Sunday, January 27, 2008

Long Week Ahead

It is snowing again here and will keep snowing until tomorrow. Very annoying to have to contend with snow for the morning commute. 2 more months to go before a real improvement in weather is set in. Have I ever said that I hate the winter?

Stimulus Plan Push
There is an almost frenetic push to roll out an Economic Stimulus Plan as soon as possible. Hanky Panky Paulson was out in force all weekend banging congress over the head to rush a plan through the process. From Yahoo Finance:
Paulson Pushes Senate for Stimulus Deal
Sunday January 27, 3:47 pm ET By Ben Feller, Associated Press Writer
Treasury Secretary Henry Paulson Pushes Senate to Act on Economic Stimulus Package
WASHINGTON (AP) -- President Bush's chief negotiator on an economic aid deal said Sunday the Senate should quickly get behind a plan or risk drawing the resentment of a frustrated public.
The president and House leaders have agreed on a proposal to provide tax rebate checks to 117 million families and give businesses $50 billion in incentives to invest in new plants and equipment. The goal is to help head off a recession and boost consumer confidence.

"I don't think the Senate is going to want to derail that deal," Treasury Secretary Henry Paulson said. "And I don't think the American people are going to have much patience for anything that would slow down the process."
We've got to take care of the people who are losing their jobs with more unemployment. We may have to look at food stamps for people who are falling out of the middle class," said New York Sen. Hillary Rodham Clinton, a Democratic presidential candidate.
When asked if such ideas would be deal-breakers, Paulson said he did not "want to cast a shadow on this rare bipartisan moment."
"I believe that what we've got here is something that will work and will work quickly and more quickly than some other alternatives," Paulson said. "And again, once you start considering additions -- the food stamps, unemployment insurance and so on -- it's a slippery slope, and there is a real danger that we're going to bog down and screech to a stop."

In another appeal to Congress, Paulson said: "Bipartisan agreement -- implemented -- I think will show the American people that Republicans and Democrats are putting the economic security of the American people ahead of their own political interests."
Reading this piece you can almost feel Paulson sweating. He even passes the up front threat that the US public will be outraged if a plan is not quickly passed. The tone of Paulson on this issue is clearly overbearing and desperate. This is conduct not very becoming of a Secretary of the Treasury. He has reduced himself to a cheerleader and a bully in regards to the stimulus. What is worse he makes no sense at all. He threatens political consequences for anyone standing in the way of a deal then lauds the bipartisan work on a deal as "putting the economic security of the American people ahead of their own political interests"? Which is it?

I love Clinton's observation that "We may have to look at food stamps for people who are falling out of the middle class". Now maybe my definition of middle class is different form hers, but I do not think a span of economic hardship will drive members of the middle class to foodstamps! I grew up dirt poor and my family never used them, even when the electricity was cut off for a month here and there.

Long Week Ahead
It has been an interesting evolution, but since about September the financial news has been coming so fast and from so many angles that the market week seems to be more like 2 weeks long! This week promise to be a real winner with many facets of the economic machine in full motion. Looking ahead to the major items and what they could mean:
  • Countrywide Financial Earnings - Set to report quarterly earnings on Tuesday, this one is going to be a laugher. Remember back to Tan Man Mozillo's call last quarter for a profitable quarter this time, as well as a profitable year overall! Dreams and hopes come cheap. CFC will report a dismal result on Tuesday. How bad it is may have an impact on the BAC deal. I was looking forward to the conference call where someone would hopefully call out Mozillo for his baloney prediction and failure to deliver, but the call has been cancelled. Nothing sinister, I have read that companies in the process of being acquired often will not have a conference call. Too bad, that would have been fun. Still the earnings report will likely be a market moving event nonetheless.
  • FED Meeting - Boom Boom BernanSpan and company meet on Wednesday to decide the rate cut schedule. After the fireworks of the 75bps emergency cut last week, this meeting will hold special attention. Mr. Market fully expects at least another 25bps, but in reality is banking on 50bps to get chopped off. 25bps or no cut will absolutely sink the market in baby temper tantrum. 75bps will ignite euphoria. Either way the 2pm announcement will be the MAJOR driver for the week.
  • Other Earnings Reports - I usually do not give a hoot about earnings reports. With the financial wizard work done using things like "one time charges", "costs due to restructuring", and other trickery it is usually impossible to take anything a company says seriously. What makes this week different is that traders are now on the lookout for ANY sign of the ever feared Recession. Last week Apple Co. caused a fit with their report, so you never know who might be the guilty party this week. Here is a list of some companies out this week: Dow companies such as American Express Co., McDonald's Corp., Verizon and ExxonMobil Corp. report earnings this week, as well as other major names including the recently acquired Countrywide Financial Corp., Starbucks Coffee Co., homebuilders Centex Corp. and Pulte Homes Inc., and Internet companies Google Inc. and Yahoo Inc.
  • Government Intervention Headlines - On deck is the Stimulus bill, raising GSE loan limits sky high, and a Monoline insurance bailout. What will this week bring in the way of rushed expansion of the US taxpayer to fund dumb arse stuff? Who knows, but I will hazard a guess at least 2 more backstop/bailout plans will see headlines this week.

