 16 2011
This week is stumbling to an end, markets largely unchanged and I think exhausted at the sight of non-functioning government here and over there.
10-year T-notes did rise from all-time-bottom 1.90% to 2.10%, but either value is an emergency trade, and the rise did little to mortgages, still 4.125-4.25% and which three weeks ago stopped following the 10-year down.
The economy is conjugating the verb, “to stall.” Stalling, stalled, will stall… the NFIB small biz index fell for the sixth-straight month, now back to recession levels. Industrial production rose a mighty 0.2% in August, and regional surveys found a slower rate of slowing. August retail sales were flat, precisely zero change. In modest good news, layoffs have stalled, too, no real change in newly unemployed.
The Fed next Wednesday will announce some new effort to help the economy — the stronger the measure, perversely the more likely to push up mortgage rates in optimism. However, the Fed’s internal politics are a mess, and not helped by a .4% CPI reading in August; inflation isn’t going anywhere, but it’s impossible to argue the point with the Fed’s minority rockheads.
We depart Europe, boiling in its own reduction sauce, lectured today by Li’l Timmy Geithner to watch what you say or people might be scared by reality. And we depart a failing Presidency, never a pleasant sight, no matter who you don’t like.
We move to The Word That Cannot Be Spoken.
Housing.
Three sources: the FHFA home-price series, CoreLogic’s new report on underwaters, and today’s Z-1 “Flow of Funds” from the Fed.
The Fed, markets, and the standard run of economists seem confounded by economic stall. From the glowing forecasts of last winter, then slow on uptake in spring, in-denial insistence on a better 2nd half, now jaw-dropped at no second half at all. And in response to “Why?”… nothing but mumbling.
The FHFA national home-price index, reasonably stable at a value of 191 through last August, began a sharp new decline of ten points that bottomed in April — the one, single indicator leading the general economic decline. As of June FHFA shows an artificial rebound to 183.7, achieved by masses of foreclosures blocked by procedural obstruction. Everyone in the marketplace knows the defaulted homes are there, and fears what will happen to prices when they hit the market.
CoreLogic reports that 27.5% of all mortgaged homes as of June 30 had negative or near-negative equity. That’s 13,300,000 households. Not getting any worse, or better, but terribly vulnerable to renewed resales of foreclosures. The only forgiving aspect: trouble is concentrated in CA, FL, NV, AZ, and MI. The inhabitants of these states are, however, fellow citizens and participants in the national economy.
Z-1 confirms. As of the end of June the aggregate value of US homes in the prior year had lost one trillion dollars. And smarty-pants economists cannot explain why things are a little soggy. Last year’s loss is in addition to the five trillion lost in the prior four years (the total value decline: from $22.7 trillion to $16.2 trillion).
Connect some dots… mortgage balances outstanding since the bubble blew in 2006 have declined by only $775 billion to $10.4 trillion. Of all homes, about 30% are free and clear. Thus of the $16.2 trillion in remaining home value, homes worth about $11.3 trillion carry the entire national mortgage balance, $10.4 trillion. In the aggregate, the equity in the 70% of US homes that are mortgaged is less than 10%. On trend… evaporating.
If you run into one of the guys who thinks “deleveraging” is the way to heal the nation, before you punch him in the nose, ask if he is bright enough to grasp: home values have fallen eight times as fast as mortgage balances. The guy standing next to him, who thinks the only problem is that prices have not fallen far enough, and when they do everything will be okay… not worth bruised knuckles.
This week is stumbling to an end, markets largely unchanged and I think exhausted at the sight of non-functioning government here and over there.
10-year T-notes did rise from all-time-bottom 1.90% to 2.10%, but either value is an emergency trade, and the rise did little to mortgages, still 4.125-4.25% and which three weeks ago stopped following the 10-year down.
The economy is conjugating the verb, “to stall.” Stalling, stalled, will stall… the NFIB small biz index fell for the sixth-straight month, now back to recession levels. Industrial production rose a mighty 0.2% in August, and regional surveys found a slower rate of slowing. August retail sales were flat, precisely zero change. In modest good news, layoffs have stalled, too, no real change in newly unemployed.
