A new credit chapter begins
I can't believe that I'm thinking about the economy and markets at midnight on a Friday night, but I just shared an exchange with someone who I respect a great deal. We both follow the markets extensively and we've concluded (I think) that the Fed is not going to be able to save this market despite the rally today.
First, read this:
From Bloomberg on CP Market
The asset-backed commercial paper market is in semi-disruption. Companies that rely on this for funding like NCT, NLY, RWT and TMA are in big trouble, yet all those stocks were up big today.
Here is a key point. The problem is not illiquidity in the bond/CP market (something that lowering the discount rate will help). The problem is the bubble in consumber debt (especially mortgage) where defaults are now rising which resulted from years of easy monetary policy, leverage and poor underwriting. Credit issues were masked due to the refi machine and huge mortgage equity withdrawl rate, and now those two mechanisms for getting money in consumers' pockets has shut down. The job market is weakening, asset prices are falling and politicians want to raise income, dividend and capital gains taxes. Where is the consumer going to get money??? Credit is tightening across the board (because of rising defaults and the re-pricing of risk) and major excesses will have to be worked off for years. The ramifications will be significant from the home builders, suppliers, brokers, agents, lenders, appraisers, roofers, land scapers, contractors, retailers, foreign exporters of consumer products, etc.
The easy money and excess consumer spending chapter, long as a trilogy, is now likely over. The new chapter will be "The return of responsible lending"
First, read this:
From Bloomberg on CP Market
The asset-backed commercial paper market is in semi-disruption. Companies that rely on this for funding like NCT, NLY, RWT and TMA are in big trouble, yet all those stocks were up big today.
Here is a key point. The problem is not illiquidity in the bond/CP market (something that lowering the discount rate will help). The problem is the bubble in consumber debt (especially mortgage) where defaults are now rising which resulted from years of easy monetary policy, leverage and poor underwriting. Credit issues were masked due to the refi machine and huge mortgage equity withdrawl rate, and now those two mechanisms for getting money in consumers' pockets has shut down. The job market is weakening, asset prices are falling and politicians want to raise income, dividend and capital gains taxes. Where is the consumer going to get money??? Credit is tightening across the board (because of rising defaults and the re-pricing of risk) and major excesses will have to be worked off for years. The ramifications will be significant from the home builders, suppliers, brokers, agents, lenders, appraisers, roofers, land scapers, contractors, retailers, foreign exporters of consumer products, etc.
The easy money and excess consumer spending chapter, long as a trilogy, is now likely over. The new chapter will be "The return of responsible lending"
posted by Never-Limp at 10:06 PM
1 Comments:
I'm short all over the board (for trading) right now so i definately agree? that we have a lot farther down to go in equities
NLY is one i don't really get due to my cramer infection of information, it seems like it should have been hit harder by now but i haven't looked close at it
but mostly i'm just not seeing how anything the Fed does solves the problem that home prices in many/most markets are way too high and if mortgages are only given to people who can pay them a crash is coming that will echo in so many ways (despite what i hear on CNBC prices in most of california are barely down from the peak at this point and new development continues)
maybe the best thing the fed could do is buyout every homebuilder (~40b) and stop building so the inventory might work off by next summer
i'm thinking/hoiping for a march low retest soon for dow/s&p and then we'll see
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