Wesley Mouch

Existing Home Sales Going Strong

I would clarify the argument of this piece as follows: We have not found the price that clears the market, we have found the monthly payment that clears the market. To get to that monthly payment, it took a big price drop and a large rate reduction.

These housing discussion should lead with the reminder that it has taken threat to currency interventions from the FED to find the rates we currently enjoy. The FED now is the housing market.

Why should we then pretend as if the market is functioning? It has ceased. Done. Over. Kaput. The FED finances housing purchases at rates that make non-printed capital throw up in its mouth.

We have reached equilibrium under the current arrangement. But Bernake and company will eventually have to leave the room. Then what? What will be the rate? What will be the price of the houses sold today? The house sales that this article just celebrated will join the legacy property underwater. What will we do then?

Optimism is good and healthy, but let's start talking about our exit strategy.

Securitization Market Maker: The U.S. Government

"What happens if the government tries to exit these markets? Do they collapse?"

Yes, or at least the rate of return for owning the underlying instruments begins to align with the risks of ownership. What rate of return is required to hold a basket of mortgage backed securities that were issued by a loan officer who has no financial tie to how the loans perform? It is higher than 5%.

Whether Deflation or Inflation, Things Are Going to Change

Mr. Disconnect,

My investing plan for the $20,000: I would get a GMAT study manual ($50), and practice grammar (I clearly need it) and the other topics on the Graduate Management Admission Test (GMAT). I would sit for the exam ($200), and do the best I could.

With a decent GMAT score in hand, I would research my heritage and find someone in my family who attended a top 10 MBA program. Also, I would try to find some element of my heritage that would allow me preferential treatment. I would than apply to the top 10 programs, highlighting my GMAT score, my legacy status, and my 1/18th ethnic advantage ($1,000 application fees). There may need to be a kickback to one of the programs as well ($5,000), and judging by the ethical behavior of the graduates from the top programs in the last 5 years, this strategy is wholly in play. I would be accepted.

Next, I would borrow all of the funds for my MBA ($80,000). While getting my MBA, I would drink ($10,000), and discuss Keynesian and Austrian economics in the bars for two years. I graduate with a newly minted MBA. My emphasis: financial products and financial engineering. I would write a paper on how to sell complex debt products to government entities.

Siting my fine academic work, I would get a top management job on wall street. I would never really work again, and would focus on really sticking it to the taxpayer. I would rightfully be rewarded. I would pay off all of my debts, and live well beyond my means generating new debts. Eventually, I would be fired, and I would take my huge severance package to the islands for mai tai's. Return on investment: 10,000,000%

Market Outlook: Investors Ignore the Real Economy

Thanks for the article Greg.

But we need to talk. You seem like a smart, well read investor who communicates very well. That is why I feel the need to tell you this right away so that you can correct your thinking and enjoy the kool aid with everyone else.

This has nothing to do with the real economy. It hasn't for some time. This is only about appearances now. Think derivatives and leverage. Help wall street and the media help you. As a financial journalist and economist, you need to find ways to obscure the measurable. For example, stop talking about things that can be directly observed (i.e. vacancy rates). Instead, make up a new metric 5x removed from the process you are writing on (i.e. define a new metric called "CRE congressional interest" as the number of times a member of the house or senate says "commercial". Report on it. Track it. Claim its bullish when it increases. When it drops, say that its third derivitive is looking encouraging)

Stop reading earnings reports so thoroughly. Let CNBC do the analysis for you! "CB Richard Ellis sees a time when businesses may want to inhabit office space again".

Focus on the government statistics. Worry not about seasonal adjustments, enjoy CPI, PPI, and GDP as rawly reported. Debt level scare mongers are just right wing nut jobs who hate America. Express deficits as a fraction of GDP, implying that we could somehow tax the elements of the GDP to increase governmental revenues.

I am glad we could talk, and good luck!

Betting on Hurricanes Gains Traction

Thanks for the information Ravi.

The article fully illuminates what is wrong with our current group think. Using a market structure to predict hurricans? Really? Breaking this down, we are going to take a group of human beings, all of whom have no insight (weather conditions in one month will approach randomness) into hurricane future conditions, and have them wager on future hurricanes. The sum of ignorance is something else than ignorance?

All of that is fine and good, but why then do we expect a market structure to work for any other system? Because market participants have some knowledge (many have insider information not available to the public. Snap! did he just say that? How can that be? CNBC told me that markets were divine, and free market capitalism is the best path to prosperity), and take positions accordingly. If we talk ourselfs into thinking that weather futures are a good idea, it will reinforce my belief that the only real winner will be the firms that facilitate the market.

No Capex Recovery Yet

Thanks for the chart and the analysis.

You say:

"Still, as the chart shows, a big increase in capital spending is not a necessary condition for a recovery. The economy rebounded strongly in the second half of 2003, yet capital spending had not increased meaningfully by that time."

