The Sun Is Shining on Wall Street 14 comments
-
Font Size:
-
Print
- TweetThis
Monday morning, the sun is shining on New York City and on Wall Street.
President-elect Barack Obama was one of the few people that could have restored confidence in the financial markets through the appointment of a Cabinet members that the market trusts and a clearer plan of action for tackling the economic crisis. On Friday, his appointments for Treasury Secretary and the Secretary of State were leaked, sending stocks soaring and according to the Washington Post, Obama and leading Democrats are planning a 2 year fiscal stimulus package that could amount to 5% of GDP. He also named former Treasury Secretary Larry Summers to head the National Economic Council. Summers is Geithner’s mentor and was one of the leading candidates for Obama’s Treasury Secretary post.
With 2 well respected powerhouses on his Economic Team, Obama has a good chance of turning the economy around in late 2009, early 2010. The new Administration is beginning to grease the wheels and the market is liking it.
Q3 GDP Could Fall as Much as 1%
However in order for the gains in the equity and currency markets to be sustained, hope needs to supersede reality because as of Tuesday, the US economy should be in a technical recession. Third quarter GDP numbers are due for release and after contracting by 0.3 % in the second quarter, first quarter GDP growth could fall as much as 1% (consensus is -0.5%). The US economy would not be a stranger to such a deep contraction as growth fell by 1.4% in the third quarter of 2001, 3% in the fourth quarter of 1990 and a whopping 6.4% in the first quarter of 1982.
Existing Home Sales Drop 3.1%
It is no secret that the housing market is in trouble and the latest existing home sales numbers confirm that. Resales dropped 3.1% to 4.98 million rate, which is the lowest since June 2008. The big story however is the drop in house prices, which was the largest on record. The combination of a slowing economy and tight credit markets has prevented real estate from recovering and with the recent layoff announcements, I expect demand to slow even further.
Another Big Bank Will Not Fail
Citigroup (C) was another major uncertainty that made the markets nervous. The US government has announced that Citi will be receiving $20B in cash from the Treasury and $306B of asset guarantees. In return, the US government will receive preferred shares in the bank. This step indicates that the Bush Administration believes that the financial system could not afford another big bank failure which is probably right.
For those of you that are interested, here is a quote from Obama’s radio address on Saturday outlining his Economic Recovery Plan:
I have already directed my economic team to come up with an Economic Recovery Plan that will mean 2.5 million more jobs by January of 2011 – a plan big enough to meet the challenges we face that I intend to sign soon after taking office. We’ll be working out the details in the weeks ahead, but it will be a two-year, nationwide effort to jumpstart job creation in America and lay the foundation for a strong and growing economy. We’ll put people back to work rebuilding our crumbling roads and bridges, modernizing schools that are failing our children, and building wind farms and solar panels; fuel-efficient cars and the alternative energy technologies that can free us from our dependence on foreign oil and keep our economy competitive in the years ahead.
Related Articles
|
Find People on SA
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largest
increase in followers
in the last 7 days-
1
David Fry
-
2
Philip Davis
-
3
Bill Gross
-
4
Tyler Durden
-
5
TraderMark
Fastest Climbers » -
1
-
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most activeSee all
Instabloggers.
Top Instabloggers » -
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
This article has 14 comments:
Not yet, Kathy, not yet.
Wave the wand and you have 2.5 million jobs. Like FDR, the government is exacerbating the problems rather than solving them. And like FDR, who was bailed out by Hitler's invasion of Poland and not any of his policies, he is ignoring the "Forgotten Man", the taxpayer.
Haven't we had enough of these "smart" guys with little or no real world experience? If there was a terrorist attack at the Harvard/Yale game on Saturday all of these frat guys would be toast.
Obama should put "Joe the Plumber" in his economic package as he has more smarts on the economics than any of his limousine liberals.
If anyone in the media had any useful knowledge in economics they would recognize this statement as an oxymoron. The only way to get a truly 'strong and growing' economy is to cut spending and increase savings, which is almost certainly NOT what Obama's team will chose as their approach.
Instead we will get more of the same old borrow and spend programs that do nothing productive and serve only to dig the debt hole that much deeper. Meanwhile the talking heads continue to blather on as though the light at the end of the tunnel wasn't an oncoming train.
