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Treasury to Consider Further Measures to Halt Housing Slide

The Treasury Department is considering a plan to halt the slide in home prices that would lower mortgage rates using Fannie Mae and Freddie Mac. The plan could reduce rates for newly issued loans to as low as 4.5%. Slowly, but surely, the government is moving in the right direction. It is beginning to dawn on Treasury (albeit, belatedly) that a prerequisite for economic recovery is not just the stabilisation of the banking system, but some sort of program which provides mortgage relief for home owners. This plan is a small start.

I have a problem with this though. It is “trickle down”.

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Chart of the day: Excess Reserves

Chart of the day: Excess Reserves

One feature that is peculiar to the present downturn is the accumulation of reserves at the U.S. Federal Reserve. I imagine it is no different at other central banks, though I have not seen the data. Let me tell you what this reserve accumulation means and show you a chart of excess reserves compiled by the St. Louis Fed.

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Why I am bearish on the U.S. Dollar

Why I am bearish on the U.S. Dollar

The U.S. Dollar has been holding up quite nicely during this credit crisis. In fact, it rallied significantly from deeply oversold levels against the Euro and British Pound (remember Dollar-Euro at 1.60 and Dollar-Pound at 2.10?). However, America has a number of structural problems which will inhibit further appreciation. Moreover, former buyers of U.S. Treasuries in the Middle East and Asia are going to have domestic economic worries of their own very shortly and will not be supporting U.S. assets. This means that the Dollar will be a weak currency in the not too distant future.

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More on Fannie and Freddie – Signs of life in the Refi Market?

Below is a chart of variable rate loan applications as per cent of total. This can be looked at from a contrary opinion point of view, that is people are afraid of variable rate loans after they got burned on the upside in the last several years and thus they are moving to fix rate loans or refi’s but this […]

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Links: 2008-12-03

Yesterday was a good day in the markets, all in all. However, a number of anomalies still exist which we hope to cover in the coming days. Fist, there has bee an unprecedented rally in U.S. Treasury securities which some are calling a bubble. Simultaneously, you have a large spread to Treasuries in the corporate bond market (with corporate bonds yielding significantly more). High yield corporate binds are at record high yields (and record low prices since price and yield move in opposite direction). Since half of corporates are high-yield (so-called junk) bonds, one would think there is more value in corporates than Treasuries, but that is not how investors are behaving.

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Application for the Federal Bail Out Program, 2008-2009

Application for the Federal Bail Out Program, 2008-2009

A friend sent me a mock-up of an application for the free money the U.S. government is handing out in its bailout program.

Very funny. Sign up for the EZ-Cash. (Hat-tip Scott)

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Turning Japanese

Back in September, during the depressing days after Lehman collapsed, I posted a few mindless videos as distractions of the day to get your mind off of Finance.

I’m a day late because the markets rallied pretty nicely today. But, in honor of all the chatter about quantitative easing and America going they way of Japan, here is the distraction of the day: The Vapours singing “Turning Japanese,” another classicly absurd ’80s song and video.

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Roubini: How to avoid the horrors of ‘stag-deflation’

The US and the global economy are at risk of a severe stag-deflation, a deadly combination of economic stagnation/recession and deflation. Only very aggressive and co-ordinated policy actions will ensure the global economy recovers in 2010 rather than facing protracted stagnation and deflation.

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Why not use Fannie and Freddie?

I don’t understand the lack of imagination in DC. All the politicians have to do is tell the banks to lower their variable rate mortgage loans on the books to 4% right now, today or else and it is like $600-$750 billion of stimulus. With short rates as zero it’s the least the banks can do.

That probably offends the free market sensibilities of many of our readers, so here’s an alternative approach: Why not Fannie and Freddie, which are now de facto arms of the US government?

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Pushing on a string and similar notions on monetary policy ineffectiveness

As interest rates in the developed economies approach the zero bound, we must begin to ask ourselves how effective monetary policy can reasonably be in these circumstances. And if policy is to be effective, which policy tools will be most advantageous to use? Or are we just pushing on a string here?

In plain English: central banks are running out of bullets and the deflation bogeyman seems to be right on our doorstep. Can they even stop him from ripping our house to shreds and sending us into depression?

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Links: 2008-12-02

The news yesterday was pretty grim as Japanese, Chinese, Eurozone, UK and US manufacturing sectors all showed significant weakening. Combine this with an acknowledgment that we have been in recession for one year already and Meredith Whitney sounding the alarm bell for even worse yet to come and you get a steep sell-off in equities and a huge rally in Treasuries. One should note that Ben Bernanke sounded very dovish yesterday, putting paid to my post on quantitative easing and contributing to the rally in Treasuries.

Below are a few stories on the Internet that I would like to highlight. See the bulk of the news stories over at the news feed, which gets updated continuously.

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The U.S. has been in recession for one year

My very first post on this blog was in March and it was titled “The Economy Is Definitely In Recession.” Back then, this seemed like a stretch for a lot of people, but today the National Bureau of Economic Research (NBER), which makes the official recession call for the U.S., determined that the recession began in December 2007.

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