Housing Bubble, credit bubble, public planning, land use, zoning and transportation in the exurban environment. Specific criticism of smart growth, neotradtional, forms based, new urbanism and other top down planner schemes to increase urban extent and density. Ventura County, California specific examples.
Thursday, September 06, 2007
Fed Easing?
If you think with stock indicies within 1/2% of all time highs and oil at $77/bbl and inflation 40% above channel and the LIBOR spread widening to the upside that the FEd will ease you are krazy.
Countrywide to Cut About 900 More Jobs. My guess is that they aren't going to cut the full target (7,000?) at once, but rather in bits and pieces to try and minimize the feeling of panic. If I were working at Countrywide, though, I'd be in full-on panic mode, job-hunting in every spare minute and packing up for the inevitable move.
The messages or comments left at the board that bakersfield bubble found yesterday would indicate they ARE in full panic mode. Thank goodness I'm still shorting them:-)
All of a sudden 25 or 50bps is a bailout?! Please! I think those folks believe too much in the power of the fed. Lowering the FF by 50bps(i think they'll do 25, but I'm giving the bears 50 for the sake of argument) in Sept. isn't going to loosen lending standards. Short term rates and long term rates in the futures market have already been slashed. Thats what I don't get. People saying "let the markets clear" and the like don't want the fed to follow the markets. LIBOR is unsecured, and its widening reflects a crisis of confidence, not looming inflation. I don't think a rate cut will boost stocks or homes. If the fed stands pat, its signaling (IMO) that the economy is still robust and stocks will rally. A rate cut will signal the fed believes a recession is looming, and stocks will fall. Thats the problem with the no bailout crowd's argument - they've been calling this economy a mirage and been warning of the housing crisis pushing the economy into recession and now they want Herbert Hoover at the helm? I mean what would they expect the fed to do given their scenarios? Generally, the bears in this argument lean towards the left and NOW they don't want government intervention?.......
I agree with what they are saying on principle, but I don't think they fully understand that the entire finance industry for the last 15+ years has been built on bailouts..........you want to introduce market discipline? great, but that argument is like saying heroin addicts should just go cold turkey. Thats a sure fire way to bring on a recession - which will lead the fed to cut. The fed will cut, its just a matter of timing. Does the "let the market clear" crowd seriously believe that letting the dust settle on its own in the housing sector will not significantly slow growth, if not cause an outright recession? Do they now, all of a sudden believe that the economy is firing on all cylinders?
Inflation is running hotter than the fed would like - but this isn't anywhere near the levels seen in 1980.
Good points particularly the pushing on a string that a FF cut won't solve the problems and the money will go to shoring the IBs balance sheets instead. A cut now is a to let loose inflation and hurt the dollar. That could be recessionary in itself.
There is one benefit. Lots of ARMs and HELOCs are tied to Prime. 25bps isn't much but it is better than a sharp stick in the eye.
This is why we are not hearing the full story on layoffs -
Quote: After the cuts, several dozen laid-off workers gathered at the Green Iguana bar and restaurant down the road from their former office. None would give their name, saying managers were instructed to cut off their 60-day severance pay and health benefits if they talked to the media.
the main "fly in the ointment" for the bears about stocks is this - yes a declining dollar is inflationary but............the major large cap stocks are less and less dependent on the american economy for their profits (they are dependent on the financing they get here, hence the R2K under-performance IMO). so, as long as the real rates of return for large multi-national corporations are higher than real inflation, expect the dollar to decline and stocks to rise. the two keys are 1) unit labor costs - the dumbing down in american education is excellent for employers whose overwhelming majority of employees think a million dollars means your rich, and 2) the japanese yen - as long as wall st. can still borrow against a weaker yen they will be able to produce positive rates of return all over the globe. a strong dollar will no doubt cure inflation, but also put the remaining american manufacturing in a less competitive advantage as well as reduce the profits of the large cap stocks - which the overwhelming majority of investments are tied to.
you have every politico on the hill calling for a faster appreciation of the yuan.........what do you think is going to happen to american corporations' investment returns once that's finally over? the dollar depreciation/inflation concern will come to an end, but not now, and not after significant pain and readjustment. but on the front burner is the commercial paper market - its been nuked. i was one of those who believed there was another side to the CDO trade and that would offset, to a degree, any pain in the subprime market. My point is the subprime market has produced a contagion across the board in the credit markets. This is no longer about bailing out homeowners in cali - its about saving well run small business across the country that are dependent upon short term financing for their businesses.
