The Great Recession - post mortem

[Desnudo]

For the original question - other than high gas prices, I haven't seen anything on a personal level to indicate a recession.

[Sidhe]

The price of food has gone up considerably in the last months. When you buy for a family of five, it's more than noticeable. I have to imagine anything that is imported must be more expensive due to the falling dollar too.

[mrsimperless]

Originally Posted by Sidhe

The price of food has gone up considerably in the last months. When you buy for a family of five, it's more than noticeable. I have to imagine anything that is imported must be more expensive due to the falling dollar too.

This is what makes me think we're in for a lot of trouble. We're already seeing signs of inflation and yet we're still lowering interest rates. Depending on how long the lag time is on these things it might get really ugly.

[molson]

Originally Posted by Desnudo

For the original question - other than high gas prices, I haven't seen anything on a personal level to indicate a recession.

It still feels regional - no sign of trouble in Idaho (and from what I hear, most of the mountain time zone states).

I was upset at something that happened at work a few weeks ago and sent out one resume. Today I'm giving notice and then starting at the new job in two weeks, with a 15% pay raise. I don't know anyone having trouble finding a job out here.

Real Estate is still growing, but more modestly compared to the population growth here.

[Edward64]

74% nationally believes its a recession. Our FOF board is higher than that.

http://money.cnn.com/2008/03/17/news...ion=2008031712

Three out of four say it's a recession - survey ...

In a telephone poll of over 1,000 adult Americans, 74% said they believe the nation is now in a recession. That figure rose from 66% in February and 61% in January.

Listening to the TV pundits on the Enron mess, I wonder who the Auditors were for Bear Stearns?

[kcchief19]

Originally Posted by Edward64

74% nationally believes its a recession. Our FOF board is higher than that.

http://money.cnn.com/2008/03/17/news...ion=2008031712

Here's the amazing thing -- the definition of a recession is at least two quarters of negative growth. So far, we haven't even posted one. It's entirely possible 08Q1 could be a negative growth but it's not a guarantee.

My point is that we have a very distorted and twisted version of what a recession is because things have been so good for so long. Hardly anyone under age 30 really knows what a recession is because we've only really had one real recession and one borderline recession since the mid '80s. Good grief, in the '80s we would have killed for 5% unemployment and 6% mortgage rates.

I'm borderline annoyed that people are so spoiled that they see a momentary correction as a recession. Don't take that the wrong way -- I feel for anyone who is losing their job, is having trouble with their mortgage, etc. It's tough all over. I know friends of mine will lose their jobs. But given the mindset of the public, I can't imagine the reaction if we actually have a recession -- and you don't need to look any further than people on this board who use words like "depression." Unreal.

[Edward64]

Originally Posted by kcchief19

Here's the amazing thing -- the definition of a recession is at least two quarters of negative growth. So far, we haven't even posted one. It's entirely possible 08Q1 could be a negative growth but it's not a guarantee.

I thought so too, but see Grammaticus post #4.

[Marc Vaughan]

I'm completely bemused at the constant over-reaction to any little snippet of information by the stock market, indeed one of my amusements recently has been watching the experts on bloomberg trying to explain why the market is heading in one direction or another (yes I'm sad).

The problem is that recessions can be self-fulfilling, people are told continually there will be a recession, they start getting cagey and not spending money - companies generate less revenue from this so start laying people off - repeat cycle until recession.

A similar thing can be seen in the stock market by and large with the market expecting bad things so running away from the financial stocks, meaning they fall - cue market experts talking about bank failures, cue withdrawal of major investments and hey presto bank failures ..

The sad thing is that the bears will undoubtably help ensure that at least one more major financial institution falls because this is over - I personally believe Bear Sterns when they indicated that they were liquid until fairly recently.

[molson]

Originally Posted by kcchief19

My point is that we have a very distorted and twisted version of what a recession is because things have been so good for so long. Hardly anyone under age 30 really knows what a recession is because we've only really had one real recession and one borderline recession since the mid '80s. Good grief, in the '80s we would have killed for 5% unemployment and 6% mortgage rates.

It almost seems as though people are rooting for a recession. Everyone jumps over every little negative tidbit yelling, "see! see! we're all going down!". I think there's some element of people hoping that Bush's presidency will be remembered even worse.

