Stressed Over the Stress Test
While the S&P futures are higher, they are only about 6.5 pts above fair value and back to where they were at 3:35pm yesterday. Earnings from Apple and Ebay are certainly helping this morning.
The late day selloff yesterday in banks is likely evidence of the growing nervousness and stress on the part of investors ahead of the results of the ‘stress test.
The ease or difficulty in the capital raising process for those banks that need money, according to the Treasury, could be the driver of overall market performance after May 4th.
With less bad data in the US over the past month helping to lift confidence, the April Euro Zone services and mfr’g composite index was also less bad today at 40.5, 1.6 pts higher than expected and at its highest level since Oct. The Euro is up in response. Russia cut rates for the 1st time since ’07 to 12.5% from 13%. Claims and Existing Home Sales are out today.
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After last week’s unexpected but likely Easter holiday influenced drop (and Caesar Chavez holiday in CA), Initial Jobless Claims totaled 640k, right in line with expectations and up from a revised 613k last week.
Continuing Claims were 17k higher than expected at 6.137mm and up 93k from last week and continues to highlight the difficulty people are having in finding new jobs even though the pace of firings have stabilized for now based on the initial claims data staying in the mid 600k level over the past 3 months. The Labor Dept said there were no special factors in this week’s data, thus for now at least making last week’s drop an anomaly.
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April 23rd, 2009 at 9:09 am
So basically Initial claims have reached terminal velocity! ;) They’ve stabilized at a horrendous rate. Tid bit of trivia – at this rate of job loss, we’d burn through every job in the US in roughly 4 years. Whew… stabilization makes me feel better. Gotta run… there’s equities to buy…
April 23rd, 2009 at 9:15 am
As an attempt to bolster confidence, the Stress Test was obviously not thought through conceptually. The announced results will range from vague and feebly positive (whitewash) to specific and candid (shocking). A right ‘balance’ capable of increasing confidence is virtually impossible to engineer. Art Cashin on CNBC this morning called it a ‘ticking time bomb.’
April 23rd, 2009 at 9:28 am
“Americans,” Dr. Kurt Richebächer once told me, “must not love their children. Not with the way they squander their future.”
http://www.richebacher.com/the-dr-richebacher-legacy/
April 23rd, 2009 at 9:34 am
these guys are knuckleheads. this cartoon sums it up quite nicely:
http://www.blamemymom.com/2009/04/21/cartoon-2/
April 23rd, 2009 at 9:38 am
Inventory corrections are always worse than expected and they always end. At 600m initial claims / week, we will lose 125mm jobs in four years. But with a multiplier of 1.5x, all we need is for the gov’t to spend $9t in deficits to restore the economy to full employment!
Linear analysis breaks down at the extremes. Like Newtonian physics. Extrapolation leads to nonsense. The trick is to get the nonlinearities right.
Like any investment, the exit strategy from the Stress Test is the key to its success. Given the contradictory announcements we’ve heard, it seems that Treasury did not think through their exit strategy. Or else their Congressional overseers haven’t thought through the implications of their comments. Or both.
April 23rd, 2009 at 9:46 am
Interesting article in today’s LA Times. Apparently, at least part of the reason defaults are soaring again is because the banks won’t even talk loan modification unless a borrower is already in default. So basically, people who are trying to make their payments are screwed unless they willingly go into default, which many are.
This suggests two things:
1. Housing isn’t as bad as the scary headlines would make it appear — “Defaults soaring!!!”
2. Congress has to pass cramdown legislation immediately to force banks to be reasonable
April 23rd, 2009 at 9:46 am
Forgot my link
http://www.latimes.com/business/la-fi-foreclose23-2009apr23,1,4868098.story
April 23rd, 2009 at 9:54 am
@karen: The truth hurts sometimes.
April 23rd, 2009 at 9:55 am
@franklin411: And you’re shocked, SHOCKED that those same banks you want to bail out aren’t playing ball with borrowers. Quite frankly, I’m shocked, SHOCKED that you’re shocked.
April 23rd, 2009 at 9:56 am
The risk taking by entrepreneurs that has been the basis for our economic success is abating as they step aside and let government dictate how auto companies, insurance companies, and banks should be run. Government is dictating the winners and losers. They will pick the winners that will benefit government and their social agenda. Government will use this crisis to enhance their power. The 50% of Americans who pay no Federal income taxes will support any idea or program that will get them something for nothing. Politicians will frame every issue as an either or option. You either support their new spending plan or catastrophe awaits. The young allow their dogmatic parents to dictate family values. The rhetoric in our society continues to get more polarizing.
Prophets in an Alien Nation
Welcome to a new kind of tension.
All across the alien nation.
Where everything isn’t meant to be okay.
