The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

Jake sends along this Citi chart:

via econompic

When Chrysler offered its nonunion salaried employees a buyout in early November, Steve Grames and Jim Badhorn were two of the 5,000 employees who took the offer. They now face an uncertain future.

The New York Times, February 17, 2009

Analysis and Discussion with Nicolas Retsinas of Harvard University (Starting Bell)

Bloomberg, February 18, 2009

I’ve been meaning to get to this: Housing starts freefell earlier this week, plummeting 16.8% month-over-month to an annualized rate of 466K units.

Multi-family units were down 28% to a 16-year low at 119K; Single-family starts were down 12% M/M to a new historic low of 347K. This marks the third straight month of new lows in single-family construction.

Building is now running below underlying demand of ~500K/month, but the sector is still plagued with a significant inventory overhang of +1 million units.

Of course, ongoing layoffs, stagnant incomes, and an ongoing recession does not bode well for Home Builders over the next 18 months. There may be a few short term trades here and there — but they are just trades.

As to starts, now THATS an ugly chart:

Hat tip RM, via Census

Chris Whalen of Institutional Risk Analytics.

via Yahoo Tech Ticker, Feb 18, 2009

“Nationalization” is a poor word to describe the process. “Receivership and restructuring,” along the lines of what the FDIC did with WaMu, is the right way to think about it.

David Reilly is on fire:

judgment by bankers helped get us into this crisis. They relied too much on borrowed money, lent too freely to shoddy customers and got taken in by their own sophisticated financial models.

So you would think the last thing anyone would want to do is rely more heavily on their judgment in the hope they’ll do better next time.

Unless, that is, you’re a banker. Many believe one way to prevent today’s troubles from recurring would be to give banks more wiggle room over how much money they put aside to cover loans that might go bad. That would let them build up rainy day funds when times are good so they can bolster profit during slumps . . .

Consider that between 2003 and 2007 Citigroup Inc. paid out about $44 billion in dividends and about $22 billion buying back stock. The combined outlay is about four times more than its current market value, and much more than what the government has shelled out to keep the bank afloat.

Remind me again why we are all on the hook to the tune of $300 billion for these idiots?

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Source:
Sexing Up Books Isn’t the Answer for Banking Woes
David Reilly
Bloomberg, Feb. 19 2009

http://www.bloomberg.com/apps/news?pid=20601039&sid=aoDAkaaW0y9c

Live! From National Press Club in Washington D.C.: Fed Chairman Ben Bernanke Reveals Fed’s Long-Term Economic Forecast

Part I

[FIRST PART - 12:04]

Part II

[SECOND PART - 12:37]

Bloomberg, February 18, 2009

President Obama’s housing plan targets seven million to nine million homeowners, making it easier to either refinance / renegotiate payments.

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via NYT

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Source:
More Housing Details Are Pending, but First Some Answers
TARA SIEGEL BERNARD
NYT, February 18, 2009

http://www.nytimes.com/2009/02/19/your-money/mortgages/19modify.html

Here are my two shots from TechTicker yesterday:

Why Geithner’s Bank Fix Will Fail

Analyst: “Nationalization” of Citi and BofA Inevitable in ’09

I think there are two issues regarding the financial bailout: First, is what we are doing effective?  Two, are we adding to “perceived” systemic risk or reducing it with our actions?

And the question of the week: Is there Any Such Thing as Systemic Risk?

And if there is, where does she live?

As I noted in the second shot, there is no such thing as systemic risk, IMHO.  Just a way for politicians in Washington to push the statist agenda and turn us all into slaves, to wit:

“You cannot legislate the poor into freedom by legislating the wealthy out of freedom. What one person receives without working for, another person must work for without receiving. The government cannot give to anybody anything that the government does not first take from somebody else. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that, my dear friend, is about the end of any nation. You cannot multiply wealth by dividing it.”

The late Dr. Adrian Rogers

Thanks to Gerry for the quote.

