Something's brewing

Something bad is brewing in the credit markets. Conditions are deteriorating quickly and the spreads are blowing out like they were at the height of the first round of this crisis. The GSE's are toast and the foolish ploy to block shorts has backfired as predicted. The crisis is moving from subprime to Alt-A and prime and the write-offs at the confessional for the banks continues. I smell the wiff off a rotting carcus about to float to the top of the financial cesspool. Just a hunch.

9/9/08 Update: Seems that the smell was the carcuses of Fannie, Freddie and Lehman...maybe even Merill

Market's Closed!

From Bloomberg today:

``I've been at National City for 30 years and a month and for 29 of those we've seen nothing like it,'' Thomas Richlovsky, National City's 57-year-old treasurer, said in a telephone interview. ``In past cycles certainly lending, or credit, has gotten more difficult. The cost of credit would go up. In this particular phenomenon of the last year it's not like you can borrow money and the price went up. No, the market's closed.''

All of the classic signs of a depression like liquidation of credit are happening. Spreads for loans over treasury rates are approaching record highs. Credit for all intents and purposes is gone from the market. There's a great unwind happening in the leveraged markets and its causing a massive deflationary event. Deflation is the hallmark of the Great Depression. We haven't even come close to seeing the worst yet unfortunately. I've predicted in the past this will be bad. I'm confirming, this is going to be really, really horrible. Things we've never seen before are going to start happening over the next year or two. Considering we've already seen some once in a life time kick saves from the Fed and Government, that's saying alot.

80/20 Rule

In technology projects we often refer to the 80/20 rule. This refers to the fact that in most projects, the last 20% of the project takes 80% of the time. The 80/20 rule will become more prevalent as the credit crunch continues to deteriorate. Lenders will be requiring 20% downpayments to finance 80% of the value of the home. This will continue to drive home prices down. The real ratio will be 3 to 1. Home prices need to get to 3 times income across the board before they start to plateau. In case you haven't noticed, the recent bubble is built upon ratios closer to 6, 8 or 10 to 1 times income. That is unsustainable as the lenders are quickly finding out. Deleveraging is a bitch. Deflation is a bitch. This bitch is here for a long time to come.

Shoulder fakes

In football, you always have to be wary of shoulder fakes. Bite too hard and your jock will be lying on the field. Oil and the dollar are giving the markets a giant shoulder fake. Don't bite! This is not a sign of a recovering economy. The dollar was undervalued and oil overvalued in terms of the global economy. Smart investors are beginning to realize the rest of the world is tanking as quickly or more quickly than the US. This will have a severe impact on global oil demand and is bullish for the dollar. The problem is, the underlying fundamentals for the US economy continue to deteriorate in rapid fashing. The credit crunch is getting much worse and access to capital is continuing to tighten. Any thoughts that oil coming down will offset a massive credit crunch is wishful thinking. Jump on market rallys right now at your own risk. We're still very early in this crisis.

Late with the barn doors

In a classic example of closing the barn doors when the horses are already out...

Fannie Mae: Books $5.35 billion in credit-costs, to Halt Alt-A

Halting Alt-A loans was a great idea...5 years ago. Now, there is enough toxic waste to do the dirty work of tanking these companies. Too little, too late as the tax payer dollars needed for the bailout continue to mount.