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Look at all these parts
Feb. 29th, 2008 12:59 amThis is kind of disjointed; sorry, I just don't have a good theme this time. There are a lot of rocks falling.
Housing is still a mess, and it's not going to be over for a while. Some markets are amazing; Las Vegas had more repossessions in January than sales. Various commentary talks about how much further the decline has to go, how many markets are in trouble, how the credit crisis is still keeping the next couple of years particularly bleak. The New York Times reports youwalkaway.com claiming to have 200 clients in its first few weeks of operation, scattered across six states. Dr. Roubini had commentary on various parts of this to Congress.
The stock market's immediate reaction to all of this has been simply insane. Seriously. The markets are disconnected from reality on low trading volumes. I don't know what to think about that. It's even ignoring the FDIC expecting 100+ bank failures in the next two years. Last year's total? Four.
Over in credit markets, I mentioned earlier the monoline insurers. Ignoring the problem that the scale of the bailout is a tiny fraction of what's needed, the unavoidable reality is that this bailout is coming from the people who rely on the insurers, and who would get paid off by them. No actual new money gets injected. It's crazy. Here's an early Bloomberg take, noting that the bond market wasn't buying it. Neither is Mike Shedlock, who I've pointed you at before. Really, nobody's buying it, and it's this kind of crisis of confidence that destroys banking systems.
Reactions are crazy. Banks are suddenly begging Congress for bailouts they like, while fighting some of the others they don't like at all. Govenors are simultaniously looking for muni bond solutions, as the muni market falls over as part of the general credit seize-up. The ABX market (residential lending) are about at the point of having to invent new numbers, particularly in the BB/BBB-rated funds. So-called AAA debt is running at 60% of face value. AA is around 25%. Everything else is nearly into pennies. Most of the commercial real-estate credit markets are also in collapse. (Remember, in those charts, up == bad.)
Oh, and the banking system as a whole is still in reserves default. Not quite as badly negative, which I suppose is good.
But the money situation? It's a mess. Somebody - or maybe some sets of somebody - has given up. As I'm typing this, the US Dollar hit a new record low against the Dollar Index, at 73.560, and may have just started another leg down. (You can check it now by clicking here. The Dollar Index is the dollar value against a weighted basket of major currencies.) Oil closed at $102.59/barrel heading into a recession.
And the Comptroller of the Currency has resigned, early, in disgust. "'I have been around a very long time, and I have never seen so many simultaneous challenges that I would describe as undeniable, unsustainable and virtually untouchable politically,' Peterson said in a prepared statement." Ouch. He doesn't see anything happening until Mr. Bush's replacement is seated.
So what does all this mean?
We're seeing monetary deflation. Credit is being destroyed at an astounding rate, so the effective money and fungible debt supply (which are in many ways interchangable) is shrinking. This historically leads to price deflation. But there are huge upward pressures on prices, thanks to the falling dollar, the oil situation, and other issues. So what we're starting to see is a spectacularly unholy combination of outright monetary deflation and price inflation, which is similar to but not the same as the recently-often-discussed stagflation. I'm not even sure there's a name for it. Hyperstagflation, anyone? But even in that environment people will start buying a lot less nonessentials before too long. And that just means deflation, in the end.
But honestly, I just don't know either. Good luck figuring it out.
Housing is still a mess, and it's not going to be over for a while. Some markets are amazing; Las Vegas had more repossessions in January than sales. Various commentary talks about how much further the decline has to go, how many markets are in trouble, how the credit crisis is still keeping the next couple of years particularly bleak. The New York Times reports youwalkaway.com claiming to have 200 clients in its first few weeks of operation, scattered across six states. Dr. Roubini had commentary on various parts of this to Congress.
The stock market's immediate reaction to all of this has been simply insane. Seriously. The markets are disconnected from reality on low trading volumes. I don't know what to think about that. It's even ignoring the FDIC expecting 100+ bank failures in the next two years. Last year's total? Four.
Over in credit markets, I mentioned earlier the monoline insurers. Ignoring the problem that the scale of the bailout is a tiny fraction of what's needed, the unavoidable reality is that this bailout is coming from the people who rely on the insurers, and who would get paid off by them. No actual new money gets injected. It's crazy. Here's an early Bloomberg take, noting that the bond market wasn't buying it. Neither is Mike Shedlock, who I've pointed you at before. Really, nobody's buying it, and it's this kind of crisis of confidence that destroys banking systems.
Reactions are crazy. Banks are suddenly begging Congress for bailouts they like, while fighting some of the others they don't like at all. Govenors are simultaniously looking for muni bond solutions, as the muni market falls over as part of the general credit seize-up. The ABX market (residential lending) are about at the point of having to invent new numbers, particularly in the BB/BBB-rated funds. So-called AAA debt is running at 60% of face value. AA is around 25%. Everything else is nearly into pennies. Most of the commercial real-estate credit markets are also in collapse. (Remember, in those charts, up == bad.)
Oh, and the banking system as a whole is still in reserves default. Not quite as badly negative, which I suppose is good.
But the money situation? It's a mess. Somebody - or maybe some sets of somebody - has given up. As I'm typing this, the US Dollar hit a new record low against the Dollar Index, at 73.560, and may have just started another leg down. (You can check it now by clicking here. The Dollar Index is the dollar value against a weighted basket of major currencies.) Oil closed at $102.59/barrel heading into a recession.
And the Comptroller of the Currency has resigned, early, in disgust. "'I have been around a very long time, and I have never seen so many simultaneous challenges that I would describe as undeniable, unsustainable and virtually untouchable politically,' Peterson said in a prepared statement." Ouch. He doesn't see anything happening until Mr. Bush's replacement is seated.
So what does all this mean?
We're seeing monetary deflation. Credit is being destroyed at an astounding rate, so the effective money and fungible debt supply (which are in many ways interchangable) is shrinking. This historically leads to price deflation. But there are huge upward pressures on prices, thanks to the falling dollar, the oil situation, and other issues. So what we're starting to see is a spectacularly unholy combination of outright monetary deflation and price inflation, which is similar to but not the same as the recently-often-discussed stagflation. I'm not even sure there's a name for it. Hyperstagflation, anyone? But even in that environment people will start buying a lot less nonessentials before too long. And that just means deflation, in the end.
But honestly, I just don't know either. Good luck figuring it out.