Buckle up, it's going to be a bumpy ride.
this is the great strength of america; resolve and resiliency will pull us through again. i think i feel it this morning, too. i am not an obamite, actually, a ron paul guy. i am, however, an american, and i understand the consequences of failure.
i think it is time to bet on america once again.
I was reading in the Good Book that debts were to be forgiven in Israel every 7 years among fellow Jews. Since would-be savers were driven by artificially low interest rates into speculation with houses there would be some justice in allowing them to keep their homes. OTOH, liquidation is an essential part of the recovery process but perhaps business liquidation is the essential part. From Rothbard's <b>America's Great Depression</b>: "The Mises analysis of the business cycle traces causation back to inflationary expansion <i>to business</i> on the loan market ... But loans to consumers <i>qua</i> consumers have no ill effects." page 80. Food for thought?
On Nov 24 11:12 AM Smarty_Pants wrote:
> "it will be a two-year, nationwide effort to jumpstart job creation
> in America and lay the foundation for a strong and growing economy."
> - B. H. Obama
>
>
> If anyone in the media had any useful knowledge in economics they
> would recognize this statement as an oxymoron. The only way to get
> a truly 'strong and growing' economy is to cut spending and increase
> savings, which is almost certainly NOT what Obama's team will chose
> as their approach.
>
> Instead we will get more of the same old borrow and spend programs
> that do nothing productive and serve only to dig the debt hole that
> much deeper. Meanwhile the talking heads continue to blather on as
> though the light at the end of the tunnel wasn't an oncoming train.
>
>
> Buckle up, it's going to be a bumpy ride.
I guess it would depend on whether loans to consumers result in any changes in their spending behaviors. Did the widespread use of home equity loans end up with more blantant consumerism than otherwise would have happened? I'd argue for the positive response.
I saw on CNN a few weeks back that a two paycheck family (ie. not poor) had lost their house to foreclosure when the interest rate reset increasing their mortgage payment from $4000 to $5800. They had lived there for over 16 years before losing the house. I'd have to guess that the refi loan must have been for over $500,000 to get those size monthly payments, and that the prior mortgage must have been far less having been taken 13+ years earlier before housing prices shot up (assuming 3 years to reset of rates).
Assume they took $300,000 out in equity, yet they were foreclosed upon when the payment increased by $1800/month. What happened to the $300,000? If they had used it only to make mortgage payments they would still have more than half of it left after 3 years and would have had their entire income to save.
Think maybe they spent it on "stuff" that they otherwise wouldn't have bought? I'd guess so, but I don't know.
Any one loan may not have much impact, but plop a big hunk of cash into a lot of peoples' hands and I think that a significant portion of it would be unwisely spent.
Then again, I'm no Mises or Rothbard so maybe I'm missing something.
Well, to be completely honest, Rothbard was referring to installment credit. I can see the need for business liquidation even if it helps the bankers who caused this mess. But I was intrigued that consumer liquidation might not be necessary.
I hate these banker bailouts. He who lives by FRB should die by it,IMO. Why should they be spared liquidation? Just rhetorical.
1) Cut costs
2) Restructure debt
3) Increase revenues
So Obama goes for number 3 as his first approach. I do not condemn it, that is smart. But it will become folly if costs are not cut where they can be. Debt consolidation and restructuring should be extended immediately to the taxpayer to stop the bleeding.
JP Morgan seems to get this but many banks don't. A family that has $4,000 a month between mortgage, second mortgage, credit cards and car payments should get all debt consolidated into a 15, 20 or 30 year loan. That $4,000 a month debt goes to $3,000 a month instead of defaulting and the country awaits innovation and wage increases to accelerate the debt repayment and finally reinvestment process, even if that takes 5-10 years of it to happen.
On Nov 24 11:02 AM PrudentMan, CFA wrote:
> Wow! What are you smoking? What is Obama's experience in finance
> or anything else but politics and government sponsored work? He has
> never been in court, like Bill and Hillary yet alone deal with crisis.
> This time he can't pull a Clinton and sweep the problems under the
> rug while the media looks the other way.
>
> Wave the wand and you have 2.5 million jobs. Like FDR, the government
> is exacerbating the problems rather than solving them. And like FDR,
> who was bailed out by Hitler's invasion of Poland and not any of
> his policies, he is ignoring the "Forgotten Man", the taxpayer.
