The Recession Is Over! Or Is It? Forget the unemployment rate remains north of 9% and foreclosures are near all-time highs; the recession is over!The Conference Board said Thursday that its index of leading indicators rose 0.6% in July – its fourth consecutive gain – suggesting the economy has bottomed and the recession will end this summer, if it hasn’t already.That’s right, the recession may already be over. Ken Goldstein, the Conference Board’s economist, says gross domestic product may be positive this quarter.Barry Ritholtz, CEO of FusionIQ and author of Bailout Nation, believes things have improved but he’s not ready say we’re healed. “After hell, purgatory isn’t so bad,” he jokes.
I am doing a live interview on C/Span Washington Journal program this morning, from 9:00am to 10:00am. You should be able to stream it here: http://www.c-span.org/Watch/C-SPAN_wm.aspx.
The discussion will be on Bailouts, Bernanke, the Economy, and the Markets. Should be fun. When it gets stored on line, I will post a link.
Look for an update to Case Shiller when I return to the office.
When home prices stop going down, the worst of the credit crisis will have ended as banks can confidently quantify their exposure, investors can feel comfortable with taking on certain risk, many homeowners will stop the drowning on their mortgage, home buyers won’t have lower prices to wait for and the important wealth effect can stabilize. Home prices rose m/o/m in May for the first time since July ’06 and is expected to rise again m/o/m in June according to today’s S&P/CaseShiller 20 city home price index. The y/o/y drop is expected to be 16.4%, the slowest pace of decline since July ’08. However, because the prime area of housing is now under growing stress, price declines in this area will in my opinion reverse the temporary stabilization signs we’re seeing now in the aggregate. The FHFA price index is also out and has shown more modest price declines. Consumer confidence is out too. Chinese stocks broke its 3 day winning streak in response to yesterday’s comments from Premier Wen basically saying the recovery won’t all be smooth sailing. The rest of Asia followed.
“When an unprecedented amount of taxpayer dollars were lent to financial institutions in unprecedented ways and the Federal Reserve refused to make public any of the details of its extraordinary lending, Bloomberg News asked the court why U.S. citizens don’t have the right to know”
-Matthew Winkler, the editor-in-chief of Bloomberg News.
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I would have been surprised if it went the opposite way.
“Federal Reserve must make records about emergency lending to financial institutions public within five days because it failed to convince a judge the documents should be exempt from the Freedom of Information Act.
Manhattan Chief U.S. District Judge Loretta Preska rejected the central bank’s argument that the records aren’t covered by the law because their disclosure would harm borrowers’ competitive positions. The collateral lists “are central to understanding and assessing the government’s response to the most cataclysmic financial crisis in America since the Great Depression,” according to the lawsuit that led to yesterday’s ruling.
The Fed has refused to name the borrowers, the amounts of loans or the assets put up as collateral under 11 programs, saying that doing so might set off a run by depositors and unsettle shareholders. Bloomberg LP, the New York-based company majority-owned by Mayor Michael Bloomberg, sued Nov. 7 on behalf of its Bloomberg News unit.”
The only way this has been historically been allowed is when it imoacts National Security . . .
A tsunami of home foreclosures is set to hit the US as banks are unable to keep bailing out tenants that can’t afford their rent, David Karsbøl from Saxo Bank told CNBC. Daphne Roth from ABN Amro Private Banking joined the discussion.
Dick Armey on CNBC this AM blaming the Government and Federal Reserve for all of the causes of the subprime crisis. Of course, it was all Fannie Mae and Freddie Mac.
Armey is another sufferer of cognitive dissonance, from the Phil Gramm school of denial and ignorance. He is straining desperately to avoid any responsibility for his own past votes.
Funny, I don’t ever recall Armey complaining about low rates during the Greenspan era. I love these guys who could not get enough easy money when they were in office, who drank the Kool-Aid back in the day.
Give credit to CNBC’s Steve Liesman who (from vacation on the phone) challenged Armey’s revisionist history regarding bad loans made by private lenders. Steve also noted that sub-prime loans were not GSE guaranteed during the boom period.
