Thursday, February 19, 2009

Markets and more

by Calculated Risk on 2/19/2009 09:47:00 PM

Housing Bailout First a cartoon from reader Evan.

I think this captures the sentiment of many renters and prudent homeowners.

I have no problem with the first and third parts of the Obama housing plan, but I think part 2 does reward some borrowers who used excessive leverage, and the banks that irresponsibly loaned them money. It would have been nice to exclude all borrowers with stated income / Alt-A loans, and any loan were the original fully amortized payment was greater than 38% or so of gross income. Those buyers were speculating on appreciation.

On the markets ...

The DOW closed at 7,465.95; a six year low. The low in 2002 was 7286.27, if the market breaks that level, the DOW will be back to 1997 levels. That would mean more than a lost decade for DOW investors (not counting dividends).

As an aside, Greenspan made the "irrational exuberance" comment in a speech on December 5, 1996 with the DOW at 6,437. Not a prediction, but we are getting close to that level over 12 years later!

The S&P 500 is still a little above the low of last year, as is shown on the following graph:

Stock Market Crashes Click on graph for updated image in new window.

This graph is from Doug Short of dshort.com (financial planner): "Four Bad Bears". (if smaller graph isn't updated, click for larger graph)

Note that the Great Depression crash is based on the DOW; the three others are for the S&P 500.

And for all those who think this is all doom and gloom, Paul Kasriel wrote today: SIVs Got Us into Trouble – SIVs to the Rescue?

[W]e believe that the nadir of this recession is occurring now. Moreover, we believe that the combination of the $1 trillion TALF program and the $787 billion fiscal stimulus program, assuming it is financed by the banking system and the Fed, will have a salutary effect on aggregate real activity, perhaps inducing an economic recovery by the fourth quarter of this year.
By "nadir", Kasriel doesn't mean the lowest point for GDP, but that he believes the worst percentage decline in GDP is happening this quarter - and he is forecasting a 6.4% annualized decline in real GDP for Q1.