[Edward64]

It almost seems as though people are rooting for a recession. Everyone jumps over every little negative tidbit yelling, "see! see! we're all going down!". I think there's some element of people hoping that Bush's presidency will be remembered even worse.

The reasoning is IMO there is *no way* the market will stabilize and grow until the psychology of the market is satisfied.

Right or wrong, the market believes we are in a recession.

Right or wrong, the market will not stabilize and grow until it believes we have "hit bottom".

The quicker this happens, the quicker we get through this mess.

Therefore, I guess I am guilty of this thought process ... but it is not Bush related.

[molson]

Originally Posted by Edward64

The reasoning is IMO there is *no way* the market will stabilize and grow until the psychology of the market is satisfied.

Right or wrong, the market believes we are in a recession.

Right or wrong, the market will not stabilize and grow until it believes we have "hit bottom".

The quicker this happens, the quicker we get through this mess.

Therefore, I guess I am guilty of this thought process ... but it is not Bush related.

Good point - recessions in the era of instant media are an interesting thing. Because of all the info, the market and economy is correcting before we even reach the recession. What I wonder is whether that softens the overall blow, or does it just make things worse?

[Anthony]

1. i don't know why the gov't gifted Bear Stearns to JP Morgan. wouldn't it have been better to basically have a "one day sale! hurry hurry, come with your best offers for Bear Stearns, highest bid wins!" type auction. that was unnecessary and i think putting Bear Stearns on the open market would've yielded a higher price.

2. there is a lot of doom and gloom on these financial shows, i have CNBC on over my cube cuz i work in the mutual fund industry. basically this is good for ratings, and its very hard to discern how much of what is being reported is accurately a big deal and what is being fluffed up just to have something to report. obviously we're in a bad way with the economy, but people don't tune in to CNBC when things are going good, if you get what i'm saying. point being there's certain entities that have a vested interest if things are reported a certain way. you can see them reporting with this look of glee.

[Flasch186]

Originally Posted by Hell Atlantic

1. i don't know why the gov't gifted Bear Stearns to JP Morgan. wouldn't it have been better to basically have a "one day sale! hurry hurry, come with your best offers for Bear Stearns, highest bid wins!" type auction. that was unnecessary and i think putting Bear Stearns on the open market would've yielded a higher price.

the only people who got fucked were Bear's employees who owned stock and options and investors. This was a huge "fuck you" to them.

For everyone in the other thread chanting morality when it comes to individuals deciding that foreclosure is a viable option I point you in the direction of, well, everywhere else. Until the banks heed Bernanke's advice to negotiate down principle on loans which actually helps the individual INSTEAD of choosing to simply write debt down which doesn't help the individual, morality is standing on a very small soapbox.

[Logan]

Originally Posted by Hell Atlantic

1. i don't know why the gov't gifted Bear Stearns to JP Morgan. wouldn't it have been better to basically have a "one day sale! hurry hurry, come with your best offers for Bear Stearns, highest bid wins!" type auction. that was unnecessary and i think putting Bear Stearns on the open market would've yielded a higher price.

Did you miss this excerpt in one of Ed's posts?

Over the weekend, Bear Stearns, with the Federal Reserve and Treasury Department patched in by conference call from Washington, held the equivalent of a speed-dating auction, with prospective bidders holed up in a half dozen conference rooms at its Madison Avenue headquarters.

While the talks were taking place, Bear Stearns was simultaneously preparing a bankruptcy filing in the event the deal had fallen through, underscoring the severity of the firm’s troubles.

While the firm toyed with suitors including the big private equity firms Kohlberg Kravis Roberts & Company, which had its roots at Bear Stearns, and J.C. Flowers & Company, the only meaningful bidder was JPMorgan, headed by Mr. Dimon, who slept less than four hours the entire weekend.

[Marc Vaughan]

For everyone in the other thread chanting morality when it comes to individuals deciding that foreclosure is a viable option I point you in the direction of, well, everywhere else. Until the banks heed Bernanke's advice to negotiate down principle on loans which actually helps the individual INSTEAD of choosing to simply write debt down which doesn't help the individual, morality is standing on a very small soapbox.

This is something I really really don't understand - there is no reason to lower the principle on the mortgages, just to renegotiate the terms so people can afford them surely?

