Tuesday, August 25, 2009

Is Wall St Buying Ben Bernanke?

Obama's reappointment of Fed chairman Ben Bernanke was supposed to be a pleasant surprise for the markets today

Wall St barely blinked after the announcement. This was a surprise IMO because Bernanke has been hailed as the "saviour" of the financial system according to the financial pundits.

Ben has also consistently backed the bankers almost everytime as the Fed continues to scramble to keep the financial system in one piece.

Does anyone else find this muted response to Ben's second term strange?

Why didn't we see a 300 point up day as Wall St cheered the reappointment of their fearless leader? The market recently has done nothing but move higher on any word of a new "green shoot". Yet, this shoot was almost completely ignored.

The silence was defeaning in response to the Bernanke reappointment as far as I am concerned. The DOW closed up only 30 points today despite seeing better housing and consumer confidence #'s.

The Iranian people were more joyeous over the announcement of Ahmadinejad's second term versus Bernanke's second term announcement!(scarcasm off)

Is America Ready For a Change?

You gotta ask yourself this after seeing the muted reaction in the markets today after the Bernanke announcement.

I believe the smartest people on the street are not very confident in Bernanke. You need to ignore what the wizards of Wall St said on CNBC in reaction to the news. Wall St is in total spin mode right now because knows that they must restore confidence in order to turn the economy around

Behind closed doors however, Wall St looks at where we are conomically and wonders if this was the right move. I believe that Wall St is petrified at what they see when they look at the real economic numbers. The economy continues to sink despite the largest stimulus package in history.

The Fed has dropped money out of helicopters for 2 years only to see the economy continue to fall apart.

The Freddie news today regarding its mortgage portfolio was a perfect example:

"Freddie Report:
Mortgage Fundamentals Still DeterioratingLast update:
8/25/2009 9:51:19 AM
By Andrew Edwards

NEW YORK (Dow Jones)--Mortgage financing giant Freddie Mac's (FRE) monthly report showed that whatever improvements there have been in credit markets underlying fundamentals are still declining.

Delinquencies on Freddie's portfolio nearly tripled to 2.95% in July from 1% a year earlier. Freddie holds a portfolio of $2.23 trillion in mortgages and is restricted to buying mortgages from the strongest borrowers. Delinquencies edged up slightly from 2.78% in June.

"July delinquencies showed no improvement whatsoever, and what incremental movement there was, the figures showed accelerating credit weakness," said Jim Vogel of FTN Financial.

The report also showed that Freddie is unwinding its portfolio of mortgage-related investments faster than had been expected by market observers."

My Take:

Folks, if trends like this continue there will be no recovery. Delinquencies have TRIPLED from a year ago. Recovery? Where?

The supposedly "bullish" housing data that was released today via Case/Shiller really doesn't mean anything because we don't know all the facts.

The massive shadow inventories combined with various foreclosure moratoriums make it extremely difficult to guage how large the housing inventories really are.

I am also hearing more and more stories of families that have simply stopped paying their mortgage(for 2 years or more). The banks have reacted by doing nothing. The banks figure its better to have someone in there taking care of the place then it is to foreclose on it, be resposible for upkeep, and then be forced to take the loss on their books.

God only knows how many squatters there are right now that find themselves in this situation.

It's going to take years to figure out the real story here. I would be in no ruch to buy until the banks puke up the real losses. I am sure its much worse then we are led to believe.

The Bottom Line

Wall St's support of Bernanke is mild at best. They all know he was part of the Greenspan mess that created this nightmare in the first place.

Bernanke's reactions to the financial crisis are unprecedented, and even the smartest guys in the room don't really know how this is all going to play out.

The Fed has basically orchestrated one gigantic fiscal experiment that's created a lot of uncertianty in the markets, and uncertianty is the one thing that Wall St hates most.


Anonymous said...

"Why didn't we see a 300 point up day as Wall St cheered the reappointment of their fearless leader?"

Because it was built in. Betting lines had a 96% chance he would be reappointed. The shocker would have been if he was NOT reappointed. If that happened, we would see that 300 points - in the form of a drop.

Anonymous said...

Yep, it was a given Ben would be reappointed, I was actually surprised the market moved at all based on that news.

getyourselfconnected said...

Great post!

