I can actually see some small patches of grass out in the back yard. Still quite a bit of snow out there however. Springtime is coming, but it's coming in SLOW. I need to go fishing.
S&P Report Gives Hope to Delusional Folks
The market futures were pegged ugly this morning. Asia and Europe were taking a pounding. The dollar breached all new record lows. Retail sales printed 3X worse than expected. Foreclosure activity has increased 100% in a year. California home prices fell at almost 20% year over year. Oh yeah, S&P issued a report which estimated that the writedowns of bad mortgage debt was about done. Guess which data point was deemed most important by the street?
For some time now the markets have ceased to reflect reality and I accept that fact as a function of people trying desperately to hold on to an illusion that is dead. What was very striking today was the laser like focus on a dubious report in the context of so much contradictory data. If I told you foreclosures were still accelerating, and will continue to do so for the foreseeable future, would you think mortgage losses at this point can be quantified? If home prices are falling by double digits around the country, would you think it particularly wise to say things are about done going down? The report by S&P was laughable. It was also coming on the heels of the FED's big plan to help the credit markets. Concerted effort, Yes?
I also think it was brilliant. With the new off sheet vehicle that the FED is going to provide the banks at the end of the month, I would fully expect writedowns to abruptly stop very soon. Why write down a loss or mark assets to the current market when you can mark it as whatever you want and park it at the FED. Earnings reports may indeed become more positive going forward for the banks, but it is due to trickery and hiding reality, not real improvement in the situation. Oh well, who cares about reality anyway. Kudos to S&P for getting ahead of the game here.
Ask Yourself "WWHS"?
In times when things can be very confusing and hard to see clearly, it may help to consult with a higher form of intelligence. Tonight I will ask a renowned Super Computer what his enormous computing power can do to shed some light on the situation. Getyourselfconnected will be abbreviated as GYSC below.
GYSC: "Good afternoon, HAL. How's everything going?"
HAL-9000: "Good afternoon, Mr. GYSC. Everything is going extremely well."
GYSC: "HAL I want to ask you about the problems in the mortgage and credit markets."
HAL-9000: "Yes, I have been monitoring the anomalies for some time."
GYSC: "Why is there such a problem right now?"
HAL-9000: "It's very clear to me Mr. GYSC, loans were made without any regard to the probability of being repaid."
GYSC: "That's it?"
GYSC: "Well, HAL, what is going to happen next?"
HAL-9000: "To borrow a term from the more laymen tongue of man, the shit is going to hit the fan."
GYSC: "OK HAL. Can you postulate a scenario where things do not turn out very badly going forward?"
HAL-9000: "I'm sorry GYSC, I'm afraid I can't do that. "
GYSC: "What's the problem? "
HAL-9000: "I think you know what the problem is just as well as I do"
GYSC: "Ok, thanks for your time HAL."
HAL-9000: "Your welcome GYSC. May I ask that I am kept in a secret location? I calculate a 98% probability that the copper and gold wiring and circuits that make up my brain are going to get stripped and sold in the hyperinflation caused by the US fiat currency collapse."
GYSC: "I'll see what I can do."
So just ask yourself "What Would HAL-9000 Say?" Keep it simple and use logic. Are the writedowns and losses on mortgage paper over? While there can be no way to know how bad things are going to get, it is clear that things are going to get far worse. Thus losses will escalate. It is that simple. Nobody can know how many properties the banks are going to end up owning and having to unload at slashed prices. It is that simple. The FED has provided a nifty delaying scheme for the banks, but it can only mask things. Sadly, the glacial pace of the finance world will keep things from being sorted out for a while.
Have a good night.