The mortgages which are so problematic for the financial industry at the moment have largely been paid on the lower rates which they were first set at - rather than go "oh god no they're all going to default" why don't the banks just talk to the people involved.

Allow them to extend their 'cheap' rates for another 5-10 years at the cost of them being charged a bulk sum into the price of their mortgage up front (say 3% of their mortgage total).

I'd expect most people would accept because it allows them to retain their house and keep their payments very close to their current levels.

This would mean the mortgages don't default, thus over time the value of said mortgages would rise back up to a more sensible value and trade normally givinig liquidity back to the market.

(and yes I realise that the mortgages in many cases exceed the present value of the house in question - but surely if the mortgage rate is cheaper than renting the equivalent property most people would choose to stay in their house and wait for the prices to recover than flush money away on rent?)

[JPhillips]

The problems in the economy aren't being caused by pessimsts. There is a very real credit problem that's driving this. Financial institutions are still holding hundreds of billions of dollars of what will likely be worthless mortgages, commercial loans, credit card debt, etc. The problem, however, is these things have been packaged and sold so many times that it's unclear what has value and what doesn't. Because of the inability to verify assets/debts financial institutions aren't willing to loan money to anyone but solid credit risks and even then the downturn in the economy and the gloomy prospects for the future make them hesitant.

There's simply no way out of hundreds of billions in bad loans that isn't painful. My problem is that it appears the pain will be centered on the individual borrower while institutions and large shareholders will be bailed out by the government. Privatize the profits and socialize the losses.

[JPhillips]

Here's a fairly understandable primer on what the Fed is doing.

http://www.rgemonitor.com/blog/roubini/249924

This is the most radical change and expansions of Fed powers and functions since the Great Depression: essentially the Fed now can lend unlimited amounts to non bank highly leveraged institutions that it does not regulate. The Fed is treating this run on the shadow financial system as a liquidity run but the Fed has no idea of whether such institutions are insolvent. As JPMorgan paid only about $200 million for Bear Stearns – and only after the Fed promised a $30 billlion loan – this was a clear case where this non bank financial institution was insolvent.


The Fed has no idea of which other primary dealers may be insolvent as it does not supervise and regulate those primary dealers that are not banks. But it is treating this crisis – the most severe financial crisis in the US since the Great Depression – as if it was purely a liquidity crisis. By lending massive amounts to potentially insolvent institutions that it does not supervise or regulate and that may be insolvent the Fed is taking serious financial risks and seriously exacerbate moral hazard distortions. Here you have highly leveraged non bank financial institutions that made reckless investments and lending, had extremely poor risk management and altogether disregarded liquidity risks; some may be insolvent but now the Fed is providing them with a blank check for unlimited amounts. This is a most radical action and a signal of how severe the crisis of the banking system and non-bank shadow financial system is. This is the worst US financial crisis since the Great Depression and the Fed is treating it as if it was only a liquidity crisis. But this is not just a liquidity crisis; it is rather a credit and insolvency crisis. And it is not the job of the Fed to bail out insolvent non bank financial institutions. If a bail out should occur this is a fiscal policy action that should be decided by Congress after the relevant equity holders have been wiped out and senior management fired without golden parachutes and huge severance packages.

[Flasch186]

Originally Posted by Marc Vaughan

This is something I really really don't understand - there is no reason to lower the principle on the mortgages, just to renegotiate the terms so people can afford them surely?

The mortgages which are so problematic for the financial industry at the moment have largely been paid on the lower rates which they were first set at - rather than go "oh god no they're all going to default" why don't the banks just talk to the people involved.

Allow them to extend their 'cheap' rates for another 5-10 years at the cost of them being charged a bulk sum into the price of their mortgage up front (say 3% of their mortgage total).

I'd expect most people would accept because it allows them to retain their house and keep their payments very close to their current levels.

This would mean the mortgages don't default, thus over time the value of said mortgages would rise back up to a more sensible value and trade normally givinig liquidity back to the market.

(and yes I realise that the mortgages in many cases exceed the present value of the house in question - but surely if the mortgage rate is cheaper than renting the equivalent property most people would choose to stay in their house and wait for the prices to recover than flush money away on rent?)

oh, whether its the only option wasnt my point, i apologize I only used it as Bernanke's suggested idea, however my point is that right now, as mentioned in the thread about my parents looking at foreclosure, the banks are "writing off debt" which hurts themselves and shareholders while not helping the people who need it most AND helping themselves. If theyre going to write it down anyways, they may as well do it on the front end instead of the backend.

