>>>an unprecedented level of loan performance deterioration,<<<
Several thoughts:
1) I had as bad a day as everyone else...long oil and short the banks/housing/tranny.
2) the wisdom of my former Senate Banking staffer and industry wise man: a) first the problem emerges, b) confidence is restored, and c) the bottom then falls out.
3) "Easy Al" stopped cutting rates in Jan/Feb 2002. In October 2002, the market got so sick it shattered porcelain,
4) The AEI meetings I attend consistently insert a little heralded piece of info....during the boom years, corporate default rates were way, way below normal - as in 50 year norm (might have to check that). The point is that they have to revert to normal just as everything else is going in the can. And then they have to overshoot because....we have entered a recession. IOW, the change in corporate default rate will about 2X the normal change in default rate as the economy enters recession.
5) Some pundits see it. Some don't. The FED is praised for its timely and aggressive rate cutting. The thing is, that doesn't mean that banks will/can lend or borrowers borrow. See S&P being unwilling to rate a big pile of securities.
6) With reference to #5 above, witness the near unchanged state of mortgage rates after a roughly 400 basis point cut since August. Banks won't lend except to the most credit worthy ... you know the ones who can afford and are willing to buy a house and watch it drop $75K.
7) Some say that the credit crisis can't be healed until the real estate values stabilize because so much debt is tied to real estate. I know that Sheila Bair is trying. I think something came out of the House committee today. I can't understand any of it. Regardless, it is all based upon the willingness of untold paper holders to write off 25%....and soon.
8) They say that you can't fight the FED. I think that lots of people think that. Regardless, it was an opportunity for some dark siders to take profits. The energy longs sure took them today. Why was that. After all, aren't rate cuts as good for energy companies as for banks?? Energy companies are very capital intensive. I think it the case that a lot of people were configured as I am, but they decided to take it off the table on both sides. This same behavior was seen in August 2006 when we had "The Pause" at the end of the rate raising campaign. You know....when Heli Ben had been in the saddle for about three months - showed that he was tough by raising once (even though it tore him up inside and he couldn't wait to make his first cut as FED head). Then he paused. The homebuilders all went up 50% into November, and oil crashed. I can't recall why oil crashed then. Anybody??? I had days like today back then. Of course this January, I was printing it on both sides. |