The Fed next Wednesday will announce some new effort to help the economy — the stronger the measure, perversely the more likely to push up mortgage rates in optimism. However, the Fed’s internal politics are a mess, and not helped by a .4% CPI reading in August; inflation isn’t going anywhere, but it’s impossible to argue the point with the Fed’s minority rockheads.
We depart Europe, boiling in its own reduction sauce, lectured today by Li’l Timmy Geithner to watch what you say or people might be scared by reality. And we depart a failing Presidency, never a pleasant sight, no matter who you don’t like.
We move to The Word That Cannot Be Spoken.
Housing.
Three sources: the FHFA home-price series, CoreLogic’s new report on underwaters, and today’s Z-1 “Flow of Funds” from the Fed.
The Fed, markets, and the standard run of economists seem confounded by economic stall. From the glowing forecasts of last winter, then slow on uptake in spring, in-denial insistence on a better 2nd half, now jaw-dropped at no second half at all. And in response to “Why?”… nothing but mumbling.
The FHFA national home-price index, reasonably stable at a value of 191 through last August, began a sharp new decline of ten points that bottomed in April — the one, single indicator leading the general economic decline. As of June FHFA shows an artificial rebound to 183.7, achieved by masses of foreclosures blocked by procedural obstruction. Everyone in the marketplace knows the defaulted homes are there, and fears what will happen to prices when they hit the market.
CoreLogic reports that 27.5% of all mortgaged homes as of June 30 had negative or near-negative equity. That’s 13,300,000 households. Not getting any worse, or better, but terribly vulnerable to renewed resales of foreclosures. The only forgiving aspect: trouble is concentrated in CA, FL, NV, AZ, and MI. The inhabitants of these states are, however, fellow citizens and participants in the national economy.
Z-1 confirms. As of the end of June the aggregate value of US homes in the prior year had lost one trillion dollars. And smarty-pants economists cannot explain why things are a little soggy. Last year’s loss is in addition to the five trillion lost in the prior four years (the total value decline: from $22.7 trillion to $16.2 trillion).
Connect some dots… mortgage balances outstanding since the bubble blew in 2006 have declined by only $775 billion to $10.4 trillion. Of all homes, about 30% are free and clear. Thus of the $16.2 trillion in remaining home value, homes worth about $11.3 trillion carry the entire national mortgage balance, $10.4 trillion. In the aggregate, the equity in the 70% of US homes that are mortgaged is less than 10%. On trend… evaporating.
If you run into one of the guys who thinks “deleveraging” is the way to heal the nation, before you punch him in the nose, ask if he is bright enough to grasp: home values have fallen eight times as fast as mortgage balances. The guy standing next to him, who thinks the only problem is that prices have not fallen far enough, and when they do everything will be okay… not worth bruised knuckles.
Friday, September 9, 2011
Capital Markets Update
By Louis S. Barnes Friday, September 9, 2011
The good news: US data are not double-dipping. The fresh, August survey of purchasing managers by the ISM found the service sector improved to 53.3 from 52.7 in July, a reading corresponding to GDP growth in the 2% range.
This modest good news does not explain the stock market again in freefall today, nor the 10-year T-note thumping down to 1.90%. To explain the newest swan dive, look to Europe, and a tale of two speeches.
Default by Greece is imminent. Again. Maybe this weekend. Maybe Europe will buy more time, maybe default will be an anticlimax, but markets today anticipate chaos.
Then, the two speeches.
Perfesser Bernanke spoke at midday Thursday. After preamble, and dodging the Fed's intentions, the body of the speech began: "One striking aspect of the recovery is the unusual weakness in household spending."
Following my first, churlish thought (What recovery?), I began as always to search for and count up references to housing weakness. As in no other speech by the Perfesser, I lost count -- too many to count. The whole speech was devoted to housing wreckage as the force intercepting recovery. No proposals for what we might do, of course, as that action is the province of the Administration and Congress.
Three-and-a-half hours later Mr. Obama rose to deliver an energetic, tub-thumping speech. Content? Direct from the Boneless Chicken Ranch.