[Anthony]

Originally Posted by Logan

Did you miss this excerpt in one of Ed's posts?

oof. I guess Drew Rosenhaus was 100% correct when he wrote one of my favorite books "A Shark Never Sleeps".

[Marc Vaughan]

Originally Posted by JPhillips

The problems in the economy aren't being caused by pessimsts. There is a very real credit problem that's driving this. Financial institutions are still holding hundreds of billions of dollars of what will likely be worthless mortgages, commercial loans, credit card debt, etc. The problem, however, is these things have been packaged and sold so many times that it's unclear what has value and what doesn't. Because of the inability to verify assets/debts financial institutions aren't willing to loan money to anyone but solid credit risks and even then the downturn in the economy and the gloomy prospects for the future make them hesitant.

But thats what I don't understand - these mortgages aren't 'worthless' ... if you look at them as a whole only a fairly percentage of them have defaulted so far and of those a reasonable number wouldn't have done so if the banks had met them halfway by renegotiating terms.

As such they're largely involvent by their own devices - if they'd talk to the people who owe on the mortgages then surely those 'worthless mortgages' would be worth a bit more.

The system appears to be setup presently with the banks only looking at immediate gains/losses instead of planning to take a lower profit immediately but maximise gains over the long run (ie. renegotiated the terms of the mortgages at lower rates to prevent defaults and keep value in the mortgage itself rather than leaving the banks as property owners).

The other thing I've been surprised not to hear about is simply one of the more stable banks buying up vasts amounts of mortgages which are in default at a huge price down and setting up a property arm - surely if the mortgages are selling for as little ($ for $) as indicated then buying them up and renting them out would be a viable concern?

(serious questions - I haven't studied American economics at all so apologies if these are silly questions)

[cartman]

Originally Posted by Marc Vaughan

But thats what I don't understand - these mortgages aren't 'worthless' ... if you look at them as a whole only a fairly percentage of them have defaulted so far and of those a reasonable number wouldn't have done so if the banks had met them halfway by renegotiating terms.

As such they're largely involvent by their own devices - if they'd talk to the people who owe on the mortgages then surely those 'worthless mortgages' would be worth a bit more.

The system appears to be setup presently with the banks only looking at immediate gains/losses instead of planning to take a lower profit immediately but maximise gains over the long run (ie. renegotiated the terms of the mortgages at lower rates to prevent defaults and keep value in the mortgage itself rather than leaving the banks as property owners).

The other thing I've been surprised not to hear about is simply one of the more stable banks buying up vasts amounts of mortgages which are in default at a huge price down and setting up a property arm - surely if the mortgages are selling for as little ($ for $) as indicated then buying them up and renting them out would be a viable concern?

(serious questions - I haven't studied American economics at all so apologies if these are silly questions)

At face value, they aren't worthless, just "underwater". But it's the whole derivatives market that sprung up around them that is causing the pain. That $300K subprime mortgage was wrapped up with a bunch of other subprime mortgages and then repackaged as "prime" and sold as such. Then they were leveraged multiple times, meaning that the exposure created by the single $300K mortgage loan could be multiplied to as high as $3 million. It's almost the same situation that caused the 1929 panic, when margin calls caused the market to crash.

A default on a $300K mortgage where the house value is $250K doesn't just cause a $50K loss, there is the ripple effect dependent on the number of derivatives it was a member of. Based on the 10X example above, the true loss could be as high as $500K, more than the full value of the original mortgage.

[Warhammer]

The problem I have with this crisis is how the Fed is responding to things. The fact that the Fed has been trying to stave off a recession is ridiculous. The key to any free market economy is risk. You can take a low risk investment and make modest gains. Or, you can take a high risk investment and make huge gains, but a good chance to lose it all.

With the actions of the Fed, they are trying to take the risk out of risky investments. Those that make bad decisions will continue to make the bad decisions because they get bailed out.