Lowering the FF 50bps isnt going to save these ARMS that are set to readjust - you're gonna need cash up-front to re-fi. The fed will not be the ones to create the moral hazard here - thats what congress if for. And, with the election season getting ramped up, expect both sides to try to capitalize on it.
And if you look at the return on the S&P, DOW and NAZ - your beating inflation YTD.........which, depending upon where you live, and when you bought, is offsetting your decline in the house you live in.
There will come a time when we need another Volker, but that isn't as pressing enough to overcome the lockup in credit markets now.
Let me take a moment to praise you for the depth and quality of your responses. So many other blogs get swamped by extremists on both ends.
Yes, the big cap COMPANIES will do well. Their respective stocks? Different story.
There will come a time when we need another Volker, but that isn't as pressing enough to overcome the lockup in credit markets now. Gosh, I'm not sure how old the audience is. Volker? A WW-I airplane?
Seriously, IMO the very worst thing that can happen is letting the inflation monster out of its cage. This isn't last time. We mice can load up on Krone based CDs with a dozen web clicks. We mice could implode the dollar. We cannot prop the dollar any longer.
I am the next Volker but I'm not going to be appointed. That's another problem. The people we need to fix the problems are not going to step up or even get consideration.
I really wish they'd keep rates where they are. Maybe even bump them up a bit. I was just starting to enjoy my CD's at 5%.
I am not sure why a $600,000 mortgage is any more affordable for a $50k income family when the interest rate is fixed at 6% vs an ARM at 9%. They are screwed either way.
They're all hosed, nothing the Fed can do about it. They might as well reward savers for once.
one of the major problems with the Fed is that Volker was successful - he proved you can whip the monetary inflation, but markets are always changing. i don't think we can be so sure that hiking FF to relatively insane levels will do the trick this time around.........the longer we wait the harder and more painful the eventual "solution" will be. i'm hardcore about inflation as well, but that mentality isn't a reality here, its not in the body politik, which is the only way you can ever get the fed to pull a Volker, on the bright side of that argument the British are staying tough - gold crossed 700 today - the markets are expecting a fed cut - i think you sell gold post FOMC for a quick turn, but bernanke's tight rope just got a hell of a lot thinner - there's no right answer, he's boxed in - he saves the economy, commodity based inflation gets new life, he tries to save the $ and the poor in america he hurts their employment situation, via recession, but saves their purchasing power...........long run the answer is easy, but as we all know what keynes said about the long term.........
thats why i say 25bps - he doesnt want a panic about a recession (which is what i feel that would signal to markets), but he's also got to try to get the credit side of the ledger off the picket lines.........he can't win......we'll really see where his ideological beliefs lie, maybe - 25pbs is a punt - its the easy answer. he acknowledges the problems in the market, but at the same time doesn't give them a low enough hurdle rate to revive the excesses that brought about this mess. but then we have another FOMC meeting in Oct.......and we'll run through these scenarios over and over again.
if your trading this - you have to reduce you time horizons - take the quick fade or scalp and wait in the bushes for the next ambush.....
love the blog btw......wish the boywonder was still around - always loved your comments about it
The Beige Book report should have been a big enough signal to the Feds Fund gamblers that the Fed will not move rates in Sept. It's going to take some bias changing phrases in this meeting and later meetings to signal the next cut. One of Bernanke's goals with the Fed now is to differentiate himself from Greenspan, both in the easy money rep and in the 'confusing gobbledegook' speeches. The Fed does not liek surprises, and it would be a surprise for a cut after a positive Beige Book report, above norm inflation data & good manufacturing/service sector news of the last couple weeks.
@Rob Dawg - I enjoy the Everbank options, and if your interested in a natural resource soon to be net creditor nation, consider Canadian GICs. The rates are slightly higher due to a direct investment rather than the profit skim Everbank has to take to turn a profit, and once you set up the account at the bank, all CD roll overs and transactions can be done over the phone. Problem is the 10% tax withholding.