He's had a month-and-a-half to prepare since the "circus" we all deplored, and the rollover-in-progress of the US economy, and wanted the grand stage of a joint session of Congress. The finished product: $447 billion of "job-creating" spending at the intellectual level of 1964. Old-fashioned, warmed-over pork. To be "paid for." How? He said, next week we'll get to that. His own out-year deficit proposal? Two weeks.
I have a brilliant contractor/architect friend, who deflects all questions from families anxious about project completion by answering, "Two weeks." Foundation? Two weeks. Framing? Two weeks. Move in? Two weeks.
Half-baked aside, the American Jobs Act might have some merit if designed to stimulate aggregate demand. The word, "stimulus" has been excised from the White House lexicon (last night's best comedy: Anderson Cooper trying to trick Press Secretary Jay Carney into using the word, or admitting excision; but Carney, in Ron Ziegler's class for dead-eyed and relentless mendacity, could not be fooled). If we spend $447 billion, but "pay" for it with tax increases and spending cuts, we are not adding chickens to pots, just moving them from pot to pot. No net stimulus at all.
I counted the President's speech, too, for references to housing. Must do so in all official economic speeches, hoping for dawning awareness. Must preserve hope. Mr. Obama's speech had two mentions. The first, a murky thing: the Act would "...rehabilitate homes and businesses in communities hit hardest by foreclosures." Huh?
The second: "...We're going to work with federal housing agencies to help more people refinance....." The President was obviously surprised to be interrupted by bi-partisan applause, and a strange look crossed his face. He has no idea how to do the job, and knows it.
The administration panicked last winter, adding 60bps to FHA mortgage insurance for all new loans, refi or purchase. Given that hike, most FHA borrowers cannot refi -- not without a far deeper drop in rates.
Mass refis of underwater borrowers is a delusion not limited to the White House. New buyers for new loans must be found to pay off old ones: there is no method for automatic write-down of rate. The market cost to buy-down a rate a mere 1% is about $60 billion per trillion, and there are at least $2 trillion in underwater loans out here.
We need adequate credit for buyers. Not just re-arrange the existing lawn furniture. Buyers. Americans need faith in the value of their homes, mortgaged or not. Fail to assist prices to rise from catastrophic levels, or stay in this until doomsday.
The good news: US data are not double-dipping. The fresh, August survey of purchasing managers by the ISM found the service sector improved to 53.3 from 52.7 in July, a reading corresponding to GDP growth in the 2% range.
This modest good news does not explain the stock market again in freefall today, nor the 10-year T-note thumping down to 1.90%. To explain the newest swan dive, look to Europe, and a tale of two speeches.
Default by Greece is imminent. Again. Maybe this weekend. Maybe Europe will buy more time, maybe default will be an anticlimax, but markets today anticipate chaos.
Then, the two speeches.
Perfesser Bernanke spoke at midday Thursday. After preamble, and dodging the Fed's intentions, the body of the speech began: "One striking aspect of the recovery is the unusual weakness in household spending."
Following my first, churlish thought (What recovery?), I began as always to search for and count up references to housing weakness. As in no other speech by the Perfesser, I lost count -- too many to count. The whole speech was devoted to housing wreckage as the force intercepting recovery. No proposals for what we might do, of course, as that action is the province of the Administration and Congress.
Three-and-a-half hours later Mr. Obama rose to deliver an energetic, tub-thumping speech. Content? Direct from the Boneless Chicken Ranch.
He's had a month-and-a-half to prepare since the "circus" we all deplored, and the rollover-in-progress of the US economy, and wanted the grand stage of a joint session of Congress. The finished product: $447 billion of "job-creating" spending at the intellectual level of 1964. Old-fashioned, warmed-over pork. To be "paid for." How? He said, next week we'll get to that. His own out-year deficit proposal? Two weeks.
I have a brilliant contractor/architect friend, who deflects all questions from families anxious about project completion by answering, "Two weeks." Foundation? Two weeks. Framing? Two weeks. Move in? Two weeks.
Half-baked aside, the American Jobs Act might have some merit if designed to stimulate aggregate demand. The word, "stimulus" has been excised from the White House lexicon (last night's best comedy: Anderson Cooper trying to trick Press Secretary Jay Carney into using the word, or admitting excision; but Carney, in Ron Ziegler's class for dead-eyed and relentless mendacity, could not be fooled). If we spend $447 billion, but "pay" for it with tax increases and spending cuts, we are not adding chickens to pots, just moving them from pot to pot. No net stimulus at all.
