The Economy Thread

WINE TALK
1

1/29/09 - highest jobless claims on record.

http://news.yahoo.com/s/nm/20090129/bs_nm/us_usa_economy_7" onclick="window.open(this.href);return false;

Piling on the gloom for an economy mired in recession for more than a year, sales of newly built single-family homes slumped to their lowest levels since records started in 1963.

This will be interesting. Hope it ends soon - the slaughter is piling up.

2

Couldn’t stick to puerile humor and nudes so we could keep our heads buried in the sand, could you?

3

This is REALLY interesting - normally ‘entertainment’ does well during a recession. Not this time!

http://sports.yahoo.com/nfl/news?slug=ap-superbowl-economy&prov=ap&type=lgns" onclick="window.open(this.href);return false;

3000 tickets unsold, major advertisers dropping off, lowered ticket prices for the first time EVER in Super Bowl history.

4

He is trying to attract Victor, Hack and Freakmount.

5

Or anybody with an ounce of concern/insight/intelligence/input on the economy.

Barking up the wrong tree around here, perhaps.

6

I have plenty of concern. It’s the insight part that I’m lacking, but then again I’m not so sure Bernanke and Paulson have a clue either from what I can tell.

7

I suspect the acceleration in decline, along with the duration of the trouble, will be shocking to so many folks. I say this simply because I think we for some time have been (and to some extent, remain) a nation in collective denial of the trouble.

8

I unfortunately have a clear window into the economy, being in the ‘non-essential retail’ sector. I saw it back in the late part of 2007, when, now that the Fed officially stated ‘oh yeah, we ARE in a recession, and, oh yeah, it started in late 2007’ consumers slowed down spending, and furthermore, took FAR longer to decide, and were actually more hesitant to finance their purchases. It was all spelling doom, but I guess I didn’t expect it to get this bad.

Now, the only things that sell are those that are severely discounted - the consumer psychology now is one of ‘I will buy ONLY if I am getting a great deal, hence, taking advantage of the economy and coming out ahead’. That is, of course, except for Costco, which doesn’t have sales, but is value-driven, and constantly packed.

9

I’ll admit to hunkering down, and I’m sure it’s been induced mostly by the seemingly constant bad news. I think folks are in [at least] two camps here: those not looking to buy until prices drop (indeed, getting pissed if they don’t), and those afraid to spend anything for fear it’s their last dime. It seems hard to combat both of those mentalities.

10

The economy has been sick since 97/98. It was kept staggering along by a host short term circumstances such as the millenium factor, 9/11 and fighting two wars, and cheap easy money. Bandaids could no longer stop the bleeding and it all came down.

From a historical perspective, as the country emerged from the Depressions of the 1870/80’s, 1929-1941, and the recession in 1981-83, the emerging economy and business environment changed dramatically from that which existed beforehand. I believe that will likewise be the case when we finally emerge from this recession. I further believe that the changes will probably be as dramatic, if not more so than the 81-83 recession.

What this means to us today is: throwing money at the carmakers as they currently exists is a waste of money and only delays the agony. Sending money to the schools to maintain current education policies delays the agony. Simplifying and encourgaging unionization which often leads to more inefficiencies and cost magnifies the problems. As long as these paths are followed, do not expect an end to the recession.

I can forecast several changes that will occur, but will leave that to another day. One thing is for sure. We cannot compete as a high tech producer when 25% of young adults drop out of high school, and even more are functionaly illiterant. We cannot compete as a low cost producer and maintain our current standard of living (as a Nation). We cannot continue to have the 2nd highest corporate tax rate in the world and expect to continue to attract businesses and jobs. We cannot continue to absorb ~ 1.5 million illegal immigrants into the workforce or society every year. [dash1.gif] [dash1.gif] . I no longer believe the egalitarian dream many people hold is doable or sustainable within the new economy.

I apoligize for my verbosity.