It might be painful for some of the worst offenders of this crisis to get nailed in the pocketbook, but that is what is necessary for things to work themselves out. It would be painful in the short term, but beneficial in the long term. What has happened instead is the Fed elected to print more money (and has been doing so for quite some time). The result is that inflation has been rising and the dollar has fallen to lows against many global currencies. Sure oil is over $100 per barrel, but what if the dollar was not so weak. We could be looking at $80 per barrel which would not be nearly so daunting. Also, since the Fed is printing more money, that means that the dollars that are in ciculation are worth less, so investors are going to try and move into something less volatile, which means they are also going to sell their securities, driving the dollar down even more.

Basically, I think the Fed should focus on maintaining the value of the dollar and let the economy take care of itself. Sure, things would be painful in the short-term, but once the kinks were worked out of the system, we would be in a much better situation.

[Cringer]

I think the sky is falling. We are all dead. If some of us survive we will be slaves to Costa Ricans. Good luck to the survivors.

[Edward64]

What a day. From morning futures indicating -250 to ending at +21 for the DOW. Small victory for the contra-flasch theorem.

Lehman mentioned in the news as possibly the next one to go.

Fed comes out with a lending-facility to allow wall street companies access short-term funding. I wonder if this could have saved Bear Stearns if it was implemented a week ago?

Per my earlier post, don't wish bad on any company but sooner the better if/when we bottom out.

[Edward64]

Originally Posted by Warhammer

The problem I have with this crisis is how the Fed is responding to things. The fact that the Fed has been trying to stave off a recession is ridiculous. The key to any free market economy is risk. You can take a low risk investment and make modest gains. Or, you can take a high risk investment and make huge gains, but a good chance to lose it all.

I don't know but I think there was a good chance for a domino effect on some wall street banks if the Fed had not acted.

I get your analysis of removing risk but I think that was too high-level.

The Fed was trying to prevent a panic (probably worldwide and albeit "short term") that would have had severe reprucussions on the "risk-takers" and "non-risk takers".

[Marc Vaughan]

With the actions of the Fed, they are trying to take the risk out of risky investments. Those that make bad decisions will continue to make the bad decisions because they get bailed out.

I don't know I think the wiping out of 80%+ of Bears value should dissuade a fair few bad decisions in future

If the fed hadn't stepped in and the bank had filed for bankruptcy I'd expect there would have been more of a domino effect as people fled the sector (even more so than ha been seen since) ... if that happened in a big way it'd take a LONG time for things to recover.

[JPhillips]

The only thing I'd add to Cartman is that the loss on a 300k mortgage would be greater. If the house is appraised at 250k the bank will get lower offers due to the fact that everyone knows the bank is losing money every day they hold the property. There are also fees, man hours, home clean up and or/repairs etc. In the end the bank would be lucky to get back 50% even if there was no other exposure through derivatives.

[Flasch186]

Ill say one thing, if my neighborhood is any sign of things to come perhaps things are picking up. We've sold 5 new homes in 16 days

[Edward64]

Originally Posted by Flasch186

Ill say one thing, if my neighborhood is any sign of things to come perhaps things are picking up. We've sold 5 new homes in 16 days

I assume at lower than the original price. Do you know if it was much lower?

There are hardly any for-sale signs in mine anymore, I think most people have decided to wait it out.

My neighbor across the street has been trying to sell his since Halloween with no success (don't know if he got interest but did not want to lower his price). Another neighbor tried to sell his house 4Q 07 but pulled it off the market in Jan.

[cartman]

We still have about a quarter of the houses in my development for sale, along with about 30 undeveloped lots. Partly because of the current financial environment, and partly because of the current HOA lawsuit that is still going on here.

[Flasch186]

Originally Posted by Edward64

I assume at lower than the original price. Do you know if it was much lower?

There are hardly any for-sale signs in mine anymore, I think most people have decided to wait it out.

My neighbor across the street has been trying to sell his since Halloween with no success (don't know if he got interest but did not want to lower his price). Another neighbor tried to sell his house 4Q 07 but pulled it off the market in Jan.

certainly at lower prices but the loans are lowered and fully doc'd.

the number of resales have dropped too, so all in all it seems that the pace through this bottom, while being different from region to region, may be accelerating through this bottom.

plus, what does "original" price mean anyways when it was all jumbled up by appraisals, speculation, etc.

[digamma]

Originally Posted by Logan

Did you miss this excerpt in one of Ed's posts?

