Monday Crib Sheet
Let’s start with the 40,000-ft. Monday a.m. fresh-start view. Asian stock markets have parked in big gains, and European bourses seem to be catching some of the same momentum, as pockets of company earnings come in strong and downward pressure on oil prices continues. U.S. stock futures are in rally mode, thankful for a little credit elbow room as Libor rates ease.
Earnings, earnings, earnings will be all the focus for the next couple of weeks, because that’s where we’ll get a look into what our chances are of staying shy of 8% unemployment rates that could accompany even a moderate two- to three-quarter recession.
Notes the WSJ….
On the economic front, investors will look to Conference Board leading economic indicators and testimony from Federal Reserve Chairman Ben Bernanke before the U.S. House Budget Committee later in the day.
If you missed it over the weekend, then, flash back for a few moments to Brian Carney’s “weekend interview” with 92-year old Anna Schwartz in the Wall Street Journal. Firmly, gently, she chides current policy-makers for shifting the agenda from saving banking to saving banks, and for using the tools that should have been used by the government during the Great Depression to combat the current crisis, which is a different matter altogether.
Anna Schwartz
… by keeping otherwise insolvent banks afloat, the Federal Reserve and the Treasury have actually prolonged the crisis. “They should not be recapitalizing firms that should be shut down.”
Rather, “firms that made wrong decisions should fail,” she says bluntly. “You shouldn’t rescue them. And once that’s established as a principle, I think the market recognizes that it makes sense. Everything works much better when wrong decisions are punished and good decisions make you rich.” The trouble is, “that’s not the way the world has been going in recent years.”
Bernanke speaks at 12:45 today. On his mind, if not in his remarks, will be his hero Anna Schwartz’s assertion that he’s been bringing the wrong tactics into play, addressing liquidity as opposed to addressing a profound lack of trust and confidence that big-stakes players have in one anothers’ structured finance systems.
It’s Pre-Game Day–So Get Smarter
Here are three pieces you can not afford not to have read by the time your friends appear for beers and pizza for a college grid game or two when the Saturday honey-do list is done.
- First, unbuffetted by the financial storm, Warren Buffet buys America’s future, and lets everybody know why in a New York Times op-ed piece.
- Second, it’s James Grant, editor of Grant’s Interest Rate Observer, in a lucid Wall Street Journal analysis of the role of confidence–or lack thereof–amid the grip of global economic turmoil.
If the confidence deficit seems so high, it’s because the preceding confidence surplus was full to overflowing. People suspended critical judgment. They accepted at face value the pretensions of central bankers and the competence of investment bankers. Not one professional investor in 50, probably, doubted that wads of subprime mortgages could be refashioned into bonds that were just as creditworthy as U.S. Treasurys.
- And if you’re the vituperative type, like some of us here at HousingCrisis.com, then you’ll have to take in today’s piece in Business Week, which will give you a leg up in the obligatory blame game debate after a brew or three.
Must reading, all three pieces.
Smart Faster–Your Dashboard for Housing Economics Literacy
From CONSTRUCTION PULSE, by John McManus: Apologies to one of history’s tactical military geniuses, but all of construction–especially residential, commercial, and public works construction–is divided today into four parts, nearly equal in magnitude and importance. The four parts are 1. what to ask, 2. what to know, 3. what to think, and 4. what to do in light of the fact that within the past few hours’ time, your Congressional representatives voted no on the “Emergency Economic Stabilization Act of 2008.” This 110-page document would have changed the game. Some form of it will see the light of day, or today’s Wall Street panic will become a true contagion.
For the moment, there’s but one place to go for a thorough debriefing on the terms, conditions, concessions, and caveats in the measure, and why Congress caved at the moment of truth. But if you want a variety of perspectives on the package, Barry Ritholtz’s The Big Picture rolls up a linkfest with an assortment of sources. One of the best “U.S. Economic Crisis for Dummies” visuals is the Sunday, Sept. 28th New York Times’ infographic on the tally of federal government initiatives aimed to “calm the system.” None of them have.
Suffice to say, that as grave a moment as the U.S. financial system has faced, our elected officials have behaved predictably. Like the aforementioned Roman conqueror, they saw, they came, and they made the $700 billion plan all about them and their present and future ambitions in electoral politics.
A plan so hugely ambitious almost inevitably dies five deaths before people come around on it. And why not? It’s extremely complicated. When an iteration of this measure eventually passes into law, important questions remain, and they’re important to answer for yourself soon.
One concerns a potentially crippling abyss between Capitol Hill and Wall Street on one side and an American populace that feels it’s been hurled to the lions by Washington and big money interests. The question is, can anyone of the principals succeed in framing the plan as a sweeping restructuring of the U.S. financial system, as opposed to a bailout of avaricious, culpable, Wall Street risk-takers?
How do you yourself view the measure? As a bailout? or a sweeping financial reorganization?
It’s important for us to know the answer to this question, because, even as the votes, and the signing into law, and the handshakes, and the thumbs ups turn into photo ops galore, the effectiveness of the measure will come down to two matters of critical importance to your companies. They are, will you be able to borrow capital to run your business? And, will your home buyer customer be able to borrow money to buy a home?
Big question two regards the proverbial symptom vs. the sickness. Consumer spending, the last we looked, still represents 70% of GDP. The economy is suffering a consumer spending-led downturn, and has been buoyed for the last few quarters solely by exports. Look at the way the economies of Europe and Asia have been acting lately and you’ll see that our 2.8% GDP growth mark this past quarter is bygone. Unfreezing the credit markets, as necessary a step as this is, will just get us to the starting line of what will be broader economic downturn, with a slow and feeble recovery starting in the back-half of 2009 and barely pulsing through 2010. So question two for you is, are you prepared, or can you at this point prepare for a recessionary environment, with little-to-no consumer spending tailwind for the near future and little to be encouraged about on the capital spending side of businesses either?
Third big question that qualifies as an 800-lb gorilla in the room is “When did you plan to retire?” If House Speaker Nancy Pelosi tells us “the party is over,” is the newsflash actually, time is no longer money, because there is no money and you’ve got nothing but time?
Questions you should raise both at home and in the office over the next few days as you consider calling or writing your anxious Congressional representative with your views of his or her performance in the hard light of this moment.
In turn, hopefully we’ll be here for you to consider as a resource on the other three parts of the construction landscape I mentioned above… 2. what to know, 3. what to think, and 4. what to do.