Off topic;
I know it is only the 2nd preseason NFL game, but....
-The Patriots looked terrible on both sides of the ball last Thursday night.
-The Ravens looked super sharp last night. The Steelers beat them both regular games last year and also in the playoffs, but I would hate to have to play that unit 2 times a year!

Jeff said...


You sure?

A lot of people thought Summers was a lock. I had it 50/50 at beswst

Jeff said...


Worried about Big Ben.

that's a dangerous injury.

Jeff said...



The way this market is moving nothing seems priced in!

This moce has been verticle!

Anonymous said...

"The supposedly "bullish" housing data that was released today via Case/Shiller really doesn't mean anything because we don't know all the facts."

Good god dude. Why cant you simply acknowledge it was good but it was ONE DATA POINT!!!

Lets face it - this was the best report in 3+ years - does it mean the downturn is over - hell no.

Still, when people take a flat out positive and turn it into a negative, it makes me question their objectivity. It makes me wonder if they are permabears, or if they will be able to consider and recognize a turn when it happens.

I listened to permabears in 2001 when they told me this was a bubble and would burst soon. Prices in my area finally turned in 2006, but they are nowhere near 2001 levels, and are now going back up. Im not happy about this, but I am not going to keep my head buried in the sand either. This report got my attention, and I am focusing on it very very intently.

Jeff said...


I will be the first person to be bullish when this whole sham gets unwound.

There is no good data until we have real price discovery.

The bump you are seeing now is a result of first time home buyer credits.

If I were you I would be more concerned of the permabulls that constantly spin the data positive.

Prices are still dropping. How do can you conclude that this to be a good data point?

Since when did less bad mean good.

Good to me is when I see rising prices on Case Shiller.

Until mark to market accounting comes back I will consider this market to be a fraud.

Go buy a house if you think prices are going back up before you get priced out forever!

I'll take the other side of the trade.

Anonymous said...

"Good to me is when I see rising prices on Case Shiller."

Clearly you havent been paying attention:


This is a seasonally adjusted index. As you can see, the price on the CS 10 and CS 20 are UP - first time in 3 years.

So thats it, we DO have rising prices on case shiller - why is that not "good" to you?

Again, I consider this a blip, but I am paying attention now.

Jeff said...

Sales are up 2.9% from last quarter but you can't look athousing numbers in this way.

You need to compare them year on year because the numbers fluctuate too much based on what time of the year it is due to the seasonality of housing.

This is nothing but bullish spin. If that tax credit diappears like its supposed to on October 1st(they could extend it) as we head into the winter months home sales will virtually disappear.

I just try to be realistic when I look at this stuff. I am not a perma near.

The government's [propaganda machine is working overtime trying to create confidence in the markets.

This has temporarily created a stimulative effect to the economy. Fundementally however nothing has changed.

Look at unemployment. HOme prices take years to bottom after a bubble.

Good luck with whatever you choose to do but I can almost guarantee that home prices will be lower a year from now.

Don't forget the bond market take lending rates higher as they continue to worry about our defecits.


Anonymous said...

"Sales are up 2.9% from last quarter but you can't look athousing numbers in this way.

You need to compare them year on year because the numbers fluctuate too much based on what time of the year it is due to the seasonality of housing."

Jeff - once again, you are wrong. The series I posted is SEASONALLY ADJUSTED, meaning you can take any month and compare it to any other month, and (a) if its up its up (b) if its down its down.

There is no positive "spin" here. The number is up - period.

Jeff said...

post up


Anonymous said...

So you are just going to go silent huh? Pretty pathetic in my book.

Let the record show that on August 25, 2009 Case Shiller went positive on both a non seasonal and seasonally adjusted basis. First time in 3 years for this to happen.

Jeff was given opportunity after opportunity to recognize the FACT that this ONE SINGLE SOLITARY DATA POINT was positive. Instead he just flailed around a bit and then ignored it.

It may be a blip, it may not be, but it is up - period. The inability of Jeff to admit as much speaks volumes on his view of the facts.

ricksco said...

You sure were hot on Obama fixing this situation in January 2009. He sure has not done anything to stop the Goldman Sachs boys, or any other well connected bureaucrat inside the beltway. Guess we were all tricked by the Obama magic. If Nixon was "Tricky Dick", what is Obama? Rocky Barack?