Almost two-thirds of Americans say a recession is likely in the next year and a majority believes the economy is already faltering, according to a Bloomberg/Los Angeles Times survey.
By 65 percent to 29 percent, Americans say they expect a recession, the poll found. Fifty-one percent say the economy is doing poorly, compared with 46 percent who say it is doing well, the gloomiest view since February 2003.
The negative sentiment on the economy contrasts with a June poll in which 57 percent of respondents said it was doing well. The pessimistic turn comes just before the Federal Reserve meets next week to decide whether to further reduce interest rates to try to head off a possible recession. The poll results square with the Reuters/University of Michigan consumer index, which showed confidence in October at its lowest ebb since August 2006.
``I'm starting to think there's a good possibility of recession,'' said poll respondent Roger Sharp, a retired procurement analyst in Milwaukie, Oregon. ``The housing industry is driving the economy down and people are starting to get laid off from jobs that have been around for a long time,'' said Sharp, 63, a registered Republican.
The poll brought bad news for his party: By 44 percent to 33 percent, Americans say Democrats would be better than Republicans at restarting growth should a recession occur.
Thursday, October 25, 2007
Tuesday, October 16, 2007
Friday, October 12, 2007
Understanding Market Data
This is circulating around trading desks these days. Funny stuff!
Cheat sheet: reacting to data and market releases
weak data = Fed ease, stocks rally
consensus data = lower volatility, stocks rally
strong data = economy strengthening, stocks rally
bank loses $4bln = bad news out of the way, stocks rally
oil spikes = great for energy companies, stocks rally
oil drops = great for the consumer, stocks rally
dollar plunges = great for multinationals, stocks rally
dollar spikes = lowers inflation, stocks rally
inflation spikes = will inflate all assets, stocks rally
inflation drops = improves earnings quality, stocks rally
Cheat sheet: reacting to data and market releases
weak data = Fed ease, stocks rally
consensus data = lower volatility, stocks rally
strong data = economy strengthening, stocks rally
bank loses $4bln = bad news out of the way, stocks rally
oil spikes = great for energy companies, stocks rally
oil drops = great for the consumer, stocks rally
dollar plunges = great for multinationals, stocks rally
dollar spikes = lowers inflation, stocks rally
inflation spikes = will inflate all assets, stocks rally
inflation drops = improves earnings quality, stocks rally
Friday, October 05, 2007
Can't Give Away U.S. Dollars!
The mighty fall of the U.S. Dollar continues. Wallstrip.net did a good spoof on giving away the worthless currency to people on the street:
Hilarious Countrywide Financial Prank!
Angelo (Agent Orange) Mozillo will have a fit over this. Someone has to bring his shenanigans to the mainstream media. This memo was posted at a Countrywide Financial office this morning. Employees read it as they entered the office. A good prank is a way to get noticed. This will be bigger than Enron! (click on picture to read memo)
Hat tip to W.C. Varones for this.
Hat tip to W.C. Varones for this.
Thursday, October 04, 2007
Ron Paul Rips Ben Bernanke Apart!
Ron Paul lays it all out for Ben Bernanke and Bernanke provides the most feeble, pathetic answer I have ever witnessed. It looked like Bernanke could barely get out the words and was on the verge of breaking down and crying. When confronted with the truth, it's very difficult to deal with the actual question. So, Bernanke ignored the sermon and talked about phony inflation numbers. PATHETIC!
Monday, October 01, 2007
Credit Crisis - Canadian Style
For those that believe that the recent credit crisis is contained or that it only applies to the U.S., a report in the Financial Post indicates that it also exists in Canada and the problem is significantly worse.
Canadian banks are struggling to contain a credit crisis that could spiral out of control here more than it has elsewhere because of a lax regulatory regime, sources have told the National Post.
The crisis relates to the market for a complex type of short-term funding known as asset backed commercial paper (ABCP), which had grown out of proportion in this country partly thanks to Canadian rules that were not as tough as in other nations.
"It's a made-in-Canada problem," said Claude Lamoureux, head of Ontario Teachers' Pension Plan. Many people in the market "didn't know or didn't ask questions" because they were making more profits than elsewhere, he added.