American Idiot – Green Day
Strauss & Howe described the Prophet/Idealist generation as being born during a High, spending its rising adult years during an Awakening, spending midlife during an Unraveling, and spending old age in a Crisis. Prophetic leaders have been cerebral and principled, summoners of human sacrifice, wagers of righteous wars. Early in life, few saw combat in uniform. Late in life, most prophets come to be revered as much for their words as for their deeds. The three previous crisis periods in U.S. history were dominated by the prophetic leadership of George Washington, Abraham Lincoln, and Franklin Roosevelt. George Bush has led us through the 1st half of this crisis. It is likely that Barack Obama will lead us through the 2nd half of the crisis. I don’t think George Bush will be revered for being cerebral or making inspiring speeches. He did wage a righteous war against terrorism. Barack Obama is cerebral and principled. He is waging a righteous war in Afghanistan, though he has never seen combat. He is already known for his inspiring speeches. Will he rise to the level of Lincoln?
George Bush and Barack Obama are both Baby Boomers. The oldest boomer is 63, the youngest 45. Boomers occupy the leadership positions in government, corporations, military, and educational institutions. Boomer leaders are cocky, aggressive, and quoting Doug Casey,
“quite willing to burn down the barn in order to destroy whatever rats they see.” George Bush was sure there was WMD in Iraq. He was sure that cutting taxes, sending out rebate checks, and letting banks regulate themselves was the path to prosperity. Hank Paulson and Ben Bernanke were sure that TARP would save our financial system from collapse. Barack Obama was sure that if we didn’t pass his bloated stimulus bill, catastrophe awaited the country. Baby Boom leaders are always sure and often wrong. The masses are drawn to leaders who are sure of themselves. They want to believe that a wise man will lead them to the Promised Land. They won’t realize that he is leading them to hell, until it is too late….”
http://www.financialsense.com/editorials/quinn/2009/0421.html
April 23rd, 2009 at 10:08 am
1) Get Cheney to put those banks in a stress position
2) Let the Colonels.. er… a… C class executives take the heat for it
3) Get “important information” that Paulson and Bernanke can demand A class executives keep quiet about
4) When it’s over Kudlow can blame it all on feckless, weak, politically-oriented, short-termer: Obama.
April 23rd, 2009 at 10:08 am
Franklin:
Your two conclusions are at odds with one another..
Think about it…
April 23rd, 2009 at 10:14 am
@MEH
First come the sacrifices necessary to ensure survival. Survival, once assured by the sacrificing generation, is succeeded by the entitlement generation that believes it to be exceptional because, enjoying the benefits of its ancestor’s efforts and sacrifices, did not have to sacrifice to survive. This generation then squanders the wealth thus created by pouring resources into determining who gets to control the wealth, and in consuming the wealth, rather than into creating more of it. Once the wealth is thus dissipated, this generation is lost. It never learnt how to create any wealth, and can’t stomach the sacrifices necessary to do so.
Thus the baby boomers, poring over their drastically diminished 401k’s, wondering what the hell hit them, cry like babies that it just isn’t fair. They’ve never been asked or required to grow up. Having enjoyed the fantastic life granted them by their ancestors, they can’t understand that there is no such thing in life as an entitlement. It is left to the succeeding generation to learn anew how to sacrifice to survive, which they must do or perish.
April 23rd, 2009 at 10:16 am
@Mark – I read something similar earlier this year, made lots of sense. It also detailed the other types of groups. The article I read also pointed out that these generation cycles take about 80 year to run their course. China is also in the same phase as the US with their Prophet/Idealist generation.
April 23rd, 2009 at 10:21 am
Existing home sales and unemployment numbers bring us (well, many of us) back to reality. Ho hum. Just the bottoming process, right?
April 23rd, 2009 at 10:22 am
Apparently, at least part of the reason defaults are soaring again is because the banks won’t even talk loan modification unless a borrower is already in default
———————-
This is the tops. As a taxpayer, why would you want to give a break to the homeowner who is still making his/her payments?
Why not just send 200K to every household and be done with it?
April 23rd, 2009 at 10:25 am
Exactly danm. We’re propping up bailing firms who then stick it to the very people who are propping them up. Makes no sense whatsoever. None.
On another note – my folks have been trying to sell the home I grew up in in north-central Mass (about an hour from Boston) for about a year now. They’ve lowered the price three times, from $310K down to $265K. Finally getting a fair amount of people to look at it this spring selling season. No sales yet but I’m guessing it might finally move. They want to move to FL full-time. They now spend their winters there because they hate the Mass winters so much at their age.
April 23rd, 2009 at 10:28 am
Todd,
Strauss & Howe describe it more fully in their book, The Fourth Turning, mentioned, as well, in the linked art.