I think time will tell how much of an auction there was, but it is almost certain that the bidders outside of JPM were limited. There was an extraordinary time crunch and a need for either a mammoth balance sheet to take on Bear's obligations or the ability to get viable financing to do the same.

[flere-imsaho]

Thought #1: It's hard to tell if we're in a recession or just if there's a lot of pain out there due to mortgages and the credit crunch. I'm kind of leaning towards the latter. Recession-wise, I think we're kind of "lucky" that this has coincided with the weak dollar, which is propping up a bunch of industries who have (now) rising exports.

Thought #2: Bernanke > Greenspan. Greenspan's great accomplishment was allowing the economy to grow relatively unfettered. A lack of adult supervision of the economy (and, specifically the financial sector) was obviously great for the 90s, but has clearly set up some of the problems we've had in the 00s.

I think we can blame Bernanke somewhat for not stepping in sooner, but the fact of the matter is that he was operating in a huge non-interference wake left by Greenspan. It's only when the shit has really hit the fan (i.e. financial institutions are about to fail) that the financial sector has let him do some real meddling.

Bernanke's modus operandi, however, appears to be to bail out the financial sector at any cost, reasoning that the failure of the market is the worst possible outcome. Worse than pain spread throughout great numbers of borrowers, for instance. Presumably they (i.e. we) can recover eventually, but if enough Bear Stearns go under, the market comes to a grinding halt. And then what do you do?

Much as it pains me to do so, I suppose I agree with this philosophy (which has also been clearly articulated by Treas. Sec. Paulson). However, as a commentator on NPR last night put it, I kind of wish Bernanke would use this opportunity to wring some concessions out of the financial industry regarding self-regulation & general regulation. Let's be clear, these institutions, with their idiotic loans and their extraordinarily complex investment vehicles (which, to this day, the vast majority of them don't understand) are squarely responsible for the position in which the country is today.

Their "self-regulation" completely failed and now to bail them out Bernanke is letting them borrow huge amounts of money with only these very same convoluted (and probably worthless) investment vehicles being used as collateral. What happens if they can't pay back the loans? The American taxpayer pays. Which is, of course, richly ironic in light of the thread about Flasch's parents.

As I've said before (on this topic) the proper role of government (and the Federal Reserve, by extension) is to allow the market to be free enough to prosper without hindrance, but no so free so that elements within that market do things that are detrimental to the overall health of the system. The sub-prime mortgage mess is a direct result of the latter, and as the financial industry seems, currently, very uninterested in cleaning up their ways, the Fed should be stepping in to make sure they do so in the future.

Otherwise we're going to go through the same thing (with another type of investment) in about 10-15 years.

[Flasch186]

true, which is why if the banks would simply work on the front end, with people like my parents, perhaps we can stave some of this off but, contrary to what makes the news, the banks will only work with you if you're already 3 months late or so, in les pendins, and suffered the credit hit. Im sure those that only blame the banks will say, "see" and those who blame people like my parents will say "see."

[flere-imsaho]

If this were just a case of bad loans, then we could have equal blame. Blame the people who took out loans they couldn't afford. Blame the banks for lending to people who could afford to pay the loans back. Done.

However, the banks took an already dicey situation and made it exponentially worse by bundling all of these loans into ridiculously complicated investment vehicles that they then sold worldwide. How complex? So complex that Goldman Sachs, of all institutions, decided in late 2006/early 2007 to divest itself of as many of these as possible because a) they didn't trust them and b) they didn't fully understand them.


Anyway, I have a point here. I don't think this feeling of panic, or concern, or whatever you might want to call it amongst Americans about the economy these days, is going to go away until most of the financial sector can say "Yep, we've finally now found all of these and sorted out all the bad loans/investment vehicles/whatever. Some we just wrote off, some we've otherwise subsumed. So there's now 0% uncertainty."

The problem is, I think we're still a long way off from that.

[Flasch186]

so you say short the market

[flere-imsaho]

As far as I'm concerned, the stock market is mostly a work of fiction, especially when viewed in the short term. The majority of my investments are in either emerging markets or in holding companies that are run well and are invested in industries that are either a) emerging or b) will have good demand for decades.