My gut prediction on rate cuts is Bernanke will not do it in Sept. He still needs to establish tough credentials as an inflation fighter. Also the dumping of money into the markets that he is currently doing is maintaining liquidity.
I hope the Fed doesn't cut rates. It's just not the right thing to do.
But, what do I do about investments? That's what I wonder.
Rather than turn the blog into a 'brag on investment return to compensate for a short dick' fiasco that has been increasing...I'll just say I am tempted to close my bearish shorts prior to the announcement to lock in gains and let my inflationary investments ride. Then I'll regroup over the next few days.
I don't trust the Fed. I'm afraid they will take the easy way out and spike the punchbowl just enough to keep the party going but leave enough off the table the partygoers bitch the host is a prude. To much pain to be taken too fast by doing the rate thing and holding or raising
Also, I may lose (loose) out on some gains this way but I won't be losing (loosing) much profits?
The best traders I know of, like Todd Harrison at Minyanville, are being very cautious these days and trading small positions over short timeframes. There's just too much risk right now of crazy movements in the markets, and that's likely to stay the case for the next few weeks.
The Fed's got itself in its own little conundrum. It's something of a staredown between Wall Street and the Fed; Wall Street wants to flex its muscles and show that it can tell the Fed what to do, while the Fed wants to maintain the illusion that it's in control.
If the Fed gives in and starts cutting rates, Wall Street will continue to bully and harrass them until they've gotten rates down to 1% or 2% (you didn't seriously think Wall Street would be happy with 4% or 5%, did you?) On the other hand, the Fed would probably like to cut the rates to try and save the credit markets, but if they do so they'll look like weaklings. Hard to say which direction Bernanke will go; maybe leave rates unchanged but put in wording suggesting a future decrease. Cramer will blow a fuse, but it will look--at least for the moment--like the Fed is still in control.
Thanks to Bakersfield Bubble for the link to the Countrywide blog. Absolutely fascinating, sounds like a downright terrible place to work. The previous company I worked for went through several rounds of layoffs, but it never got nearly as mean-spirited as it sounds like things are at Countrywide right now.
I'm starting to see the advantages of working in a partnership. Yes, the junior people (=me) work long hours so that the partners can enjoy their flexible schedules and oversized bonuses. But everyone's in it together, if the company suffers, everyone suffers, if the company is losing money, then everyone in the profit-sharing, including and especially the partners, loses money. That's not to say that partnerships don't have problems, but they don't have executives robbing the company blind while laying off the hard-working people who were living paycheck-to-paycheck.
Rob, any insights on Apple? The "blogosphere" (I still hate that term) is livid over the price cuts, looks like Apple might try to cut the early adopters of the iPhone some sort of concession. Hard to say what this means for their business, however.
Apple has always exhibited a sawtooth stock price; inch up, drop hard, repeat. They were brilliant with the pricing. The iPods are competing with iPods leaving no room for competition to find either a price point or niche. The iPhone is being carefully herded so that it doesn't trip up as it tries to become ubiquitous. The early high price was part of it not becoming too popular until they were sure they could scale. The price cuts just screwed every other potential competitor royally. At least half were only interested because they thought they had Apple beat on price knowing they could not beat on features. Now they are dead and all their pre-order Flash is belong to Apple at a discount. Sombody put a price of 210 in '07 recently. I don't doubt it although I do not currently have a position.
AAPL is aware that they will soon be staring down the barrel of some serious competition: The GPhone. All of the design and far better functionality features of the iPhone at a price point of - $100 for the handset and FREE monthly usage subsidized by advertising.
26 comments:
But Larry Kudlow said so!
Countrywide to Cut About 900 More Jobs. My guess is that they aren't going to cut the full target (7,000?) at once, but rather in bits and pieces to try and minimize the feeling of panic. If I were working at Countrywide, though, I'd be in full-on panic mode, job-hunting in every spare minute and packing up for the inevitable move.
@PV
The messages or comments left at the board that bakersfield bubble found yesterday would indicate they ARE in full panic mode. Thank goodness I'm still shorting them:-)
A dam burst almost always starts with a trickle. CFC thinks it can retreat gracefully in some sort of phased transition. No chance. Too late.