I counted the President's speech, too, for references to housing. Must do so in all official economic speeches, hoping for dawning awareness. Must preserve hope. Mr. Obama's speech had two mentions. The first, a murky thing: the Act would "...rehabilitate homes and businesses in communities hit hardest by foreclosures." Huh?
The second: "...We're going to work with federal housing agencies to help more people refinance....." The President was obviously surprised to be interrupted by bi-partisan applause, and a strange look crossed his face. He has no idea how to do the job, and knows it.
The administration panicked last winter, adding 60bps to FHA mortgage insurance for all new loans, refi or purchase. Given that hike, most FHA borrowers cannot refi -- not without a far deeper drop in rates.
Mass refis of underwater borrowers is a delusion not limited to the White House. New buyers for new loans must be found to pay off old ones: there is no method for automatic write-down of rate. The market cost to buy-down a rate a mere 1% is about $60 billion per trillion, and there are at least $2 trillion in underwater loans out here.
We need adequate credit for buyers. Not just re-arrange the existing lawn furniture. Buyers. Americans need faith in the value of their homes, mortgaged or not. Fail to assist prices to rise from catastrophic levels, or stay in this until doomsday.
Friday, September 2, 2011
Capital Markets Update
By Louis S. Barnes Friday, September 2, 2011
The Great Recession has not followed any prior overall pattern, and this week's data confirm its unique path -- and that it never ended.
We are not re-entering a classic recession. The ISM manufacturing survey is still positive, 50.6 in August just barely so, but so. August sales of cars did just fine, near 12 million annualized, 7% above a year ago and roughly the same as July.
August employment numbers were flat, but we have no new wave of layoffs. New claims for unemployment insurance have been stuck near 400,000 weekly for a year. If your job is in technology, health care, most government, export trade, auto-manufacturing, or other manufacturing with globally competitive wages and productivity -- you're fine. Buyin' a car. If you're in direct competition with global wages, or provide services to those people, you're in a hole with no ladder.
We can stumble forward this way, even if GDP dips to negative occasionally. The limit: we cannot generate enough tax revenue to run the show, and deficits will kill us.
So next week Mr. Obama will announce "job creation." The one thing he may have right, an essential fumbled for two years: give total priority to economic emergency.
FDR's focus is legend. Even haters of the New Deal acknowledge the energetic drive to try something new. The White House did not believe in a magic fix, but did have faith in concerted action and persistence -- and sent the message to a frightened people that the President all day every day sought to find ways help the economy. And did things.
Job creation... The Civilian Conservation Corps put shovels, axes, saws, and small paychecks in the hands of broken farmers and shopkeepers, many without food or a place to sleep. Men in suits and street shoes in the bottom of ditches had not the few dollars to buy work boots and overalls. The Works Progress Administration "WPA" is stamped on sidewalks all over the Great Plains and Midwest. County courthouses all through that land were built in those years by men whose hands were already rough.
Today, we have armies of young college graduates trained in all sorts of disciplines who cannot find work. Aging 'Boomers, too. Offering "shovel-ready" employment to them has all the wisdom and compassion of Marie Antoinette.
Next week we'll hear of "investments" to produce jobs and repair infrastructure. Today. any money for these purposes must be borrowed, and must bring a direct durable, productive return, 1:1 or better. These "investments" will not. In normal times, they are properly called pork barrel waste. This public infrastructure approach was tested and failed in bridge-to-nowhere Japan. Education, especially German-style sophisticated apprenticeship, has a valuable place, but a long-future payout.
There are other ways. First, the DC mob must ask, "What is in the way of business?" We fell into this pit in large part because financial regulators failed to do their jobs. Our natural reaction has been a mountain of new rules and agencies, an immobilizing barbed wire thicket. We have also failed to examine our external competitive position, and allowed ourselves to be fleeced by trading "partners."
Neither Mr. Obama, nor for all their free-market yammering, Republicans in Congress, has any feel for what makes business and the nation productive. Get at it.