Investing in the stock market for the short term is exactly the type of game guys like Jim Cramer make it out to be, and bears little, if any, resemblance to the actual nuts-and-bolts performance of good companies out there.

But, if you have the spare cash, and wish to dabble, it can be a fun way to spend your time (especially if you invoke the counter-flasch theorem).

[RedKingGold]

This thread/poll is useless without a trout option.

[Flasch186]

Originally Posted by flere-imsaho

But, if you have the spare cash, and wish to dabble, it can be a fun way to spend your time (especially if you invoke the counter-flasch theorem).

guaranteed to make you money

[chesapeake]

Originally Posted by Flasch186

Ill say one thing, if my neighborhood is any sign of things to come perhaps things are picking up. We've sold 5 new homes in 16 days

My neighborhood had 2 foreclosures auctioned this weekend. I am told that one definitely sold, but the second may not have hit the reserve price.

[st.cronin]

Originally Posted by flere-imsaho

Thought #1: It's hard to tell if we're in a recession or just if there's a lot of pain out there due to mortgages and the credit crunch. I'm kind of leaning towards the latter. Recession-wise, I think we're kind of "lucky" that this has coincided with the weak dollar, which is propping up a bunch of industries who have (now) rising exports.

Thought #2: Bernanke > Greenspan. Greenspan's great accomplishment was allowing the economy to grow relatively unfettered. A lack of adult supervision of the economy (and, specifically the financial sector) was obviously great for the 90s, but has clearly set up some of the problems we've had in the 00s.

I think we can blame Bernanke somewhat for not stepping in sooner, but the fact of the matter is that he was operating in a huge non-interference wake left by Greenspan. It's only when the shit has really hit the fan (i.e. financial institutions are about to fail) that the financial sector has let him do some real meddling.

Bernanke's modus operandi, however, appears to be to bail out the financial sector at any cost, reasoning that the failure of the market is the worst possible outcome. Worse than pain spread throughout great numbers of borrowers, for instance. Presumably they (i.e. we) can recover eventually, but if enough Bear Stearns go under, the market comes to a grinding halt. And then what do you do?

Much as it pains me to do so, I suppose I agree with this philosophy (which has also been clearly articulated by Treas. Sec. Paulson). However, as a commentator on NPR last night put it, I kind of wish Bernanke would use this opportunity to wring some concessions out of the financial industry regarding self-regulation & general regulation. Let's be clear, these institutions, with their idiotic loans and their extraordinarily complex investment vehicles (which, to this day, the vast majority of them don't understand) are squarely responsible for the position in which the country is today.

Their "self-regulation" completely failed and now to bail them out Bernanke is letting them borrow huge amounts of money with only these very same convoluted (and probably worthless) investment vehicles being used as collateral. What happens if they can't pay back the loans? The American taxpayer pays. Which is, of course, richly ironic in light of the thread about Flasch's parents.

As I've said before (on this topic) the proper role of government (and the Federal Reserve, by extension) is to allow the market to be free enough to prosper without hindrance, but no so free so that elements within that market do things that are detrimental to the overall health of the system. The sub-prime mortgage mess is a direct result of the latter, and as the financial industry seems, currently, very uninterested in cleaning up their ways, the Fed should be stepping in to make sure they do so in the future.

Otherwise we're going to go through the same thing (with another type of investment) in about 10-15 years.

I agree 100% with this.

[cartman]

Crazy. Bear Stearns shares are trading around $7 per share. Evidently there are quite a few bond holders out there that are willing to take a loss on the stock, in order to have a say in approving the merger. This way, JP Morgan Chase assumes the bond debt, and they'll get full value, instead of having to fight with everyone else in bankruptcy proceedings.

[Edward64]

Damn, the Contra-Flasch theorem at work this week

27 + 420 = almost halfway to the +1000 that it predicted.

[digamma]

Originally Posted by cartman

Crazy. Bear Stearns shares are trading around $7 per share. Evidently there are quite a few bond holders out there that are willing to take a loss on the stock, in order to have a say in approving the merger. This way, JP Morgan Chase assumes the bond debt, and they'll get full value, instead of having to fight with everyone else in bankruptcy proceedings.

Certainly that is part of the story, but the other huge gorilla in the room is Bear's derivatives exposure. They have like $13T in OTC derivatives exposure (credit default swaps, for example) on their books (this is not all one way, some will net out). Trust me when I say the folks facing Bear would MUCH rather be facing JPM on those trades.

