Posted by Larry Doyle on August 3rd, 2011 8:19 AM |
A wide array of supposedly smart people are now informing us that the economy is slowing and may slip back into recession. The new phrase being used to describe our economic condition is ‘stall speed’.
Well how about that? Stall speed, they say. Is the economy truly slowing? Is it really?
Or perhaps did the real economy, that is the one in which we live and operate—not the one fabricated by Wall Street pundits and Washington politicians—never truly rebound?
I ask because I firmly believe that our domestic economy never truly rebounded in a meaningful fashion over the last few years.
I cautioned people to avoid the regular smoke and mirrors emanating from our financial and political hotbeds in spring 2010, and have continued to caution since, when I first equated our economic malady as akin to “walking pneumonia“.>>>>>>>> (more…)
Posted by Larry Doyle on November 10th, 2010 7:47 AM |
Economic data is typically released and then reviewed in aggregate fashion. As such, understanding the dynamics at work within our economy is often clouded by the inability to access and analyse ‘the trees’ as opposed to ‘the forest.’ What happens as a result of this reality? Economic programs to address issues are typically crafted while looking through the rear view mirror. Regrettably results generated are often sub-standard and fraught with unintended consequences.
How might we change our perspective? Let’s check in with Rick Davis of Consumer Metrics Institute who projects what will occur in our economy based on a forward looking process that captures real-time consumer activity. As a longstanding admirer of Rick and his work, I welcome sharing his recent fabulous piece, Revisiting The Character of “The Great Recession”
We have commented before about how the “Great Recession” has changed character over time, evolving from a relatively normal “garden variety” and V-shaped consumer confidence recession into something far more persistent — where a lack of jobs and negative home equity has transformed it into a “new frugality.” But we haven’t previously discussed how the “Great Recession” has been an uneven experience among even those living in “Main Street” America. A recent review of our data has convinced us that this has not been a recession of shared pain, but one that has cut much deeper in some demographics than in others. (more…)
Posted by Larry Doyle on August 31st, 2010 5:56 AM |
I have informed more people than I care to count that I do not believe we are going to have an economic double dip. Am I turning positive on the economy? Do I see blue skies and fair winds on our economic horizon? No, regrettably not. The reason I do not believe we will have an economic double dip is very simply I do not believe that our “real” economy, not the government sponsored version, ever really came out of the initial recession.
People may care to debate or challenge me on my premise, but my ‘sense on cents’ leads me to believe that we have been experiencing one long and ongoing recession. I definitely sense that more people are now coming to accept this reality as well. This ‘walking pneumonia’ economic syndrome is captured in a recent commentary by Rick Davis of Consumer Metrics Institute,
The “Great Recession” that began in 2008 has had many nuances, but among the most important are that many of the observed changes in consumer behavior have begun to linger, much as the recession itself now appears to have done. If a new consumer thrift paradigm becomes endemic — either because of natural demographic processes or scarred generational memories of upside-down loans — the lingering recession might well end up being measured in years, not quarters as commonly expected. (more…)
Posted by Larry Doyle on May 28th, 2009 1:02 PM |
Many people may think Washington Mutual is just another large financial conglomerate that has since gone into thrift heaven via its takeover by JP Morgan. While WaMu is now part of the JPM franchise, it continues to send very real signs which provide great insight as we navigate the economic landscape.
Thank you to our friends at 12th Street Capital for highlighting a release put forth yesterday by Jamie Dimon, chairman and CEO of JP Morgan. As the Financial Times reports, JP Morgan Warns on Credit Card Woes:
Jamie Dimon, JPMorgan Chase chief executive, warned on Wednesday that loss rates on the credit card loans of Washington Mutual, the troubled bank acquired last year by JPMorgan, could climb to 24 per cent by the year end.
In the past, credit card loss rates have tracked the unemployment rate but that relationship has been breaking down for more troubled credit card portfolios, such as the $25.9bn in WaMu credit card loans.
At the end of the first quarter, 12.63 per cent of the WaMu credit card loans were deemed uncollectable by JPMorgan. The bank estimates that figure could reach 18 to 24 per cent by the end of 2009, depending on economic conditions.
The initial question begs as to how and why the credit performance of WaMu’s cardholders could be that much worse than the industry as a whole. For those unfamiliar with Washington Mutual, the institution made a failed attempt to penetrate the Wall Street fortress via leveraging its credit origination platform. WaMu was one of the most aggressive lenders across the spectrum of products. As I wrote back on November 12th in The Wall Street Model Is Broken….and Won’t Soon Be Fixed:
At the turn of the century, the Wall Street model was a pure “originate to distribute” model with little to no residual risk on behalf of the originators or underwriters. When there is no residual risk, those who “WIN” are the players that can purely process the most volume. Well, how does one get volume? Lower the credit standards, put fewer restrictions on borrowers, little to no covenants (NINA Loans: no income, no asset check).