Bob McTeer, former Dallas Fed President also calling in, took a subtle shot at Armey, saying “I am not as critical about easy money as most people are these days.” Hint, hint.
Put Armey into the column of yet another political hack desperately trying to defend an outmoded belief system. Why CNBC runs a parade of folks who push misinformation and ideological driven pap is beyond my understanding . . .
Markets will like the removal of uncertainty now that President Obama has committed to Fed Chairman Bernanke’s reappointment. Confirmation by the US Senate is expected without much difficulty.
History shows that uncertainty is the enemy of markets. Much speculation about Bernanke and a possible Summers succession has swirled in market analysis circles. That is over.
Bernanke’s reappointment makes Fed policy a little more predictable. Bernanke clearly responded to the Lehman failure and the cascade that followed with unprecedented stimulus and imaginative and creative use of new Fed tools. Agree or not, the types of applications and the size of intervention are now established in the annals of Fed policy making as one of the most dramatic responses ever. This is the hallmark of the Bernanke regime.
We can expect this approach to continue now that the cloud of uncertainty has been lifted. Will the policy succeed in stemming more economic damage and returning the economy to a growth path, without substantial inflation? That remains to be seen. But we do know that Bernanke is committed to stimulus without limits in order to avoid deflation and depression.
We do not expect this news to trigger any extended market movement. About 70% of those market professionals polled were assuming Bernanke’s reappointment. Others were wondering whether the Obama administration would see this as a benefit to their politic agenda. Clearly the internal power at the White House has decided that reappointing Bernanke is in the president’s political interest. So be it.
The Fed still faces a daunting task. It must persist in easy policy for a protracted period and then turn attention to the inflationary threats that may arise. That is a difficult task under any circumstances and even more so when the economy and the financial system have experienced a crisis of the proportions we have seen.
We wish the reappointed chairman success. Meanwhile we remain vigilant and recognize that, in a globally linked world, financial integration means that no single central bank and no one chairman of it has ultimate and dominant power. Bernanke needs to find a path for coordinated action when the time to remove the stimulus is at hand.
David R. Kotok, Chairman and Chief Investment Officer, email: david.kotok@cumber.com
The majors all have the story that Ben will be reappointed by Obama:
Obama will make the announcement tomorrow on Martha’s Vineyard, Massachusetts, where he is vacationing with his family, and Bernanke is expected to join him, said the official, who spoke on the condition of anonymity. The nomination requires Senate approval. Bernanke’s four-year term as chairman expires Jan. 31
Game theory would have it this is the safe pick, the one that you cannot get into trouble for, even if things go bad later.
A new Fed Chair, in the event something went awry down the road would lead blame back to the White House.
Richard Bove, of Rochdale Securities, predicts 150 to 200 more US banks will fail this year. He discusses this prediction with the CNBC news team and Christopher Whalen, of Institutional Risk Analytics.
To be sure, this may be much ado about nothing and Goldman shares rallied sharply early Monday, before fading in the afternoon with the broader market. Still, if nothing else, this “trading huddle” story is another black eye for the white shoe firm, whose summer of discontent has so far featured:
Rumors of Goldman front-running the market via high-frequency trading software after one of its former developers was arrested for allegedly trying to steal is proprietary trading code.
A New York Times story detailing former Goldman CEO Hank Paulson’s numerous calls to current CEO Lloyd Blankfein last fall, when Paulson was Treasury Secretary and Goldman was one of many firms in line for government largess.
"I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale." -Thomas Jefferson (letter to John Taylor in 1816)
After 3 quarters in a row that averaged just 1.2%, Q4 GDP grew 2.8%, a touch below expectations of 3.0% BUT Nominal GDP grew well below forecasts. Because the price deflator was up just .4% vs the estimate of 1.9%, Nominal GDP was up 3.2% vs the estimate of 4.9%. Personal Consumption rose 2.0% vs the forecast of 2.4%. Fixed Investment rose 3.3% helped by a 5.2% increase in equipment and software spending and residential construction rose by 10.9%. Trade was a slight drag on GDP growth and government spending was as well led by a 12.5% decline on national...
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