0% — Act Now !
By Barry Ritholtz - January 27th, 2009, 4:30PM
Nate Beller via DC Examiner
Macro Notes
Consumer Credit continues downward trendPeter Boockvar
Consumer Credit outstanding fell $14.8b in Sept seasonally adjusted, almost $5b more than expected and marks the 11th month in the past 12 of declines. At $2.456T outstanding, it is 4.9% below the record high in July '08. After a flat reading in Aug, (didn't fall b/c of the CARS program), non revolving debt outstanding fell by $4.9B. Revolving (mostly credit cards) balances outstanding fell by $9.9B. To fully put into perspective today's data, look at the current level of consumer credit (doesn't include mortgages, the biggest chunk of consumer credit) relative to GDP. As of Q3, it totaled 17.2%...
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January 26th, 2009 at 10:16 pm
Today’s Dilbert
January 27th, 2009 at 4:45 pm
LOL and Dilbert too. Comming soon- negative financing available.
January 27th, 2009 at 5:01 pm
Meanwhile, as the government is shoveling money to grossly incompetant and overpaid executives at financial companies (i.e., to those who mismanaged their assets and led their firms to brink of insolvency), my wife and I who have a stellar credit record (i.e., no debt other than mortgage (50% LTV), pay off credit cards every month, etc.) received a notice from our credit card company (one of the major aforementioned financial companies) that they are changing our terms to prime + 23.99% capped at 29.99%.
Because we pay off our card every month, the interest rates don’t matter to us. And I’m sure this can be interpreted in more than one way, but on the face of it this incident suggests those who can handle credit are paying for those who can’t. Doesn’t seem like the credit crunch is going to end any time soon!
January 27th, 2009 at 5:28 pm
Let me borrow at that rate. I’ll take as much as they’ll give me.
January 27th, 2009 at 5:34 pm
According to bankrate.com, the average rate (nationwide) for a 36 month new car loan is 7.00%
Given that there’s a down payment on the car, given that the car is insured, and given the bank’s cost of funds, I don’t see why the rate has to be so high.
January 27th, 2009 at 5:46 pm
I see CNBC is touting the “Bad Bank” solution to our financial woes. No wonder there was such a big rally in XLF that continues after hours. Let’s hope the taxpayer gets positioned ahead of the common shareholders in the White House discussions tomorrow. The American people are sick and tired of bailouts for the banking industry.
This has provided a convenient distraction from more concern about GE credit. Strange that a story airing on CNBC would distract the market from problems at GE.
January 27th, 2009 at 6:06 pm
Barry, do you and Chris W or Paul K have any insight into the bad bank story?
I am really hoping Liesman pulled this one out of his arse and this is not for real. This is right out of the Paulson handbook, complete with the after-hours timing. We can only hope that the terms for the banks really involve take-unders by the FDIC and do not in fact involve the government and taxpayers paying over the odds for MBS and other assorted detritus. If this story unravels in the morning, CNBC might end up with a lot of egg on their faces, and we might actually return to free markets.
January 27th, 2009 at 6:31 pm
0% interest is a great way to become a billionaire, the Bernie way!
January 27th, 2009 at 6:38 pm
I’m waiting until the Fed decides to support the stock markets with 36-month fixed term zero percent margin loans.
Even then, I wouldn’t regard going long as a riskless proposition — but it would be getting close.
Traders with shorter time horizons will, of course, have different perspectives.
January 27th, 2009 at 7:23 pm
Listening to Liebsman I kept thinking “things are made complicated for a reason” and then I heard him say the mark to model prices “might be a little bit higher” than market prices, then I heard him say the plan probably wouldn’t be complete til early next week – another sweetheart weekend deal by Paulson’s acolyte Geithner!
January 27th, 2009 at 7:52 pm
leftbank:
I too noticed the “issues with GE” possibly getting a downgrade was suddenly overwhelmed by the “rumor” that Treasury was going to initiate a bad bank/good bank.
Remember that rally we had WAAAAAY bank when we first heard from Gasparino about an RTC 2.0 type model….. 500 S&P pts later….
I’m so bearish right now.
January 27th, 2009 at 7:57 pm
More noise from Liesman and games from the Feds. This is why I hate trading SKF and FAZ. Wake me up when the banks are either nationalized or BK.
January 27th, 2009 at 8:43 pm
Is a bad bank/ good bank good or bad for shareholders? The action today and AH seems to indicate it is good, but I wonder…
Does it mean we get the bad and the banks get the good? Or would it be something more like nationalization with equity and bond holders wiped out? I guess that’s not possible because of the impact on CDSs?
Any ideas?
January 27th, 2009 at 8:52 pm
@KJ Foehr: I have little confidence that equity and bond holders are going to be wiped out any time soon. We the taxpayer are going to get stuck yet again with the turd sandwich. O is losing my confidence in his first full week on the job.
January 27th, 2009 at 9:10 pm
Well I guess the bottom is in and it’s time to go long then.
If it was so simple to help the banks, why the hell didn’t they do it 6 months ago?
What is the difference between this plan and Paulsons original idea of TARP, buying “troubled assets”?
January 27th, 2009 at 9:36 pm
The news on 0% from the fed is a bit out of date…
http://mast-economy.blogspot.com/2008/12/refinance-your-debt-at-0.html
but you gotta love the image. (and the concept…)
GNE
PS. Barry, nice interview on NPR last night… although I didn’t agree with it all, I was totally in agreement on job losses being lagging indicators about what’s really happening now in the market
http://mast-economy.blogspot.com/2009/01/look-at-leading-indicators-most-times_10.html
(You could have pointed to the conference board’s release on monday showing leading indicator index ticking up a bit) In any case, I enjoyed hearing a blogger on NPR…
January 27th, 2009 at 10:28 pm
At 0% there has to be a bubble being inflated somewhere. Somewhere the Fed is not looking and will not notice until too late. Perhaps at a future bond auction?
January 28th, 2009 at 12:12 am
It doesn’t mean as much to you when you don’t have any of your own skin in the game. You are existing through the kindness of strangers. In the Fed’s case, nations.
January 28th, 2009 at 8:01 am
KJ, I think the magnitude of buying the bad bank loans at “slightly more than market” deterred Paulson & gang. All they got for $700B was a 2 quarter delay. Now , after painting this as a disaster of epic proportions O’B can move ahead with a bailout of epic proportions. The hundreds of billions of bank preferred, deeply out of the money warrants and 400-500 billion of guarantees for CITI,AIG and BOA are just the prelude for bad debt purchases based on prices the banks will jump at with the gov possibly picking up bank common just to further muddy the pool.
The amounts of money being thrown around are just incomprehensible. the peak MV of CITI,Chase,BOA and Wells was under a trillion, it sounds like the gov will give the banks trillions and receive fractional ownership shares and a bunch of defaulted loans in return.