ACCOUNTANT

Worst-Case Scenario for Geithner Is Here

One problem - Geithners pessimistic unemployment rate was NOT 8.9%, it was 10.5%. Get the facts right. 8.9% was the optimistic rate.

Book Review: Great Depression Ahead

I agree that one has to take a look at Dent's history before placing a whole lot of credibility on his current book. He seems to pretty much get it totally wrong with each attempt.

Regarding aging boomers - the boomer group is 18 years long (1946 through1963). The very first of the boomers just reached 62 in 2008. Many to most of the boomers are just now hitting or are in their highest income years of their lives, which normally occurs in people's 50's.

The downsizing and reduced spending referred to by others above will gradually occur, but in reality, it will be down the road a minimum of 5, perhaps 10 years before it will start to have any significant impact on the economy. Prior to that time, the continued growth in population (which grows by about 2 million people per year) will more than offset any cut backs by the boomers. And offset against that is that many boomers are still in the process of putting kids through college, paying for weddings, or paying off college bills of their kids. When that is completed, it will free up significant amounts of money for many of the younger boomer families.

The population growth is also why the housing crisis well self correct within the next 12 months - we add almost a million new households per year in this country, plus we take out close to a half million existing houisng units each year. Translation - as long as we are having housing starts at an annual rate of under 600,000, we are absorbing close to 100,000 units of excess housing inventory each and every month.

Cramer Calls Out Roubini

Roubini has been beating the nationalization drum from the beginning. He reminds me of the Gartner Group during the leading up to Y2K. Everything you read always referenced back to their projections - which they had at $1.8 trillion in cost. Of course it was all very self-serving, considering they were selling tons of services to get companies ready for Y2K. In end, total cost world wide was estimated to be about 1/3 of the Gartner Group projected estimates.

Same type of thing will happen to Roubini - he has so overshot the estimates of the losses the banks will incur that it is funny - except that people are still listening to him. Warren Buffet is right on the mark with his assessments - and he has the inside knowledge of sitting on Wells Fargo's board. Roubini is interested in his six figure speaking engagements. Wonder which one carries more credibility.

A Stress Test Shocker: BofA Needs $35 Billion

Not sure what BoA would do with an additional $35 billion of capital. Per 1st quarter filings, they have non-performing loans totaling 2.65% of total portfolio. That works out to about $30 billion, of which $17 billion is reserved.

They generate top line quarterly revenues of about $12 billion, which is suffient to cover 30% loss rates on about $40 billion of loans, or about 3.5% of total loans each quarter.

Translation - they can take 30% losses on 13% of their loans between now and end of year and still maintain their capital base where it currently is. And their loss rates on their bad loans will not begin to approach 30%.

BoA denied looking to raise $10 billion of supposed money a couple of days ago. Not sure i believe the credibility of some of all these "leaks."

Beware the Baltic Shipping Index Signals

It's got to get to 85% before it can get to 75% or 65%. It's still moving upward which is much better than moving downward.

Don't Be Fooled, We've Been Here Before

Comparisons to 1929-1930's are irrelevant for multiple reasons. First, there was deflation totaling almost 20% over a three-year stretch at that time (We don't have deflation taking place, other than in the overpriced housing market). Second, we had a 50% contraction in GDP in early 30's - this time around we might hit 5% total. Third, at the bottom, in the early thirties, the stock market was paying an average dividend of yield of 14%. Today we are at about 3-4%. Fourth, everyone keeps looking at the dive from 2007 to March of 2009 as an event in and of itself. It wasn't - it was a continunation of the dive that has been going on since 1999/2000. This was the ultimate and hopefully final bottom from that massive bubble - now we can begin to move forward.

The reality is that we got grossly oversold in this market due to the fear that Obama would nationalize the banks. As soon as he made it clear that wouldn't happen, the markets immediately turned around and came back. As such, when people talk about the 670 low for SP500, its a bit fictitious - we were under 800 for exactly 14 days total. Prior to that precipitous drop, we had been bouncing around between about 800 and 875. This rally has merely brought us back to approximately the range we were in prior to the nationalization fears.

And, in that range, the market is somewhere between inexpensive and appropriately valued for the current economic times. As we move forward and continue to receive more positive news, i can see that range gradually working its way higher, let's say to a range that is between 875 to 950, and then gradually up some more. But, because of the bouncing nature, there will be plenty of opportunities for traders on either side of the equation (bears or bulls).

Why This Rally Is Unsustainable

Making the short case, huh. Times must be getting pretty desparate for the shorts.

I'll go with Doug Kass's predictions - SP at 1070 by fall. If he is as raccurate about that as he was at calling the bottom, which he nailed to the very day and level - then you shorts had better start running for the hills as you will not have much left. There is gobs of money on the sidelines, and if that money starts getting scared that it is getting left behind, look out - you could see another 100 point run in the SP 500 over a very short period of time when it occurs. Add to that the shorts trying to cover their positions, and it could be very interesting.

Case Shiller: Spinning a Downward Spiral

Bob Toll stated recently that, other than in the worst four markets in the country (Southern Cal, Las Vegas, Phoenix, and Florida) they are seeing a firming of the housing market and expect an upswing in activity (and prices) sometime over the summer months. He said that inventories have largely been absorbed in most markets. He said the four afore mentioned locals have a ways to go before stabilization due to their large excess inventories of housing stocks. So may S & P isn't as far off as the author would think.