All of a sudden 25 or 50bps is a bailout?! Please! I think those folks believe too much in the power of the fed. Lowering the FF by 50bps(i think they'll do 25, but I'm giving the bears 50 for the sake of argument) in Sept. isn't going to loosen lending standards. Short term rates and long term rates in the futures market have already been slashed. Thats what I don't get. People saying "let the markets clear" and the like don't want the fed to follow the markets. LIBOR is unsecured, and its widening reflects a crisis of confidence, not looming inflation. I don't think a rate cut will boost stocks or homes. If the fed stands pat, its signaling (IMO) that the economy is still robust and stocks will rally. A rate cut will signal the fed believes a recession is looming, and stocks will fall. Thats the problem with the no bailout crowd's argument - they've been calling this economy a mirage and been warning of the housing crisis pushing the economy into recession and now they want Herbert Hoover at the helm? I mean what would they expect the fed to do given their scenarios? Generally, the bears in this argument lean towards the left and NOW they don't want government intervention?.......
I agree with what they are saying on principle, but I don't think they fully understand that the entire finance industry for the last 15+ years has been built on bailouts..........you want to introduce market discipline? great, but that argument is like saying heroin addicts should just go cold turkey. Thats a sure fire way to bring on a recession - which will lead the fed to cut. The fed will cut, its just a matter of timing. Does the "let the market clear" crowd seriously believe that letting the dust settle on its own in the housing sector will not significantly slow growth, if not cause an outright recession? Do they now, all of a sudden believe that the economy is firing on all cylinders?
Inflation is running hotter than the fed would like - but this isn't anywhere near the levels seen in 1980.
Good points particularly the pushing on a string that a FF cut won't solve the problems and the money will go to shoring the IBs balance sheets instead. A cut now is a to let loose inflation and hurt the dollar. That could be recessionary in itself.
There is one benefit. Lots of ARMs and HELOCs are tied to Prime. 25bps isn't much but it is better than a sharp stick in the eye.
Yesterday I was Stopped out of GS long at 178 initiated at 168.
Today I exited AAPL short at 134.20 initiated yesterday at 142.60.
CFC isn't volatile enough right now to interest me, but if it goes below 17 I will take it long.
I beleive AAPL has alot more downside coming from the impact of iphone price cuts and then later with the news of the gphone.
This is why we are not hearing the full story on layoffs -
Quote:
After the cuts, several dozen laid-off workers gathered at the Green Iguana bar and restaurant down the road from their former office. None would give their name, saying managers were instructed to cut off their 60-day severance pay and health benefits if they talked to the media.
http://www.tmcnet.com/usubmit/-countrywide-layoff-toll-225-/2007/09/06/2916157.htm
I must be crazy then, because the fed will cut b4 the end of the year. They're making book on it.
PORTFOLIO WATCH:
My core port (taxable) of Vanguard index funds is up 6.63% YTD.
My port of various sector mutual funds (tax defered) is up 18.91% YTD.
My options / trading port (tax defered) is up 23.18% YTD.
Blended YTD gain = 12.08%
Lagging the last few years but still not bad!
the main "fly in the ointment" for the bears about stocks is this - yes a declining dollar is inflationary but............the major large cap stocks are less and less dependent on the american economy for their profits (they are dependent on the financing they get here, hence the R2K under-performance IMO). so, as long as the real rates of return for large multi-national corporations are higher than real inflation, expect the dollar to decline and stocks to rise. the two keys are 1) unit labor costs - the dumbing down in american education is excellent for employers whose overwhelming majority of employees think a million dollars means your rich, and 2) the japanese yen - as long as wall st. can still borrow against a weaker yen they will be able to produce positive rates of return all over the globe. a strong dollar will no doubt cure inflation, but also put the remaining american manufacturing in a less competitive advantage as well as reduce the profits of the large cap stocks - which the overwhelming majority of investments are tied to.
you have every politico on the hill calling for a faster appreciation of the yuan.........what do you think is going to happen to american corporations' investment returns once that's finally over? the dollar depreciation/inflation concern will come to an end, but not now, and not after significant pain and readjustment. but on the front burner is the commercial paper market - its been nuked. i was one of those who believed there was another side to the CDO trade and that would offset, to a degree, any pain in the subprime market. My point is the subprime market has produced a contagion across the board in the credit markets. This is no longer about bailing out homeowners in cali - its about saving well run small business across the country that are dependent upon short term financing for their businesses.