Not to mention that people own CDS on Bear that would cause a huge ripple effect throughout the market if Bear filed.

[Edward64]

I thought this was a pretty interesting read where the bottom may be predicted via 'technical indicators'. According to most of the indicators we are not at the bottom yet.

http://www.kiplinger.com/columns/pic...8/pick0317.htm

"Fundamental indicators are a blunt knife," says Sam Stovall, chief strategist at Standard & Poor's. "Technical indicators are a sharp needle -- the chances of pinpointing turns are greater."

First is the VIX index of options volatility. Extremely high levels indicate extreme fear -- which is the predominant sentiment when bottoms occur. The recent high was 31.2. Previous readings signifying ends of corrections of bear markets occurred at 45.1 (October 2002), 45.7 (August 1998) and 36.5 (October 1990). According to the VIX, we haven't seen a bottom yet.

Next is the percentage of stocks trading above their average price for the past 200 days. Extremely low readings indicate that a market selloff is overdone and likely to reverse. The recent low was 13.8%. Previous lows: 4.6% (2002), 12.5% (1998) and 11.1% (1990.) No bottom quite yet, according to the 200-day moving average.

Third on the list from Ned Davis Research is the ratio of advancing stocks to the number of declining stocks, averaged over the past 90 days. Extremely low readings indicate an over-sold market. The recent low: 83.9. Past lows: 78.3 (2002), 74.8 (1998) and 73.0 (1990).

...a declining number of stocks hitting 12-month lows on the New York Stock Exchange ...

That number has been up in the mid-500s recently, equivalent to about one in seven stocks hitting new lows. The number, says Stack is "not indicative of a market bottom." Look for the number to contract to fewer than 25 before the market bottoms, he says. Within the first month of a bull market, you'll see fewer than 12 stocks hitting yearly lows.

Well at least the stock market is up 400+ this week.

[JPhillips]

He may be right, but I'm a little skeptical when the Chief Strategist at S&P tells me it's time to buy.

[Flasch186]

I think one of the problems with "the bottom" is most people are looking for "the bottom".

I think we HAVE hit a bottom in the housing crisis and will stay on it for a while. The economy as a whole may not be on the bottom nor with the equities markets. We may see the credit cancer spread into things like auto, credit cards, student loans, etc. whihc could also carry on the "housing" effect. Strictly with housing with variances for regionality I believe we've hit a bottom.

[wade moore]

Originally Posted by Flasch186

I think one of the problems with "the bottom" is most people are looking for "the bottom".

I think we HAVE hit a bottom in the housing crisis and will stay on it for a while. The economy as a whole may not be on the bottom nor with the equities markets. We may see the credit cancer spread into things like auto, credit cards, student loans, etc. whihc could also carry on the "housing" effect. Strictly with housing with variances for regionality I believe we've hit a bottom.

I'm not super educated on this stuff, but aren't there a ton of foreclosures looming and don't values continue to go "down" (some will say return to real value, but lower than what they were the previous month)? I know I have seen values in my area go down from the previous month (although by relatively small amounts) and there doesn't seem to be a sign of it stopping.

Not sure how that is bottom? Or is my area different than the rest of the US?

[Edward64]

I actually don't think we've hit the bottom on the housing markets. There is still a large $ amount of future readjusting rates that may/will put alot of people in the hole and make the housing market worse.

From what I've read, this uncertainty will last at least through 2008.

Regarding the equity markets, I am hoping we are close to the bottom. My logic is that investors have (hopefully) accounted for the uncertainty about how much banks are exposed etc. and believe equities are now significantly undervalued.

[Flasch186]

I foresee many of these loans ending up being refinanced through the new fannie and freddie terms and in some cases I assume FHa will be assuming some of the bad debt so that lenders loosen their reigns on refinancing. My thoughts on the bottom assume that the momentum towards "bailout" and FHA, Fannie, and Freddie involvement in refinancing will keep the number of foreclosures lower than the apocolyptic number being thrown about. I also see people taking their homes OFF the market which is another step in the right direction in that people who initially thought that they wanted to sell their existing home to take advantage of the buyer's market when they dont have to are "giving up". that's good too.