Best,

Chris

There is a surprisingly interesting article at Money Magazine on why so many so-called experts utterly missed the market crash, credit crisis, and housing collapse.

Its an interview with Philip Tetlock who is (with no small amount of irony), an expert on experts. He is a professor of organizational behavior at the University of California-Berkeley’s Haas Business School, and has been studying experts for 25 years.

“But you shouldn’t simply write all gurus off. Tetlock’s research found that one kind of expert turns out consistently more accurate forecasts than others. Understanding what makes them better can help you make more reliable predictions in your own life. Tetlock explained it all to Money’s former managing editor, Eric Schurenberg, in a recent interview. . . .

What makes some forecasters better than others?

The most important factor was not how much education or experience the experts had but how they thought. You know the famous line that [philosopher] Isaiah Berlin borrowed from a Greek poet, “The fox knows many things, but the hedgehog knows one big thing”? The better forecasters were like Berlin’s foxes: self-critical, eclectic thinkers who were willing to update their beliefs when faced with contrary evidence, were doubtful of grand schemes and were rather modest about their predictive ability. The less successful forecasters were like hedgehogs: They tended to have one big, beautiful idea that they loved to stretch, sometimes to the breaking point. They tended to be articulate and very persuasive as to why their idea explained everything. The media often love hedgehogs.

How do you know whether a talking head is a fox or a hedgehog?

Count how often they press the brakes on trains of thought. Foxes often qualify their arguments with “however” and “perhaps,” while hedgehogs build up momentum with “moreover” and “all the more so.” Foxes are not as entertaining as hedgehogs. But enduring a little tedium is worth it if you want realistic odds on possible futures.

Fascinating stuff.

My own thesis as to their problematic prognostications places a healthy amount of blame on the conspiracy of optimism.

And on a related note, Dean Baker and I are interviewed in Editor & Publisher magazine on what Journalists can do when interviewing these experts: What to ask, how to dig beneath the data, how to not get rolled by the spinmeisters:

Wish list for reporters covering this and future financial crises

Be more skeptical of sources. “You have to play lawyer, ask what is this person’s motivation for saying what they’re saying.” The best reporting on the automobile industry’s true financial predicament was at an upstart Detroit Web site that supplies unvarnished automotive reviews and editorials about the industry, The Truth About Cars. “They understood the business and its challenges; they were railing for several years against the unsustainable nature of the capital structure of the Big 3,” he says.

Question data, constantly. Last March, for example, The Wall Street Journal ran a story saying the vast inventory of foreclosed homes was starting to bring people back into the housing market, and cited figures from the National Association of Realtors showing a jump in sales in February of 2.9% from the month before. But he points out that in every year home sales are lowest in January, so changes from January to February are measuring seasonal differences, not actual improvements in house sales. The tendency to overemphasize the most recent data point in a monthly series is called the “recency” effect. “It is a foolish way to ignore the trend and give greater emphasis to today,” he notes.

Give good context. The struggle to control the narrative of how the housing crisis and ensuing financial meltdown occurred is in full swing, exemplified by Karl Rove’s op-ed in the Wall Street Journal in January that fingered Fannie Mae and Freddie Mac as among “the principal culprits of the housing crisis.” But he and others point out that the two government-sponsored enterprises, though they became too large and overleveraged, had nothing to do with the explosion of high-risk lending that took place between 2002 and 2007.

Both articles are thought provoking and worth exploring . . .

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Sources:
Why the experts missed the crash
Eric Schurenberg
Money Magazine, February 18, 2009: 4:10 PM ET

http://money.cnn.com/2009/02/17/pf/experts_Tetlock.moneymag/index.htm

Expert Tips on Covering the Financial Crisis
Barbara Bedway
Editor & Publisher, February 18, 2009 12:01 AM ET

http://www.editorandpublisher.com/eandp/news/article_display.jsp?vnu_content_id=1003942139