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

Market futures are under pressure — we seem to be in the process of revisiting/retesting the November lows:

Dow is off ~9% year-to-date.

Should be an interesting day . . .

I will reserve comment until I read the details of the plans when they are released Wednesday. But in the WSJ, we read:

“Economists and government officials say the country’s economic woes can’t be fixed until the downward spiral of foreclosures and falling home prices come to an end. Devising a plan that helps without rewarding banks for making bad loans or costing too much has proven hard for both the Bush and Obama Treasury Department.

One contender would reduce Americans’ home-mortgage payments, people familiar with the discussions said, possibly through a cut in the interest rate, the costs of which would be shared by the government and mortgage servicers. As part of a new national standard for modifying loans, government officials would make such a plan available to people who are still current with their payments but in danger of defaulting.”

Loan mods seem to be the key idea:

• Fannie and Freddie loan-modification holds monthly housing payments to 38% of pretax income. Possible change? New formula takes this down to 31%;

• Help underwater homeowners — who owe more than their houses are now worth — to refinance;

• Allow judges to modify mortgages during bankruptcy proceedings;

• Voluntary temporary halt on foreclosure;

• Possible Bank of America, J.P. Morgan Chase and Citigroup temporary moratoriums for owner-occupied residences.

• Mortgages securitized to investors won’t be included in the moratorium;

• Citigroup foreclosure moratorium eliminates some restrictions;

• J.P. Morgan’s new moratorium would last through March 6 and only includes loans owned by the bank — about 25% of the $1.5 trillion in mortgages J.P. Morgan services.

• Bank of America’s moratorium lasts through March 6 and includes mortgages owned by the bank and its Countrywide mortgage unit.

Of course, none of this addresses the key issues: Too many people live in homes they cannot afford, purchased with loans they cannot service. Oh, and home prices are STILL too high by historical metrics. . .

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Source:
Treasury Looks to Aid ‘Underwater’ Mortgages
DEBORAH SOLOMON and ROBIN SIDEL
WSJ, FEBRUARY 14, 2009, 12:24 A.M.

http://online.wsj.com/article/SB123457111387586375.html

Mrs. Big Picture said “I want another puppy.”  And, so it was . .  .

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What a face:

Paparazzi! Get that camera away from me!

Why the furrowed brow? What could YOU be worried about?

Jax & Max

The cause of all the trouble

More fun with charts:

via QQQ Trader

Avinash Persaud, founder and Chairman of Intelligence Capital, discusses regulatory solutions that would avoid this happening next time: Lending to a Credit Rating

The credit rating section begins at ~22 minute

Gresham College, Running time 51 min 45 sec

One of the puzzles of the 2007/8 credit crunch is how a relatively small loss of capital in a tiny market segment was transformed into a global financial crisis costing close to $1 trillion and sending the world economy into slowdown.

Key players in this tragedy are a set of legal and accounting principles that are well-meaning, but turn financial hiccups into liquidity black holes.

A conversation about the future of newspapers with Charlie Rose, Walter Isaacson of “Time,” Robert Thomson of “Wall Street Journal” and Mort Zuckerman of “The New York Daily News”

Charlie Rose, February 11, 2009 running time 27:01

Interesting discussion by NYT media columnist David Carr on a recent CNBC Power Lunch segment with Nouriel Roubini and Nassim Taleb: Predicting Crisis: Dr. Doom & the Black Swan.

As Roubini and Taleb were discussing a major restructuring of the economy, some of the questions were reflective of what we have previously described as the Conspiracy of Optimism (mad props to SocGen’s James Montier for that turn of a phrase).

Carr notes that numerous websites were somewhat aghast at the hunt for stock tips in the midst of such otherwise serious debate:

“Last Monday on “Power Lunch” on CNBC, there was a segment that many people noticed and passed around the Web. Under the rubric “Turning the Corner,” Bill Griffeth and some of his colleagues were interviewing Nouriel Roubini, a professor of economics at the Stern School of Business at New York University, and Nassim Taleb, a derivatives trader, author and theorist about randomness.

The two guests — known as Dr. Doom and the Black Swan, nicknames that usually land on people who do their best work with chain saws and thumb screws — were fresh off their appearance in Davos, Switzerland, where they were hailed as visionaries for having foreseen the financial crisis. Mr. Griffeth started things out briskly by saying, “What would it take to make you bearish on this economy right now?”

You mean bullish, his co-host, Michelle Caruso-Cabrera, interjected. They cracked wise about Freudian slips, but the entire segment, it turned out, was about trying to somehow find the horns of a bull on two ferocious bears.”

Carr then got to the meat of the issue: Cheerleading:

“The news media in this country are often accused of being contrary and pessimistic, but rarely is that the case. Amid carnage, economic or otherwise, reporters are trained to look for “glimmers of hope,” “signs that the worst is behind us” and “miraculous tales of survival,” especially those that involve a baby — or in this case, a 401(k) — somehow making it through a hurricane, tornado or mudslide.

And for people who cover personal finance, the narrative of big stock swings and instant profits has been replaced by cautious advice about hunkering down with T-bills and cash. Being a financial news anchor must seem like owning an ice cream parlor where spinach is the only flavor on the menu.”

I don’t know why I find it surprising that there is some pushback against happy talk on TV.  But it is an unexpected refreshing change of pace.

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Previously:
Predicting Crisis: Dr. Doom & the Black Swan (February 9, 2009)

http://www.ritholtz.com/blog/2009/02/predicting-crisis-dr-doom-the-black-swan/

Apprenticed Investor: Lose the News
Barry Ritholtz
The Street.com, June 16 2005

http://www.thestreet.com/story/10228215/1/apprenticed-investor-lose-the-news.html

Source:
This Just in: The Market Is Still Dead
DAVID CARR
NYT, February 15, 2009

http://www.nytimes.com/2009/02/16/business/media/16carr.html

Analysis and Discussion with Bloomberg Editor-at-Large Tom Keene

Bloomberg, February 16, 2009

Here is a linke to my post on The Globalist about CDS and the banks:

http://www.theglobalist.com/StoryId.aspx?StoryId=7529

To comment about “low beta” assets:

“AIG’s sin was thinking it could buy low-risk growth through CDs, but even veteran CEO Hank Greenberg failed to understand the true risk of insuring credit losses. And the sad part is that in chasing growth by taking risks with CDs, Greenberg and AIG were entering a relatively low-margin business compared with traditional insurance.”

The back story on evolving CDS legislation in DC is very interesting.  Bottom line is that HouseAg Committee is searching for relevance in the post bubble era, but we are headed toward a “final solution” on CDS that I hope will provide greater relevance for most investors and less systemic risk.   The folks at ISDA are “concerned” about the House Ag bill (see 2/13/09 news report by clicking here).  That is good.

Chris

WSJ MarketBeat blogger David Gaffen tells Dow Jones Newswires’ Simon Constable to expect deflation. Plus, the Treasury releases its international capital flows report.

Deflation on Deck

WSJ, 2/14/2009 2:08

Data on home builders and housing starts kick off a holiday-shortened week. Fed chairman Ben Bernanke will address the Fed’s balance sheet, and minutes will be released from the last Federal Reserve meeting.

Look Ahead: Fed Notes, Data on Tap

Marketwatch, 2/13/2009 1:50