>
>
> Haven't we had enough of these "smart" guys with little or no real
> world experience? If there was a terrorist attack at the Harvard/Yale
> game on Saturday all of these frat guys would be toast.
>
> Obama should put "Joe the Plumber" in his economic package as he
> has more smarts on the economics than any of his limousine liberals.
...long past time? ...surround himself with incredibly talented people? You mean the Washington insiders who have been around for a while? You mean people that have been involved in the bailout plan and work for the private Federal Reserve and its member banks that asked for the bailout?
As for the actual article... More manipulation to "save" Wall Street isn't necessarily good in the long run. I guess most on Wall Street don't worry about long-term goals. I agree, the sun is shining on Wall Street... All the big banks are getting government funds that will enable them to gobble up the smaller more conservatively sound banks around the country that aren't in trouble. Government funded consolidation and more power shifting toward Wall Street is going to make Wall Street happy.
> Assume they took $300,000 out in equity, yet they were foreclosed
> upon when the payment increased by $1800/month. What happened to
> the $300,000? If they had used it only to make mortgage payments
> they would still have more than half of it left after 3 years and
> would have had their entire income to save.
>
> Think maybe they spent it on "stuff" that they otherwise wouldn't
> have bought? I'd guess so, but I don't know.
I agree with your presumption that they "maybe" spent the ~$300K on "stuff"... as undoubtedly millions of other people also did. Now all those Hummers, jetskis, ATVs, et.al are all showing up "forSale", as they struggle with reality once again.
Yep. They are forced to do on a personal level what the banks should be doing on a corporate level. Liquidate and pay off debts.
Soon we will be seeing the same thing happening in commercial real and credit cards.
Drive around town and see how many empty mini-malls units are festively decorated with holiday "For Lease" signs. Many of those were built with borrowed money. If the units are sitting there empty it is only a matter of time before the owners will default on their loans.
Smarty, cutting, taxing, spending, whatever...wouldn't you agree job one is to tighten up on the problem that got us into this bubble in the first place? And don't say failed mortgages, the problem is much deeper. We need to regulate the derivative markets and get excessive credit spending under control. Well, after we begin to get the economic nose above the horizon. My biggest fear is, and I hear Paulson say this, we need the credit markets to flow again...prosperity on the backs of American debt is what he means, I think.
Gemonk, it seems, just the mere mention of Obama's name can rally the markets. I am a Ron Paul guy, too, but I'll certainly give Obama a chance. He offers a little of that Camelot feeling, again.
Smarty, some of the loan was used for a down a Hummer, I bet. Sure, the equity is in your home, but you still must borrow the money from someone else. That's just heavy debt. Maybe every 7 years we ought to forgive debt, too, as Fellow Americans. Naa...
Moon, I share your disgust. As I understand it, banks are strictly forbidden to engage in insurance, in the spreading of risk. In order to get those MBSs off their books and build liquidity, they had to guarantee the drivative to investors. The banks had to retain the risk.
Yes, they should have been let to fail. It is rhetorical. Our economy would have gone into a flat spin, for sure. But, it's the system that's broke. Too much money was being made and everyone looked the other way. I pray Obama will not work to get us back to that failed system. However, we must move smoothly from a failed way of doing business to a better one.
Enough for today...
Sure, we need credit markets. Business needs investment capitol, etc. And the consumer probably needs a home mortgage and an auto loan, but that's about it.
If one is employed, one can certainly pay cash for a bag of groceries. Unless, of course, most of our paycheck is paying debt before we get a chance to rub the money between our fingers and kiss it good bye.
If one is not strapped with life long income loss, then one can afford a 40" LCD HD flat screen by saving for a month or two. Meanwhile that 29inch TV will tide us over as it did for e last 6 years. One could save to pay cash for a car in a year or so while we get the most out of our old one.
And I said life long debt. Once we pay down one loan, we'll just "feel" wealthy and borrow more. This is the trap. This is wealth redistribution done the 'free market' way, I guess...from our pockets to theirs. Less credit and more saving reverses that flow into your pocket.
I am happy to be truly free of all debt. Banks pay me interest on my own money instead of the other way around. It's a good feeling more folks should know. So, when Paulson wants to get back to business as usual and open up the jammed credit markets, I fear for the consumer. I fear for our nation.