Obama Appears To Be The Man - Good Luck

I have no idea why anyone would want to be President in these times. You have to love pressure and no sleep. Now you can take your own views on the candidates themselves, but I think Obama has the better financial advisors. Bush has Phil Gramm, who some claim is one of the major culprits for our financial demise (Gramm - Leach - Bliley Act) and who at least is naive enough to call us all whiners. Then there is Kevin Hassett, co-author of DOW 36,000 (say no more). Obama on the other hand has the likes of Warren Buffet and Paul Volcker. I for one would not mind seeing Volcker as Secretary of the Treasury, which he is in serious contention for with Obama. He did a great job as Chairman of the Fed in the 1980s in a very difficult time, and I have seen a few speeches by him lately and he clearly understands what is happening.

Hopefully Obama, if he holds his lead and wins, will temper a Democratic Congress hell bent on over-regulation. We lacked proper balance the past 8-12 years (to little regulation and oversight) but the answer is not to swing the pendulem back too far the other way.

So let's get back to all things financial.

Who Woulda Known

Okay, I did not expect a big up day today. I expected more like yesterday's relatively flat performance. I thought we might get a small bounce Wednesday if Obama won, but otherwise did not see today coming. Perhaps it was anticipation of Obama winning or perhaps it was the LIBOR improving for a 17th consecutive day. Perhaps it was the nice weather - 64 degrees in New Hampshire today. Perhaps it was some relief on the emerging markets. Perhaps it was money waiting on the sidelines thinking it is time to get back in. Who knows? Good to see either way. There is still enough bad news to temper this, but maybe the market sees a bottom and people are not waiting for the turn in the economy. The market does normally turn before the economy. I just think this turn in the market is a little premature timing wise. We will see.

When is $33 Trillion Not Such a Big Number?

Answer, when you are comparing it to $62 trillion. Just a few months ago estimates had the Credit Default Swap market (basically insurance against debt default events), on a notional basis, at $62 trillion. The actual payout threat was obvoiusly much smaller. Now, in fairly short order, we are hearing that the number is down to $33 trillion. Still a big ass number, but roughly half of what it was. I know in the run up to the Lehman settlement various financial institutions got together and tore up off-setting swaps taking the number down to the low 50 trillion range, but $33 trillion is a good further drop. This number does cancel out overlapping trades, so that likely explains the reduction, but cancelling out overlapping or off-setting swaps assumes that both counterparties are in a position to pay. What if one side is insolvent at the time of the default event?

http://www.bloomberg.com/apps/news?pid=20601087&sid=auQSTZnaO5JY&refer=home

Housing Sucks Wind

Big news here, not, housing still gettin the big hurt put on it. D.R. Horton losing as much as $900 million in its fiscal fourth quarter. Foreclosures continue and they will get worse before we turn that corner. We are probably past the subprime peak but Alt- A ARMs are resetting at extreme levels next year and with the economy in a recession, with job losses it will continue to be a perfect storm. Add credit tightening and the millions of homeowners under water on their homes and it is rather ugly. From what I read, do not expect housing to really bottom until late 2009 at the earliest, and probably 2010.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aE.WSGzVew.k&refer=home

What?!?!

We have another brilliant move by the Fed. The New York Fed has hired the former chief risk officer of Bear Stearns as the Senior Vice President in the Bank Supervision Group. One could make a fairly well reasoned argument that this is STUPID!! He may know where the bodies are buried at Bear Stearns and the U.S. is on the hook there for $29 billion of that risk but let's not reward a guy that allowed his company to take on foolish levels of risk by letting him be anywhere near a position of power, much less in bank supervision. There are few people on Earth who have proven more convincingly that they are as inappropriate for this job as he is. Aaarrgghh!!

http://www.ny.frb.org/newsevents/news/aboutthefed/2008/oa081031.html

So You Want To Buy a Skyscraper?

Commercial real estate in NY has taken a decidedly southern turn. Down 61% and worse is expected in the fourth quarter. Moreover, a lot of the sales this year have been by distressed owners looking to raise cash and pay off debt. If you are a commercial tenant that is looking to renew a lease soon, this is good news. Otherwise, just another sign of the times.

http://www.nakedcapitalism.com/2008/11/new-york-commercial-real-estate.html