Friday was another wild day out there!
That had to be the first 3 day losing streak for the new bull market in some time. I will have more to say about this below, but it was almost surreal to see indices move down after almost a year of vertical moonshot.
Plenty of topics today:
Fly the Empty Skies
I came across this article via Some Assembly Required and I thought the story had to be a misprint:
2009 airline revenue: Worst drop ever
NEW YORK (CNNMoney.com) -- The airline industry suffered its largest drop ever in passenger revenue last year as a weak economy grounded many would-be travelers, an industry group said Wednesday.
The Air Transport Association of America said total passenger revenue for the major U.S. carriers fell 18% in 2009 versus the year before. It was the largest drop on record, exceeding the 14% decline in 2001.
The current drop off is worse than after 9/11? Granted the terrorist attacks were in September (near years end) but that is a shocking contraction year over year. Another sign of the V shaped recovery no doubt.
Ben Bernanke Confirmation: Understand What it Will Mean
There are now some serious doubts about whether Ben Bernanke will be confirmed as FED head by the end of the month. I of course think he should not be and that case has been layed out in depth by many already. I wanted to talk about what this will result in ahead of time so people are not shocked when it happens.
- Get ready for the Mother Of All Temper Tantrums (MOATT) by Wall Street. This could be a downside 10% move in 2 or 3 days time in a fit of rage. It will be blamed on "uncertainty" or whatever but you will know what it is.
- Who replaces Bernanke is important, but likely to be another academic easy money type. The difference here is the nominee will be under enormous pressure to do things different.
If I am betting, I think he scrapes in by the thinnest of margins.
Returning to the market move down I want to point out the painfully obvious because it exposes the truth about the markets:
- It is only easy money and never ending backstops that have generated the entire move up in stocks and the entire improvement in economic data.
This should settle that debate. The exit button cannot be hit fast enough after the mere hint that things may change in the slightest.
Mortgage Debt Still the Main Show
It all comes back to housing debt, and it will until something is done about it. I wrote about my support for the proposals of the President on banking reforms and i think that is a good start. The central threat the banks, and thus the taxpayers, remains mortgage debt.
HAMP has been a failure (for the 3rd o 4th time?) and now we are getting to the real show. From Friday's New York Times:
Treasury Weighs Fixes to Foreclosures Program, Key Snippet:
The changes by the Treasury Department are expected to include greater assistance for homeowners no longer able to make mortgage payments because their paychecks have shrunk, said banking industry representatives privy to the department’s deliberations who spoke on condition of anonymity for fear of alienating government officials.
The Treasury was still debating the method, these banking representatives said, looking at either direct cash assistance or a grace period in which borrowers could postpone payments. That component may not be announced next week, but would follow soon after.At least the games are being trimmed off, direct cash handouts to mortgage deadbeats. Unreal.
The future distortion that I see is folding FNM/FRE/FHA and the MBS assets of the FED into a "bad bank". New purchases will be funded by the newly created Federal Office of Mortgage Issuance with a 4% rate for all. This will be funded on the bond market with shortfalls made up with taxpayer money. Do not worry, this program will be short term with an exit strategy planned for 5 years before our Sun goes Red Giant.
The FOMI. That is what I saw.
Jan. 22 (Bloomberg) — Representative Barney Frank said his committee will push to replace Fannie Mae and Freddie Mac, seized by regulators almost 17 months ago, with a different model for U.S. mortgage financing.
“The committee will be recommending abolishing Fannie Mae and Freddie Mac in their current form and coming up with a whole new system of housing finance,” Frank, a Massachusetts Democrat and chairman of the House Financial Services Committee, said at a hearing in Washington today. “That’s the approach, rather than a piecemeal one.”
Housing Doom writer Twist offers:
There have been many of us who have speculated as to what the housing market would look like after government intervention ends. Clearly "recovery" and "stabilization" in the market at the moment is the result of massive government intervention, the government being nearly the only game in town for housing finance.
If Frank and Co. are considering a "whole new system of housing finance" replacing Fannie and Freddie, we can assume that the plan is for intervention to be a permanent thing.
Will this prevent housing prices from falling? My guess is, no. Unemployment, a large shadow inventory and a jumbo market that will continue in freefall will continue to put downward pressure on prices. Home prices for homes under the conforming limit may see short-term gains in some areas, but in general are liable to languish at best.
There are those that claim that this is necessary because of the failure of the free market. I disagree. The free market was never given- and isn't likely to be given, a chance.
Remember, I named the FOMI before anyone else!