Washington Mutual was the poster child for aggressive, if not irresponsible, lending. When their distribution capabilities ceased, the institution was left “holding the bag.” That bag was filled with credit cards now projected by the TOP banker on the street to default at twice the norm. What more can we learn in this process? Let’s dig deeper. (more…)
Posted by Larry Doyle on May 18th, 2009 4:42 PM |
Every respected economist and market analyst is trying to determine if each piece of economic data is a hint of a “green shoot.” If we see green shoots, can a return to days of wine and roses be all that far behind? To steal a golf analogy, if we see green shoots, can we take out the big stick and go for it? Well, I am both an optimist and a pragmatist. If, in fact, we are seeing green shoots on our economic landscape, in my opinion, the best we may do with them is play an upscale version of mini-golf. Why is that?
Our supply of water, fertilizer, and manpower to properly develop our course is currently in very short supply. We will get to enjoy some fresh air and the company of quality friends, but for now any real fun will be limited to getting the ball into the clown’s mouth.
Bloomberg offers more on our economic future in an article, ‘Green Shoots’ Like ‘Decoupling,’ Bank of America Analysts Say:
Sightings of so-called green shoots in the debt markets and economy will turn out to be no more valid than the debunked view that the U.S. slowdown wouldn’t spread, Bank of America Corp. strategists said.
While government moves to ease the flow of credit have eliminated the risk of an immediate surge in borrower defaults, weak economic growth and “unintended consequences” of the actions will create a “protracted credit cycle,” probably with a high level of defaults through 2016, according to a May 15 report by Bank of America credit strategists in New York led by Jeffrey Rosenberg.
“Like last year’s ‘Decoupling’ theme that global market performance could un-tether itself from the problems in the U.S., ‘Green Shoots’ underlying premise, a quick return to normalized credit markets and normalized earnings, rests on a shaky fundamental foundation and an overly optimistic view of global economics,” the analysts wrote.
Declining interest rates on mortgages and business loans led Federal Reserve Chairman Ben Bernanke to tell “60 Minutes” on March 15 that he sees “green shoots” in some financial markets, and that the pace of economic decline “will begin to moderate.”
Other commentators have picked up on the phrase, which refers to the early stages of plant growth, as markets rallied. The Standard & Poor’s 500 Index climbed 31 percent to 882.8 through last week from March 9. The difference between yields on high-yield, high-risk corporate bonds and U.S. Treasuries has narrowed to 11.6 percentage points, from 16.8 percentage point, according to Barclays Capital index data.
“Decoupling” proved fleeting as the MSCI Emerging Markets index rose 19 percent from the start of 2007 through June 30, 2008, before plunging 54 percent through the end of February. The S&P 500 fell 12 percent in the earlier period, and then 42 percent in the later one.
The world must now engage in a long transition to a new source of growth after 30 years of “debt-fueled” U.S. consumers driving expansion, the Bank of America analysts wrote. (more…)
Posted by Larry Doyle on May 12th, 2009 11:41 AM |
Are those green shoots or dandelions or a mix of the two?
As the “lawn” comes in, we hope the roots grow deep and the grass is lush. That said, we can not blindly accept a prospective landscaper’s vision of what our yard may look like next quarter or later this year. I don’t subscribe to using products like Miracle-Gro. Given that virtually every “gardener” is employed or connected to “Uncle Sam’s Lawn Patrol,” who else can give us a “lay of the land”? Let’s talk to the gardeners at HSBC!
HSBC purchased Household Finance in 2003. I am sure they regret making that purchase. HSBC was trying to emulate the “originate to distribute” model which filled the coffers of so many other Wall Street banks. The fact is, though, HSBC was literally the last entrant to the “lawn” party and their experience has been nothing short of a whole lot of crabgrass.
As the WSJ reports, HSBC Points To More Pain In U.S., we receive a diagnosis on the U.S. economy that is much less sanguine but, in my opinion, more realistic than Uncle Sam’s gardening crew. The WSJ highlights the fact:
HSBC, which was among the first banks to signal the subprime-mortgage troubles that set off the global financial crisis, said its U.S. consumer-finance operation had seen a slight slowdown in the deterioration of its mortgage and other secured loans in the first quarter compared with the fourth of quarter of 2008 — a shift executives attributed in part to U.S. tax refunds, higher savings rates and the bank’s efforts to help borrowers by changing the terms of their loans.
While those signs of a slowdown in loan deterioration may be viewed as a “green shoot,” HSBC is an honest “gardener” and allows that the positive trend may not continue.
North America Chief Executive Brendan McDonagh attributed the change to several factors, including a seasonal bounce, tax refunds, loan modifications and the bank’s previous efforts to pull back in mortgage lending. “We are slightly encouraged by it, but I am reluctant to draw too many conclusions,” Mr. McDonagh said.
HSBC Chief Executive Michael Geoghegan said loan-loss rates could increase again in the third or fourth quarters of the year. “We expected two difficult years in consumer finance over all,” he said.
Given the fact that HSBC is not connected to Uncle Sam’s gardening, I appreciate the honest assessment and “more realistic” prognosis. Miracle Gro may sell well on late night TV, but I prefer a “gardener” who is straight and honest while informing me that it may be a few years before the lawn comes in.
Speaking of lawns and gardening, here’s a shout out to my good friends Rocky and his pop!!