Summary Of Last Week’s Influences:
President Obama and Fed Chairman Bernanke both gave speeches last Tuesday using religious parables. The President explained his “Five Pillars” to build a foundation for economic recovery, believing that the first pillar is to have the government recreate the bubble that got us into this economic mess in the first place. (The key pillar here is that even Larry Summers endorses healthcare reform.) Even though the indices continued to gain last week, March retail sales results Tuesday kept the market down all day. The US and China will have to learn the hard way that US consumer spending can no longer comprise 70-75% of the US economy.
Speaking of consumers, General Growth Properties (NYSE:GGP), the second largest US mall operator, filed for Chapter 11 bankruptcy Thursday. I’ve written about the rise of commercial and retail bankruptcies, and this is just the tip of the iceberg. Beyond reduced consumer spending, General Growth was one of the largest users of commercial mortgage-backed securities (NYSEARCA:CMBS). According to The Wall Street Journal, CMBS were originally created by the RTC after the S&L crisis to package groups of mortgages to sell as securities to buyers with various risk tolerances. The Journal quotes a report by Deutsche Bank (NYSE:DB), estimating that $154.5 billion of CMBS loans will come due between now and 2012, and DB estimates that two thirds of these loans won’t qualify for refinancing. Now the Fed is considering allowing CMBS into its TALF program. This shows you how berserk Bernanke has went with these programs that he would even consider a mall operator to be a systemic risk.
Bernanke’s speech Tuesday was “Four Questions About The Financial Crisis,” a takeoff of Passover. I only have one question for Bernanke: What is your exit plan to unwind all the excess liquidity in the system? Having an exit off of I-95 christened “The Ben Bernanke Interchange” just doesn’t cut it. The exit is for Dillon, South Carolina, the home of “South of the Border.” But that’s a parable that Bernanke would prefer not to elaborate on.
President Obama could start fixing his first pillar by putting Paul Volcker in charge of the Fed and the Treasury. After all, they’re one in the same now.
Summary Of This Week’s Influences: (continued at wallstreetweather.net)