Now What?

By | 2014-09-03T20:25:07+00:00 July 31st, 2008|Global Market Update|

Okay. We got our subsidy check. We got our housing bailout. Now what? George Bush signed the housing rescue plan into law yesterday. It provides an explicit government guarantee for Fannie and Freddie debt and provides assistance for homeowners in financial trouble and first-time homebuyers. Apart from keeping the Agencies in business, what does this package do? It’s not like the Federal Government had a bunch of cash sitting around to put to use. Indeed, the Federal Debt ceiling was raised 800 billion dollars [...]

All Real Estate is Local

By | 2014-09-03T20:24:07+00:00 July 30th, 2008|Global Market Update|

So where is the sub-prime crisis, anyways? Whenever I pick up the paper I read stories about people turning in the keys because they couldn’t pay the bank. But I don’t see a bunch of vacant homes when I look around. I know that you can’t judge an economy anecdotally, but it seems like the national residential vacancy rate of 10% is a little overstated. Probably if I worked in Nevada or Phoenix it would be different, but horror stories of suburban blight and [...]

Winglets

By | 2014-09-03T20:23:11+00:00 July 29th, 2008|Global Market Update|

Remember George Bush’s magic wand? A few years ago he said that if he could wave a magic wand and lower oil prices, he would. I cringed at the time, thinking about the magic of prices, and what they communicate to everyone in an economy. If we mess with that language by distorting the price signals, we miss out on all sorts of important effects. One example is winglets. You know, those little upturned jobs at the wing-ends of newer airliners. It turns out [...]

Socialism is Impossible

By | 2014-09-03T20:22:18+00:00 July 28th, 2008|Global Market Update|

So we seem to have settled on a Fannie bailout. Yuck. While I don’t see any alternative to a government rescue, I’m deeply disturbed by the bailout of the large mortgage agencies. By providing an emergency line of credit, American taxpayers are subsidizing the risk-taking that went on as more and more people bought more and more homes. But easy credit and rising home prices didn’t turn out to be an unmitigated good thing. When an average income can’t afford to buy the average [...]

Readiness is All

By | 2014-09-03T20:20:31+00:00 July 25th, 2008|Global Market Update|

Many commentators are frustrated because their predictions of a recession early this year aren’t coming to pass. Not to mind, they insist. The upcoming downturn, while delayed, is not to be denied. The number one culprit in the search for their error’s source has been the government’s economic stimulus checks. But the total cost of the program was $100 billion in a $15 trillion economy—less than 1%. And the sub-prime crisis has show us again that we can’t borrow our way to prosperity. So [...]

Ground Zero

By | 2014-09-03T20:19:17+00:00 July 24th, 2008|Global Market Update|

Ground Zero of the economic slowdown has been the housing crisis. And ground zero of the housing crisis has been Detroit. Actually, Detroit has been in a housing slump since the middle of 2005, when oil prices began to boom and domestic car sales began to slow. Clearly, Detroit got sucked into focusing on big, profitable trucks. More than 10 years after Toyota introduced the Prius in Japan, there is still no American hybrid. So what can Detroit do now? In the ‘80s and [...]

The Constancy of Crisis

By | 2014-09-03T20:18:19+00:00 July 23rd, 2008|Global Market Update|

Are we living in a continual state of crisis? Ever since Adam and Eve walked out of that Garden, it seem like we’ve been living in an age of transition. Whether it’s higher energy prices, collapsing housing prices, a global savings glut, or new accounting standards, every time you turn around there’s some sort of crisis both here and just around the corner. Is it just the media? Does the need to papers turn our news into alarmism? I tend not to think so. [...]

Shining the Apple

By | 2014-09-03T20:17:15+00:00 July 22nd, 2008|Global Market Update|

So the shine is off the Apple. Or is it? Apple announced that earnings were up 30% from a year ago. Sales were up 40%. And they made more than most observers expected. So why did the shares trade down? Some say it was the downbeat guidance that they posted for next quarter. After all, the economy is slowing and people may not want to drop $200 on new toys. Others say it’s Apple’s price. At 32 times earnings, you could say that the [...]

What Went Wrong?

By | 2014-09-03T20:15:58+00:00 July 21st, 2008|Global Market Update|

So what happened? Fannie Mae and Freddie Mac were supposed to do well by doing good. Since increasing homeownership facilitates hard work, community, and respect for property, why not charter a private company to facilitate financing? Use an implicit government guarantee to lower financing rates. Harness the profit motive to meet a social objective. But the more I look at it, the more Fannie and Freddie resemble the old British East India Company. They have an effective monopoly on the US mortgage market, and [...]

Courage

By | 2014-09-03T20:14:42+00:00 July 18th, 2008|Global Market Update|

The world has a funny way of not ending. Just when the gloom couldn’t seem much darker, here comes the cavalry. This time it took the form of Wells Fargo, which not only met earnings expectations and raised guidance, but actually had the audacity to raise the dividend. Don’t they know we’re in a banking crisis? They’re supposed to be asking investors for more capital, not giving it back! Other banks have followed suit. JP Morgan earned 60% more than expected. PNC Bank’s earnings [...]