Based on how things turned out, do you still think that the economy really rebounded in the second half of 2003, or do you now think that a monetary-policy-induce... is all that occured? I think the latter; sustainable recoveries will require capital spending, IMHO.

U.S. Economic Policy - Say One Thing, Do Another

After reading about Ms. Yellen's viewpoint on deficit spending, I would like to offer up Dick Cheney as a potential FED chief replacement for Bernake. Mr. Cheney also believes that deficits don't matter, and has significant bubble economy leadership experience.

Technical Rally Could Indicate Computerized Panic Buying

Good article and insight. I think you have really hit on some good items here.

If Alex is right, and I think he is, we need to revise some economic textbooks on the efficiency of markets. I would suggest the following edit:

Change "Markets provide an efficient pricing mechanism" to "In the long term, markets may be efficient, but in the short term, it is far more important to have a double head and shoulders pattern with broken candlesticks under the full moon eating a muffin with an Italian Coffee, but watch your taylor series conversion."

U.S. Housing Has Bottomed

Thanks for the information and the analysis. However, IMHO, new housing supply and demand are the last thing that we should be using to try to make a bottom call in the general housing market. It is good news that new houses are selling, but the rate of decrease in prices is concerning. Increased volume at constant prices would be a better data point for a bottom argument.

There is a secondary consequence that will not work in our favor: if we get great volumes at low prices, we hurt the asset quality of the existing homeowner's and lenders not involved in the new sales. At some point, we will hurt consumption further through a destruction of perceived equity.

More Signs of a Housing Bottom

This is almost becoming cliche'. Using NAR data to declare a housing bottom ignores absolutely every other fundamental piece of information. Considering rising foreclosures, foreclosure moratoriums, delays in bankers taking ownership, resetting finance structures (ARMS), increased unemployment, unemployment benefits beginning to expire for the recession class of 2008, artificially low rates that are sure to rise (next week's treasury auctions of 1/4 trillion dollars!), inevitable tax increases from cash strapped governments, reality beginning to show itself in local property appraisals, commercial real estate's cross effects on residential housing, and a litany of other realities makes the NAR data little consolation.

We (by that I mean the very independant, strong Federal Reserve who values the middle class over all banking and finance organizations, coupled with an honest, strong dollar policy touting treasury) are doing everything in our power to increase home sales. I wish us well, because it has to work out for all of our sakes.

Assuming the Fed Can Tighten, Will They?

Assuming the FED can tighten, will they?

Absolutely not. All of this talk of tightening assumes that what signs of economic activity we are seeing are FED/treasury/federal spending independant. There are depressionary conditions out there, induced by 30 years of loose policy and poor fiscal restraint, that are being staved off by the FED pouring more alcohol into the punch bowl. At this stage, talk about removing the punch bowl (which may be good policy) should be accompanied by significant increases in police forces.

Enormous Downside Risk for Stocks

Love that Nat's hat Naufal! Except with those of us in Washington D.C., wearing Washington National attire may hurt your credibility.

Reading Rates: MBA Application Survey

The title of this article is "Reading Rates: MBA Application Survey". I was hoping that the article was going to address the literacy rate of those applying for degrees in Master's in Business Administration. I think there is something worth reporting here.

You see, the MBA degree is a very important, and requires a degree of rigor most of us non MBA types can't even understand. The candidates that are admitted to the top programs are either:

1. Really smart, qualified students who should lead the business world.
2. Really good test takers who have mastered the GMAT material.
3. Legacy candidates whose parents attended the program (I kid you not, this is a question asked on the application)
4. Underserved student populations whose admittance improves the "blend" of the class.

Regardless, our business culture hands the newly minted MBA's the keys to the castle. I don't know if we non-MBA taxpayers have the collective resources to try to sort through Categories 1-4 above with bailouts to try to find Category 1 leaders. I do know that we are going to try, though.

California Comes to a Cowardly Compromise

Don't you guys know that deficits don't matter? The answer is simple. Financial engineering.

Lets find a way to bundle the California debt in a manner that totally obscures the original commitment. The more complicated, the better. Walla! Sell it on the open market as a AAA rated obligation to some retired folks or to someone who wants to suppress their currency (you know who you are). Tell them not to worry, as they don't have to mark their new investment to market. When they get nervous, say that pricing during this downturn is foolish. Tell them to wait a while, and the price will recover. Situation solved, problem averted, time to build more residences in the valley!

The Implications of Russia's Declining U.S. Debt Purchases

The utilization of the short end of the curve is going to come back to haunt us, as if a recovery does eventually come, we will have to refinance into higher rates. I would have liked to see the treasury push more of its debt into the longer end of the curve. Scratch that, I would have liked to see the treasury not borrow anything at all.