Lowering the FF 50bps isnt going to save these ARMS that are set to readjust - you're gonna need cash up-front to re-fi. The fed will not be the ones to create the moral hazard here - thats what congress if for. And, with the election season getting ramped up, expect both sides to try to capitalize on it.
And if you look at the return on the S&P, DOW and NAZ - your beating inflation YTD.........which, depending upon where you live, and when you bought, is offsetting your decline in the house you live in.
There will come a time when we need another Volker, but that isn't as pressing enough to overcome the lockup in credit markets now.
yes a declining dollar is inflationary but....
Let me take a moment to praise you for the depth and quality of your responses. So many other blogs get swamped by extremists on both ends.
Yes, the big cap COMPANIES will do well. Their respective stocks? Different story.
There will come a time when we need another Volker, but that isn't as pressing enough to overcome the lockup in credit markets now.
Gosh, I'm not sure how old the audience is. Volker? A WW-I airplane?
Seriously, IMO the very worst thing that can happen is letting the inflation monster out of its cage. This isn't last time. We mice can load up on Krone based CDs with a dozen web clicks. We mice could implode the dollar. We cannot prop the dollar any longer.
I am the next Volker but I'm not going to be appointed. That's another problem. The people we need to fix the problems are not going to step up or even get consideration.
Volker? A WW-I airplane?
Hey now, be fair. Volker is still around and making regional jets.
I really wish they'd keep rates where they are. Maybe even bump them up a bit. I was just starting to enjoy my CD's at 5%.
I am not sure why a $600,000 mortgage is any more affordable for a $50k income family when the interest rate is fixed at 6% vs an ARM at 9%. They are screwed either way.
They're all hosed, nothing the Fed can do about it. They might as well reward savers for once.
one of the major problems with the Fed is that Volker was successful - he proved you can whip the monetary inflation, but markets are always changing. i don't think we can be so sure that hiking FF to relatively insane levels will do the trick this time around.........the longer we wait the harder and more painful the eventual "solution" will be. i'm hardcore about inflation as well, but that mentality isn't a reality here, its not in the body politik, which is the only way you can ever get the fed to pull a Volker, on the bright side of that argument the British are staying tough - gold crossed 700 today - the markets are expecting a fed cut - i think you sell gold post FOMC for a quick turn, but bernanke's tight rope just got a hell of a lot thinner - there's no right answer, he's boxed in - he saves the economy, commodity based inflation gets new life, he tries to save the $ and the poor in america he hurts their employment situation, via recession, but saves their purchasing power...........long run the answer is easy, but as we all know what keynes said about the long term.........
thats why i say 25bps - he doesnt want a panic about a recession (which is what i feel that would signal to markets), but he's also got to try to get the credit side of the ledger off the picket lines.........he can't win......we'll really see where his ideological beliefs lie, maybe - 25pbs is a punt - its the easy answer. he acknowledges the problems in the market, but at the same time doesn't give them a low enough hurdle rate to revive the excesses that brought about this mess. but then we have another FOMC meeting in Oct.......and we'll run through these scenarios over and over again.
if your trading this - you have to reduce you time horizons - take the quick fade or scalp and wait in the bushes for the next ambush.....
love the blog btw......wish the boywonder was still around - always loved your comments about it
Thank the government's CRA:
http://www.lewrockwell.com/dilorenzo/dilorenzo125.html
@board - great comments all around
The Beige Book report should have been a big enough signal to the Feds Fund gamblers that the Fed will not move rates in Sept. It's going to take some bias changing phrases in this meeting and later meetings to signal the next cut. One of Bernanke's goals with the Fed now is to differentiate himself from Greenspan, both in the easy money rep and in the 'confusing gobbledegook' speeches. The Fed does not liek surprises, and it would be a surprise for a cut after a positive Beige Book report, above norm inflation data & good manufacturing/service sector news of the last couple weeks.
