Got Some Company

Marc Faber and George Soros were both quoted by Bloomberg today as saying we are basically in a bear market rally and more correction is on the way. Wish I had said that!

http://www.bloomberg.com/apps/news?pid=20601087&sid=aiM9jQWdgWQg&refer=home

Seems the markets were perhaps listening to them, as well as to some early earnings news and downgrades.

Geithner's Plan - More Educated Criticism

I have been critical here of Geithner's plan on various fronts. There have been and continue to be much smarter people than me on the same side of this fence. I guess time will tell who is right.

http://www.nakedcapitalism.com/2009/04/harvard-princeton-economists-say-no.html

Great Depression Comparisons Continue

In most respects this recession so far is not as bad in the U.S. as The Great Depression, but if you go and look at the "Four Bad Bears" chart at Calculated Risk, we are chronologically not that far off in terms of market losses from where we were then. Indeed, the DOW had a bounce at about the same point then as the markets have now, and then it just resumed its downward treck with the occassional bounce.

http://www.nakedcapitalism.com/2009/04/world-economy-falling-faster-than-in.html

I am not saying we will get that bad and I do not think we will, but I do think we have a bit farther to fall. And the next linked article notes that while the U.S. is doing a smidge better the global economy is not much better than the big one. This fits with my perception that this will be close but not as bad as The Great Depression. My principal reason is that the housing bubble still has some air to lose. Prime mortgage delinquencies are still increasing and housing prices for the most part have not hit bottom. When housing reaches a bottom banks can begin to properly value their mess and we can start the healing process properly. We can begin some recovery before then - as in the corporate and individual deleveraging taking place - but we will not be able to find a bottom until we know how bad housing has become. It effects the bank toxic assets and individual debt/capital.

While here, let me mention a comment I had today on Seeking Alpha. The person leaving the comment noted that it was a bad time to short stocks (I agree that it is very risky) and that we are about to return to a Goldilocks economy much like the 2002-2007 period. It is this latter part of the comment that I feel compelled to discuss. If people truly have this belief I feel the need to note otherwise. I for one think the stock markets will be somewhat better five years from now than they are today but nothing like what we saw between 2002 and 2007. If you take a close look at those years they were not Goldilocks at all. They were years of us here in the U.S. spending beyond our means, increasing debt and living beyond our means. Consumer spending was roughly two thirds of the GDP and it was built on a shaky ground. The housing bubble allowed people to borrow more against false real estate values. Debt securitization allowed banks to lend more than they otherwise would have and to reduce credit standards to a fog the mirror standard. And credit agencies made it all seem fine and well.

Now we have vastly reduced housing prices that will return very slowly, so the home piggy bank is adios. We have unemployment that should approach 10% by 2010. We have banks unable to securitize anything. We have banks unwilling to lend and those who are unable to borrow. We have other countries now waking up and unwilling to fund our foolish spending ways. The only entity trying to support massive additional spending is the government and that is just us borrowing money to pay ourselves to spend more money. I am sure that is sustainable - not.

So any thought that we will return to that "Goldilocks" economy that never really existed is in my mind nonsense. It never existed and we are now entering the reality that the future needs to be a leaner more practical economy. Indeed, it should have been before.

Just my take. If you want more, go back to my earlier post on the New Reality, one of my better posts in my opinion.

http://seekingalpha.com/article/117788-the-new-economic-reality

I am not saying we are returning to the Beaver Clever times, but nonetheless there will be more sobering times. Not a bad thing overall, though I do feel sorry for those suffering the worst of it.

http://www.nakedcapitalism.com/2009/04/world-economy-falling-faster-than-in.html

Just a Couple More Points

Before closing out I have seen a couple of key news point worth mentioning. First, Moody's reports that the corporate bond default rate was the highest in March since the Great Depression. In other words the highest in most of our lifetimes. My dad may have seen a higher rate as a toddler, but I suspect that is not too relevant today. By the way, the picture on my profile is my dad holding me. It is not the most up to date photo, but I love it nonetheless.

http://globaleconomicanalysis.blogspot.com/2009/04/corporate-bond-default-rate-highest.html

The second point is that the Treasury is delaying its report on the stress tests of the top 19 financial institutions. Not a big surprise here.

http://globaleconomicanalysis.blogspot.com/2009/04/treasury-to-delay-reporting-bank-stress.html

The bigger question is whether the stress tests applied sufficient stess (I think not) and whether the results will be shared with the public (I question to what degree). We will see.


Disclosures: None