Curm,
too True, the BBoomers have been as Locusts/the Grasshopper always laughing at the Ant..
the sooner we’re rid of their overweening influence, the better we’ll be.
http://www.mnemonicdictionary.com/word/overweening
April 23rd, 2009 at 10:36 am
More stress: http://www.reuters.com/article/ousiv/idUSTRE53M14820090423
Ken Lewis was told by Paulson and Bernanke to keep quiet on Merrill’s losses. Sounds more and more like a Ponzi scheme to me.
April 23rd, 2009 at 10:39 am
I am puzzled as to why the stress test would be a source of “stress” to investors. After all we already know the results of the test ahead of time – no major money center bank is going to fail. It would be analogous to having the answers to the exam the night prior to actual testing.
April 23rd, 2009 at 11:05 am
@sfharris81
I think the stress is that there’s no way to spin the results to justify additional pumping of bank stocks.
April 23rd, 2009 at 11:11 am
jon nadler at kitco has some excellent commentary this morning as well as an opinion piece in the WSJ by David Widener… a snippet follows and then the link…
“Anyone who takes tea with friends will tell you: The parties are painless. It’s the gossip that hurts. In the same way, today’s anti-tax, anti-spending movements aren’t the problem, it’s the dangerous misconceptions they spread about the government response to the financial crisis…….
Our national debt already stands at $11 trillion. Most of that debt was run up in the last eight years, when government spending outpaced declining tax revenues. The Iraq war is close to costing the nation $1 trillion. Hurricane Katrina cost us about $110 billion.
We ran up a huge tab for our kids well before the bailout, but it’s unlikely that such an inconvenient fact will be the talk of the next tea party.”
http://www.kitco.com/ind/nadler/apr232009A.html
April 23rd, 2009 at 11:48 am
karen…
Thanks for the Richebächer quote, I like the taste of my tears in my morning coffee.
MEH…
Wild stuff! And on point. For the good of all I hope that our new prez will transcend. People always mention what great a listener he is, maybe that indicates a vital curiosity, malleability and awareness. But I can’t help but feel worried when he and others evoke the historical will and persistence of Americans when things get nasty. The problem we face is the result of unparalleled excess, how quickly can so many switch from individual accumulators of luxuries and debt to embracing deprivation and thrift?
“The dream is over, but it was just a dream. Now, get out there and pave some roads, paint some bridges and don’t worry about all of that bank-taxpayer stuff, it’s an investment and we’ve got your back. Hey! And, while you’re at it, stay out of trouble.”
April 23rd, 2009 at 12:37 pm
@MEH – jeeze can your agist crapola blaming all of your issues on the Baby Boomers be any more assinine and offensive?
Consider that the country was run for the past 8 years by the likes of Dick Cheney who famously denigrated both the ideas of conservation and and fiscal responsibility. Cheney – born in 1941 – NOT a boomer – represented, both in appearance and interests, the oligarchical white male CEO who dominated the generation before the baby boomers and the corporate orthodoxy that the boomers rebelled against in the first place. And who did the Republicans nominate to run in 2008 but John McCain, also of that generation and NOT a boomer. Consider that Republicans have held most of the political power since 1980 – yet the only boomer they’ve ever nominated to be President was George W Bush – who basically let Cheney and his ilk run the show anyway. To blame all of this wholehearted on “the boomers” as a generation is rediculous and insulting and makes you extremely unworthy of any of the respect that you can’t be bothered to give to others.
For a true “boomer” view of the situation, better to check out this letter that ran in the NYT the other day:
Letter
We Played by the Rules, but the Rules Changed
To the Editor:
Re “Recession Anxiety Seeps Into Everyday Lives” (front page, April 9) :
I’ll tell you why I’m not only anxious but also angry for the first time in my 55 years: because my husband and I played by the rules.
As we learned from our parents, who survived the Great Depression and World War II, we paid all our bills on time, practiced the Golden Rule, saved money to put our kids through college, put our noses to the grindstone at work and saved for retirement.
Then 25 percent of our retirement savings disappeared into thin air.
Meanwhile, for the last decade anyone working on Wall Street or in Greenwich hedge funds raked in tens of millions of dollars in bonuses and tax-exempt fees …and caused the collapse of our economy, which was supposed to be too big to fail.
I campaigned hard for President Obama, but with no economic recovery in sight, is it any wonder we’re anxious — especially about our children’s futures?
Mary Tuttle
How you can wholesalely blame everything on everybody as a class who was born during a certain time period says a whole lot more about you and the level of the calibre of your thinking than anyone else.
Go find someone else to blame for your issues.
Pittsburgh, April 10, 2009
April 23rd, 2009 at 12:38 pm
whoops- that wasn’t direct at MEH – that was directed @THE CURMUDGEON