Reggie Middleton is an entrepreneurial investor who guides a small team of independent analysts, engineers & developers to usher in the era of peer-to-peer capital markets.
1-212-300-5600
reggie@veritaseum.com
Exactly as I predicted, there is no V-shaped recover, U-shaped recovery, or any other representative letter of the alphabet. We are mired in structural downturn exacerbated by a cyclical downturn, popping of the everything bubble, and a horrible poor response to a global pandemic. There is no good news here!
Hmmm... What happens when wages and earning assets go down in value as input prices increase? I have warned of the stagflationary scenario several times in the past as the most likely outcome of the battle between the deflation camp and the inflation camp. See:
Hmmm... What happens when wages and earning assets go down in value as input prices increase? I have warned of the stagflationary scenario several times in the past as the most likely outcome of the battle between the deflation camp and the inflation camp. See:
Bloomberg has an excellent interactive analysis on the potential for a near one million count revision upwards of the unemployment numbers. This combined with the work my team and I have put together should lead subscribers to believe that medium term, unemployment can exacerbate the global equity market decline. See "Are the Effects of Unemployment About To Shoot Through the Roof?" as excerpted below.
Bloomberg has an excellent interactive analysis on the potential for a near one million count revision upwards of the unemployment numbers. This combined with the work my team and I have put together should lead subscribers to believe that medium term, unemployment can exacerbate the global equity market decline. See "Are the Effects of Unemployment About To Shoot Through the Roof?" as excerpted below.
As many people focus on commercial real estate exposure, they forget that we are only about halfway or so through the residential crash. The $8k homebuyer tax credit did serve to support the lower end of the residential market (from my anecdotal observations), but did very little to solve the problem. Basically, prices must fall, credit must be loosened or incomes must rise in order to stabilize home prices. With 10% plus unemployment (incomes have actually dropped since the initial bubble burst) and banks holding on to cash tighter than Fido grips his steak bone, you know what prices really need to do to reach equilibrium. Click the graphs below to expand.
As many people focus on commercial real estate exposure, they forget that we are only about halfway or so through the residential crash. The $8k homebuyer tax credit did serve to support the lower end of the residential market (from my anecdotal observations), but did very little to solve the problem. Basically, prices must fall, credit must be loosened or incomes must rise in order to stabilize home prices. With 10% plus unemployment (incomes have actually dropped since the initial bubble burst) and banks holding on to cash tighter than Fido grips his steak bone, you know what prices really need to do to reach equilibrium. Click the graphs below to expand.
A blast from the recent past:
A small exert from Reggie Middleton on Bank stress testing:
http://boombustblog.com/Reggie-Middleton/907-More-on-Reggie-Middletons-Bank-Stress-Testing.html
The FDIC has released a document describing the stress test and the parameters used to assess the banks health under assumed base case and adverse case scenarios. Unfortunately, their adverse case scenarios are actually the base case scenarios. Look at the appendix of this document from the FDIC (I will save it if I were you to ensure that it doesn’t disappear when word gets out), and you will see an unemployment “adverse case” of 8.9% and a average baseline case of 8.4%. Well, the baseline case is already too optimistic. This is a fact, since I just pulled the government’s own numbers (see below) and unemployment for the month of March is currently 8.5%! Thus, you can see where the baseline assumptions are already too optimistic, without a doubt. If one were to look at the rate of increase of unemployment, it would not take much imagination to see the actual rate easily pierce the “adverse” case before the end of 2009 (we are near the adverse case alreay, and this is just the beginning of the 4th month of the year). If this were to be true, it would be safe to assume the stress tests to be a total farce, with realistic numbers showing banks to be in far worse conditions. Be aware that I am not using shadow stats, or numbers derived by basement bloggers, but the actual numbers released by our fair government.
Five months later and unemployment is pushing 10% with an average of about 9.7%-ish. The banks returned the TARP based upon a worst case scenario about 100 basis below where we are now, with unemployment still climbing. Why hasn't anyone required a new round of stress testing???
Reggie Middleton is an entrepreneurial investor who guides a small team of independent analysts, engineers & developers to usher in the era of peer-to-peer capital markets.
1-212-300-5600
reggie@veritaseum.com