11

Todd you have defined deflation. Batten down the hatches.
Funny I have been searching for some of my favorite 89 and 90 Bordeaux but the prices still suck. I am patient, very patient. I expect them to come to me.[swoon.gif]

12

Gordon, well said! [good.gif]

Of course we’ll get out of this, eventually, but I wholeheartedly agree with you about the delay tactics, which is all they are. Throwing bad money after bad is what got us here! Feeding the failed auto industry, held captive by Unions, is not going to save the economy - quite the contrary! Schools as well, just as you said.

A huge cleaning of the house is needed, and that’s not really being proposed. The stimulus plan in 2008 fed the fever, and the new one that will likely pass does the same - doesn’t fix a thing. I don’t see why it isn’t obvious to our government, even to ONE person within it, that what we must do is what corporations who plan to survive the recession do - cut costs, go lean and mean, and stop borrowing money to keep things running! That’s all the Fed is doing up to this point - borrowing from itself. Sure, we’re lucky that the rest of the world is in a worse state economically than we are, or we’d have such immense devaluation of the dollar that recovery would take decades, but we’re still delaying the inevitable recovery with these tactics.

Many more bankruptcies will occur, many shops close, many corporations halve their work forces, and in the meantime, there will be many unemployed, and many unhappy. Still, from this will come great opportunity for growth, and just as with a broken bone, when it heals, it does become stronger. Our government and the Fed in particular seems hesitant, however, to go to the hospital and let the healing begin with the pain of setting the bone in place before the cast goes on.

13

As much as it pains me - my firm does far better in “bad” times than good.

The reason is purchases are driven by individuals whereas refinances are driven by herds. We ramp fast and furious during times like this.

example:

CY 2008 our firm closed 49.5MM in loans (down from 112MM in 2003, our best)

Dec 17 to Jan 29 we have locked 25 MM in loans and closed over 11 MM.

The “gig” is up however for right now.

Interest rates will enter a nice fat sin-curve pattern. Slipping down to 4.75% (or so) on the low end for 30 Fixed and up to 5.5% (where they closed today). The majors (Wells, US Bank etc) cannot keep up with national volume right now so I think (though no evidence of this) that they are essentially suggesting to the Treasury to NOT buy RMBS until they get their shit together and rehire a ton of folks.

But, the hedge game played by Paulson has merit, though I’ve written a piece for the WSJ that I hope to have published next week (50-50 shot) that we should be buying down 15YR money to avoid major duration risk, which we face with the push down of 30F paper.

As to the economy as a whole. It’s always worse if you watch the news as it magnifies your personal experiences when you go out. Turn off the news and live your life. Avoid Dr. Doom (Nourial Roubini) like the plague unless you have a good shrink who can get you happy pills.

It’s always darkest before the dawn. Watch the 10 year note.

As I’m telling my staff when clients ask “are rates going lower?”

There are only two options:

  1. We print a ton of money and the ‘stimulus’ works. In which case, equities will look far more attractive than 10year paper with a 2.75 yield - so they’ll flee bonds and rates will rise.

  2. We print a ton of money and the ‘stimulus’ doesn’t work. So they’ll print more. Inflation strikes quickly. Rates go up.

So, what way are rates going? UP!

If you’re about to consider refinancing - remember this. The pain of watching rates go up far exceeds the joy of watching them come down.

14

That’s odd, Freakmount - 2003 was the pinnacle of the equity-fueled consumer spending boom!

Wow, this is so messed up…

15

Todd - I agree, 2003 rocked, read my post again. we were over 100MM in 2003 and 1/2 of that in 2008…

16

No, I’m just surprised that in the height of the consumer spending spree, refinances were at their height as well…particularly considering the rates were so much higher than now

17

Ah,
but, they weren’t.

“inflation was gone” and the 10 year fell to 3.17 and at that time RMBS were trading at a 175 BPS premium so for a week we sniffed at rates lower than today.

I wrote 1x 3/1 ARM at 2.75% and a couple 15F below 4.5 and 30F below 5.

Two weeks ago we sniffed at very similar rates…

18

No wonder that was the ‘golden year’ for retailers…

19

Oh yeah. Free carry. zero money for 36 months - to quote Mr. Skilling of Enron “give me all that juice you can”

20

Feeling glad I locked 3 weeks ago.