Keep in mind, if you reduce housing prices 30% and reduce interest rates from 7% to 5%, you have just reduced the payment level on a 30 year fixed rate mortgage by 45% - what wasn't affordable suddenly become quite affordable.

Banks, Home Prices, Home Sales Are 'Just Fine'

Additional comment - the banks will bring those houses onto the market in an orderly fashion over the next two years to maintain price stability etc. Who this doesn't bode well for is the house builders, as their world will not pick up until the banks have cleansed their balance sheets of those houses.

Banks, Home Prices, Home Sales Are 'Just Fine'

Yes, banks are not putting all foreclosures onto the market. In fact, it was reported that CountryWide is buying up foreclosed properties to take them off of the market. However, that does not lead to the conclusion that housing has much further to fall. To the contrary - for a variety of reasons.

First, we have been under an annual housing starts number of 600,000 for about 8 - 10 months. To replace housing that goes away each year, via fire, storms, condemnation, termites, demolition, or whatever, plus provide housing for the additional 850,000 households we add each year in this country, we need to add approximately 1.5 - 2.0 million housing units per year to meet basic demand (and that excludes vacation homes). Thus, over the past 9 months, we should have already taken about 600,000 to one million excess housing units off of the market.

Secondly, with rates down to 5% and with prices down 30% or more in several markets, those people that bought housing when they couldn't afford it can now afford it. On a 30 year loan, reduce the loan by 30% and reduce the interest rate from 7% to 5%, and you have just reduced the monthly payment by 43.5%! What was unaffordable just became very affordable. That fact, by itself, with soak up the balance of the excess in all but the most grossly overbuilt areas of the country.

On Elephants and Tea Parties

This article is a piece of bs. First, the banks weren't "given" anything. The TARP money is the most expensive form of financing any of those banks have had to use since the early eighties, but at that time inflation was 10% not 0%. 5% preferred dividend works out to about 8% cost on money, considering taxes.

Second, where can the banks deploy money costing them 8% in an economically sensible manner, when loans are going out at between 6.5 and 7.5%, or for house mortgages, at 5%?

The best thing that government could do is allow the banks to pay back the TARP money, then, for those banks that need it, loan it back to them at the same rates that the fed uses at its discount window, but allow the loans to be counted as equity (within limits), for regulatory purposes. Then, where there are loans to be made that make sense - the money will get lent out. Currently, lending out TARP money is nothing but a money LOSER for the banks. Remember, making stupid loans is what got us into this mess in the first place - advocating that the banks continue to make stupid loans makes absolutely no sense whatsoever.

Sucker's Rally Approaching an End

This was not like 1929-1930. THe crash of 2000-2001 from the 1999 bubble was similiar to 1929-1930. This was a continuation of that crash - much like the the markets continued decline in 1937 was a continuation of the 1929-1930 crash.

Adjusted for size of the GDP and the difference in the risk free interest rates, the S & P 500's recent low of 676 represented a 94.3% overall 10-year decline in the S & P since 1999. To imply that we haven't reached bottom simply doesn't reflect the facts.

I'm not saying we are going to bounce back real quick. the 1999 peak was a massive bubble that we probably will not see again in our lifetimes. But, I also believe that that lows recently witnessed are, as Doug Kass as has called them, "generational lows" that will not be seen again.

Obama Just Pulled a 'Reagan' on the Automakers

Unless the ridiculous compensation levels (in total, including benefits) of the UAW are brought under control, none of the US automakers will survive without continued subsidies from the government. I think Obama understands this and this is his way of telling the UAW - "ger real for once."

REgarding banks, i keep reading all of the time about all of the bad assets on banks books from pundits, experts, etc. Yet the two parties that have true knowledge regarding those assets, because they inspect them on a regular basis, that being the FDIC inspectors and the banks' auditors, don't seem to see them as being bad, as they sign off on the financial statements without qualification. And believe me, after Arthur Andersen's demise, those statements are not getting signed off on if the auditors don't think the assets are worth their carrying values. The AA demise really got the attention of the others.

I think the problem is more one of liquidity than it is of having bad assets. My hunch is that the bad assets have already been written off or have been more or less fully reserved. So then we are talking about the illiquid assets. But we should not be confusing that will bad assets or "toxic assets." Very different beast entirely.

Markets Still Seeking Bottom

Unemployment figures really don't mean anything - they are such a lagging indicator. Go back to 1981-1982 recession - recession ended in August 1982, and unemployment reached its peak in July 1983.

Deep Downturn or Greater Depression - Which Is It?

Simply put, you're an ideological idiot. You are basically advocating exactly what the Hoover administration did that put the country into the first Great Depresssion - and that was to do nothing.

It is because we are doing some of the things we are doing that will prevent this from becoming the next Great Depression. Proof? Look at what happened Oct-Dec when Lehman was allowed to fail. Now ask what might have happened had Bear Stearns, Merrill Lynch, Countrywide, Wachovia, AIG, Washington Mutual, Freddie and Fannie, and due to their ripple effects, probably Bank of America, JP Morgan, and others all gone belly up? That would have been the next Great Depression. Get your ideologies under control so you can think rationally.