Last, since credit and housing got us into this, our natural, pea-brained instinct has been to put a collective knee on the throat of that engine. The desire to punish, to get even, and withdraw altogether has wrecked the net worth of the American household.
On Thursday, Fed governor Elizabeth Duke spoke on housing. Amazing concept! She described the situation well, but solutions... gracious. Reflecting the frozen state of government, she joined the proposal to put four million distressed homes into a rental pool to be administered by vague public-private partnership. I can think of no better way to lose value in those homes, or to preserve their crushing weight overhanging the housing market. Don't do something, just sit there. Don't rationalize a market, RTC-style, just dump it in drums of embalming fluid. Credit, Ms. Duke, CREDIT, and housing will recover just fine -- just as FNMA, FDIC, RFC, FHLB, and FHA did the trick last time.
The Great Recession has not followed any prior overall pattern, and this week's data confirm its unique path -- and that it never ended.
We are not re-entering a classic recession. The ISM manufacturing survey is still positive, 50.6 in August just barely so, but so. August sales of cars did just fine, near 12 million annualized, 7% above a year ago and roughly the same as July.
August employment numbers were flat, but we have no new wave of layoffs. New claims for unemployment insurance have been stuck near 400,000 weekly for a year. If your job is in technology, health care, most government, export trade, auto-manufacturing, or other manufacturing with globally competitive wages and productivity -- you're fine. Buyin' a car. If you're in direct competition with global wages, or provide services to those people, you're in a hole with no ladder.
We can stumble forward this way, even if GDP dips to negative occasionally. The limit: we cannot generate enough tax revenue to run the show, and deficits will kill us.
So next week Mr. Obama will announce "job creation." The one thing he may have right, an essential fumbled for two years: give total priority to economic emergency.
FDR's focus is legend. Even haters of the New Deal acknowledge the energetic drive to try something new. The White House did not believe in a magic fix, but did have faith in concerted action and persistence -- and sent the message to a frightened people that the President all day every day sought to find ways help the economy. And did things.
Job creation... The Civilian Conservation Corps put shovels, axes, saws, and small paychecks in the hands of broken farmers and shopkeepers, many without food or a place to sleep. Men in suits and street shoes in the bottom of ditches had not the few dollars to buy work boots and overalls. The Works Progress Administration "WPA" is stamped on sidewalks all over the Great Plains and Midwest. County courthouses all through that land were built in those years by men whose hands were already rough.
Today, we have armies of young college graduates trained in all sorts of disciplines who cannot find work. Aging 'Boomers, too. Offering "shovel-ready" employment to them has all the wisdom and compassion of Marie Antoinette.
Next week we'll hear of "investments" to produce jobs and repair infrastructure. Today. any money for these purposes must be borrowed, and must bring a direct durable, productive return, 1:1 or better. These "investments" will not. In normal times, they are properly called pork barrel waste. This public infrastructure approach was tested and failed in bridge-to-nowhere Japan. Education, especially German-style sophisticated apprenticeship, has a valuable place, but a long-future payout.
There are other ways. First, the DC mob must ask, "What is in the way of business?" We fell into this pit in large part because financial regulators failed to do their jobs. Our natural reaction has been a mountain of new rules and agencies, an immobilizing barbed wire thicket. We have also failed to examine our external competitive position, and allowed ourselves to be fleeced by trading "partners."
Neither Mr. Obama, nor for all their free-market yammering, Republicans in Congress, has any feel for what makes business and the nation productive. Get at it.
Last, since credit and housing got us into this, our natural, pea-brained instinct has been to put a collective knee on the throat of that engine. The desire to punish, to get even, and withdraw altogether has wrecked the net worth of the American household.
On Thursday, Fed governor Elizabeth Duke spoke on housing. Amazing concept! She described the situation well, but solutions... gracious. Reflecting the frozen state of government, she joined the proposal to put four million distressed homes into a rental pool to be administered by vague public-private partnership. I can think of no better way to lose value in those homes, or to preserve their crushing weight overhanging the housing market. Don't do something, just sit there. Don't rationalize a market, RTC-style, just dump it in drums of embalming fluid. Credit, Ms. Duke, CREDIT, and housing will recover just fine -- just as FNMA, FDIC, RFC, FHLB, and FHA did the trick last time.
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