@Rob Dawg - I enjoy the Everbank options, and if your interested in a natural resource soon to be net creditor nation, consider Canadian GICs. The rates are slightly higher due to a direct investment rather than the profit skim Everbank has to take to turn a profit, and once you set up the account at the bank, all CD roll overs and transactions can be done over the phone. Problem is the 10% tax withholding.
Have been digging around on offbeat subjects around CFC
Mozilo retirement/succession questions
BOA sold 1.341,341 shares in June They might have been trying to drive CFC into bankruptcy before the preferred sale deal
My gut prediction on rate cuts is Bernanke will not do it in Sept. He still needs to establish tough credentials as an inflation fighter. Also the dumping of money into the markets that he is currently doing is maintaining liquidity.
I agree. I don't think he will cut either. It won't help the situation.
I hope the Fed doesn't cut rates. It's just not the right thing to do.
But, what do I do about investments? That's what I wonder.
Rather than turn the blog into a 'brag on investment return to compensate for a short dick' fiasco that has been increasing...I'll just say I am tempted to close my bearish shorts prior to the announcement to lock in gains and let my inflationary investments ride. Then I'll regroup over the next few days.
I don't trust the Fed. I'm afraid they will take the easy way out and spike the punchbowl just enough to keep the party going but leave enough off the table the partygoers bitch the host is a prude. To much pain to be taken too fast by doing the rate thing and holding or raising
Also, I may lose (loose) out on some gains this way but I won't be losing (loosing) much profits?
The best traders I know of, like Todd Harrison at Minyanville, are being very cautious these days and trading small positions over short timeframes. There's just too much risk right now of crazy movements in the markets, and that's likely to stay the case for the next few weeks.
The Fed's got itself in its own little conundrum. It's something of a staredown between Wall Street and the Fed; Wall Street wants to flex its muscles and show that it can tell the Fed what to do, while the Fed wants to maintain the illusion that it's in control.
If the Fed gives in and starts cutting rates, Wall Street will continue to bully and harrass them until they've gotten rates down to 1% or 2% (you didn't seriously think Wall Street would be happy with 4% or 5%, did you?) On the other hand, the Fed would probably like to cut the rates to try and save the credit markets, but if they do so they'll look like weaklings. Hard to say which direction Bernanke will go; maybe leave rates unchanged but put in wording suggesting a future decrease. Cramer will blow a fuse, but it will look--at least for the moment--like the Fed is still in control.
Thanks to Bakersfield Bubble for the link to the Countrywide blog. Absolutely fascinating, sounds like a downright terrible place to work. The previous company I worked for went through several rounds of layoffs, but it never got nearly as mean-spirited as it sounds like things are at Countrywide right now.
I'm starting to see the advantages of working in a partnership. Yes, the junior people (=me) work long hours so that the partners can enjoy their flexible schedules and oversized bonuses. But everyone's in it together, if the company suffers, everyone suffers, if the company is losing money, then everyone in the profit-sharing, including and especially the partners, loses money. That's not to say that partnerships don't have problems, but they don't have executives robbing the company blind while laying off the hard-working people who were living paycheck-to-paycheck.
Rob, any insights on Apple? The "blogosphere" (I still hate that term) is livid over the price cuts, looks like Apple might try to cut the early adopters of the iPhone some sort of concession. Hard to say what this means for their business, however.
Apple has always exhibited a sawtooth stock price; inch up, drop hard, repeat. They were brilliant with the pricing. The iPods are competing with iPods leaving no room for competition to find either a price point or niche. The iPhone is being carefully herded so that it doesn't trip up as it tries to become ubiquitous. The early high price was part of it not becoming too popular until they were sure they could scale. The price cuts just screwed every other potential competitor royally. At least half were only interested because they thought they had Apple beat on price knowing they could not beat on features. Now they are dead and all their pre-order Flash is belong to Apple at a discount. Sombody put a price of 210 in '07 recently. I don't doubt it although I do not currently have a position.
AAPL is aware that they will soon be staring down the barrel of some serious competition: The GPhone. All of the design and far better functionality features of the iPhone at a price point of - $100 for the handset and FREE monthly usage subsidized by advertising.
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