The Canadian ABCP market attracted a flood of foreign financial institutions such as Barclays Bank and Deutsche Bank, who exploited the gaps in the Canadian ABCP rules to make big profits at lower risk to themselves, sources said.
"They were effectively able to earn fees from supplying liquidity without ever having to supply the liquidity or set aside capital," said a source.
In the worst-case scenario, if global financial players lose confidence in the Canadian ABCP system altogether, the crisis could spread to Canada's big banks, leaving them on the hook for tens of billions of dollars.
ABCP is a package of debt obligations -- anything from car loans to credit-card debt. The product grew in popularity in recent years among everyone from pension funds to corporate treasury departments to banks because ABCP offered higher returns than, for example, a corporate bond or treasury bill.
Typically, ABCP products also involve liquidity support from a supplier, usually a major bank. In simple terms it is an agreement to buy the ABCP in the event of a disruption to the market.
In Canada, the market grew more quickly than in other countries, doubling between 2000 and 2007 to $120-billion, because the Canadian definition of disruption to the market was much narrower than elsewhere.
In Canada, liquidity suppliers did not have to provide funding except in catastrophic circumstances.
Also the Canadian banking regulator, unlike regulators in other countries, did not ask the liquidity supplier -- the bank -- to set aside any capital, so they could use it to grow other lines of business.
"ABCP growth outstripped traditional personal and commercial loan growth," and was "meaningfully above the pace of U.S. ABCP market expansion," said Blackmont Capital banking analyst Brad Smith.
In addition, Canadian debt rating agency Dominion Bond Rating Service gave a rating to Canadian ABCP even though other rating agencies such as Moody's and Standard & Poors shied away from doing so.
By June this year, Canada's ABCP market was about 10% of the size of the market in the United States, although the overall U.S. financial system is proportionately far larger than Canada's.
When concerns surfaced in August about the underlying assets in ABCP -- many of which have included troubled mortgage loans in the U.S. -- some owners of ABCP were caught off guard. Owners of ABCP were under the belief that they could convert it to cash or another similar product at the end of 30 or 60 days but instead were left holding the product.
Canadian investment bank Coventree Capital Inc. became one of the first major victims of the global credit crunch when it was unable to trade the ABCP it was holding because of the general seizing up of credit markets around the world.
Following Coventree's collapse, Canadian non-bank owners of $40-billion of troubled asset-backed commercial paper -- pension funds and corporate treasury departments -- were forced into an unprecedented joining-of-forces known as the Mont-real Accord to try to salvage their holdings.
If the Montreal Accord does not result in a long-term agreement on how to resolve the issues in Canada's non-bank ABCP market by an Oct. 15 deadline, there could be a carryover effect on the demand generally for ABCP, said Blackmont's Mr. Smith.
"Failure to fully restore investor confidence levels could reduce demand ...which could restrict the future ability of banks to manage capital," he said.
Mr. Smith calculated that Canada's big six banks are on the hook for total liquidity facilities worth $135-billion.
Canada's bank regulator -- the Office of the Superintendent of Financial Institutions -- did not return calls from the National Post seeking comment for this story. However, in an e-mail the regulator indicated that the rules enforced in Canada were in accordance with international guidelines.
HOW IT WORKS - A bank packages a collection of mortgages, credit card balances, or lines of credit into an ABCP that matures in 30 days. - The bank sells ABCP for a fee to an intermediary that assumes all the risk associated with the underlying assets. - The intermediary sells pieces of the ABCP to investors, including pension funds or corporations or individuals. - Investors are paid interest and assume there will be a buyer for their piece of the ABCP after 30 days. - For a fee, the bank supplies funds to buy the ABCP if there are no other buyers - in Canada, this feature did not work in August when investors could not find a buyer.
Canadian banks are struggling to contain a credit crisis that could spiral out of control here more than it has elsewhere because of a lax regulatory regime, sources have told the National Post.