Common Sense is indeed Uncommon

"Look son, being a good shot, being quick with a pistol, that don't do no harm, but it don't mean much next to being cool-headed. A man who will keep his head and not get rattled under fire, like as not, he'll kill ya."- Little Bill Daggett in "Unforgiven"

While the FED and the government are running around like lost hikers in the forest and Wall Street is on their heels looking for foreign cash to keep the party going, we see that it is in times of stress that keeping cool is the most important thing. Quick fixes and rushed plans often at best make little difference, and sometimes make things much worse. I am shocked at the current frenzy concerning major financial obligations being put into motion without vote, debate, or public awareness. A quick look at the thinking process shows that the powers that be are in a panic and are not in control of rational thought.

  • The FED wants to cut rates, probably down to 1% by August. Forget what this may do for inflation pressures or the dollar for a moment. The very economic unwinding that is causing the stress seen right now was the product of ultra low rates that remained that way for too long. There is no longer another viable theorem, even in the mainstream media. How in the world is more of the same going to do anything but delay this unwinding? Even if lowered rates could somehow slow down the collapse of housing, what is better; a quick hard recession and a faster move towards the aftermath or a long, slow drawn out bleeding that never ends? Lower rates will only make the mess last longer than it might have.
  • Raising the conforming limit of the GSE's from 417k to possible 800k is a major risk on many levels. Forget that the roles of the GSE's is to help people with affordable housing for a moment. It is apparent now and through history that the so called "jumbo" loan types are typically the worst performing loan types. The banks and lenders want out of this arena because they cannot sell the loans off. Why in the hell would anyone want the US to assume backstopping these loans? Fannie Mae and Freddie Mac have also had severe issues with their accounting. For years many congress members have tried to get better oversight on these debt bombs, and they were fought off the whole way. Now these entities are poised to take on the largest, more risky type debts there are? There needs to be a real debate and vetting of this idea. Do not count on getting one.
  • The housing bubble collapse is both real and not going away. Delaying the fall, again, just prolongs the agony. Places like Phoenix, Las Vegas, much of the Florida coastal communities, and others are going to be ghost towns. People got crazy. People got greedy. In and of itself, there is nothing new with that. The problem was that armed with the previously mentioned low rates and evaporation of all loan qualifications for the first time a great section of the population had access to enormous amounts of capital. The only avenue for this cash was of course home buying. The inflated prices are a result of fraud, greed, and fantasy land thinking. No rate freeze plan can stop this process of unwinding. I cannot figure out the thinking process where you arrive at the idea that hyper inflated home prices that have no basis in reality need to be preserved. Common sense tells us that prices will come down.

It is exactly at this stressful economic moment that we need cool heads to prevail. Unfortunately we are in an election year. Sadly the FED just wants to cut rates to 1% and take no responsibility for their previous bubble blowing actions. Wall Street wants the focus off of their ability to lose money on scale never before seen in the course of human history. If only we could do something to stop the madness!

A few quick tunes for Sunday night.

This song was in the film "Grease" and I lust like the way the guy from Sha Na Na sings this "Those Magic Changes":

From the film "Walk the Line" a great song "It Aint me Babe":

Ozzy always starts his concerts with the orchestra piece "Ride of the Valkries". It really gets the crowd raucous! Here is the song "I Dont Know" from the greatest album ever recorded. Just listen to the beginning and the crowd going wild!:

Have a good night.

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