The crisis relates to the market for a complex type of short-term funding known as asset backed commercial paper (ABCP), which had grown out of proportion in this country partly thanks to Canadian rules that were not as tough as in other nations.
"It's a made-in-Canada problem," said Claude Lamoureux, head of Ontario Teachers' Pension Plan. Many people in the market "didn't know or didn't ask questions" because they were making more profits than elsewhere, he added.
The Canadian ABCP market attracted a flood of foreign financial institutions such as Barclays Bank and Deutsche Bank, who exploited the gaps in the Canadian ABCP rules to make big profits at lower risk to themselves, sources said.
"They were effectively able to earn fees from supplying liquidity without ever having to supply the liquidity or set aside capital," said a source.
In the worst-case scenario, if global financial players lose confidence in the Canadian ABCP system altogether, the crisis could spread to Canada's big banks, leaving them on the hook for tens of billions of dollars.
ABCP is a package of debt obligations -- anything from car loans to credit-card debt. The product grew in popularity in recent years among everyone from pension funds to corporate treasury departments to banks because ABCP offered higher returns than, for example, a corporate bond or treasury bill.
Typically, ABCP products also involve liquidity support from a supplier, usually a major bank. In simple terms it is an agreement to buy the ABCP in the event of a disruption to the market.
In Canada, the market grew more quickly than in other countries, doubling between 2000 and 2007 to $120-billion, because the Canadian definition of disruption to the market was much narrower than elsewhere.
In Canada, liquidity suppliers did not have to provide funding except in catastrophic circumstances.
Also the Canadian banking regulator, unlike regulators in other countries, did not ask the liquidity supplier -- the bank -- to set aside any capital, so they could use it to grow other lines of business.
"ABCP growth outstripped traditional personal and commercial loan growth," and was "meaningfully above the pace of U.S. ABCP market expansion," said Blackmont Capital banking analyst Brad Smith.
In addition, Canadian debt rating agency Dominion Bond Rating Service gave a rating to Canadian ABCP even though other rating agencies such as Moody's and Standard & Poors shied away from doing so.
By June this year, Canada's ABCP market was about 10% of the size of the market in the United States, although the overall U.S. financial system is proportionately far larger than Canada's.
When concerns surfaced in August about the underlying assets in ABCP -- many of which have included troubled mortgage loans in the U.S. -- some owners of ABCP were caught off guard. Owners of ABCP were under the belief that they could convert it to cash or another similar product at the end of 30 or 60 days but instead were left holding the product.
Canadian investment bank Coventree Capital Inc. became one of the first major victims of the global credit crunch when it was unable to trade the ABCP it was holding because of the general seizing up of credit markets around the world.
Following Coventree's collapse, Canadian non-bank owners of $40-billion of troubled asset-backed commercial paper -- pension funds and corporate treasury departments -- were forced into an unprecedented joining-of-forces known as the Mont-real Accord to try to salvage their holdings.
If the Montreal Accord does not result in a long-term agreement on how to resolve the issues in Canada's non-bank ABCP market by an Oct. 15 deadline, there could be a carryover effect on the demand generally for ABCP, said Blackmont's Mr. Smith.
"Failure to fully restore investor confidence levels could reduce demand ...which could restrict the future ability of banks to manage capital," he said.
Mr. Smith calculated that Canada's big six banks are on the hook for total liquidity facilities worth $135-billion.
Canada's bank regulator -- the Office of the Superintendent of Financial Institutions -- did not return calls from the National Post seeking comment for this story. However, in an e-mail the regulator indicated that the rules enforced in Canada were in accordance with international guidelines.
HOW IT WORKS - A bank packages a collection of mortgages, credit card balances, or lines of credit into an ABCP that matures in 30 days. - The bank sells ABCP for a fee to an intermediary that assumes all the risk associated with the underlying assets. - The intermediary sells pieces of the ABCP to investors, including pension funds or corporations or individuals. - Investors are paid interest and assume there will be a buyer for their piece of the ABCP after 30 days. - For a fee, the bank supplies funds to buy the ABCP if there are no other buyers - in Canada, this feature did not work in August when investors could not find a buyer.
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