You probably know that I like to add the outstanding commercial paper from CP release and banking credit from H8. To some extend it is mixing apples and oranges together but the result looks very reasonable to monitor the trend. It matches what you would expect.
What you see here is that the sum made a top at $11,322 bln at the end of March. By the end of April it stands at $11,189 bln. The credit contraction is only starting now.
I think the troubles of the “subprime” meltdown made all the attributes of a typical recession visible by December-January, but the mainstreet economy fell behind the market turbulences and only now is showing the first tentative signs of the slowdown.
Update: instead of sitting here all night and preparing an extended overview of various bonds issued recently with all interest rates out there I’m cheating, I’m taking a shortcut. All you need to know is here, Fannie Mae raised $7 bln at 8.25%, Freddie Mac will likely do the same.
Wait a minute, the average prime mortgage rate as compiled by Freddie Mac is 6.05%. So those guys are losing 2.2% on every prime mortgage they write. Those are the two most important corporations in our economy and they are in the tailspin that eventually will be stopped by the bail-out. Bernanke cuts rates to 2%, where are those rates? This is what the credit crunch is, the inability of the Central bank to control interest rates on almost anything except treasuries. This is what “pushing on the string” is – Federal reserve can’t push money into economy
May 11, 2008 at 11:49 pm
Good research here:
http://www.financialsense.com/Market/wrapup.htm
May 12, 2008 at 9:22 am
Bkuna earnings are out:
http://biz.yahoo.com/bw/080512/20080512005681.html?.v=1
Complacency: $2.5 bln of CDs are below $100k, but $1.9 bln are above $100k. People are up for losses when this bank fails, do they never learn?
Non-performing assets up from $430 to $680 mln in 3 months, or 2.99%->4.75%. Looks exponential to me.
May 12, 2008 at 5:26 pm
theroxylandr wrote:
“Fannie Mae raised $7 bln at 8.25%, Freddie Mac will likely do the same.”
OK that will buy them one or two quarters before they need to seek more cash. The Next time they go begging, the rate will be much higher, (probably 12% to 16%). After that, I think the money train runs out, and the GSE face crunch time.
Although its likely the Dem’s will be in control of the White House and have at least a small majority in the house come Feb 2009. I think will see them pass huge bailout bills for the GSE. When that happens we can kiss the value of the USD goodbye.
So far Bush has promised to Veto any bailouts. The real question is Will the GSE’s be able to hang on until after Bush is gone, or will they make it to the bailout money train? My guess is that the bailout bill remains prepped for vote but is held back until Bush leaves office.
FYI: 98% of all mortgage financing is now handled by the GSEs. The First and Only Mortgage Lender:
“Federally linked entities like Fannie Mae now back 98 percent of home loans sold by banks.”
http://www.csmonitor.com/2008/0508/p02s01-usec.html
FWIW: I expect a jump in the weekly jobless reports by the Mid to late June, but I think the market will rise on expectation the Fed will cut rates again. Of Course rate cuts no longer have the same affect as the did in the past, as borrowers are being charged a huge premium because of the credit crunch. Investors have their blinders on, and they can only see one move head. Be careful going short!
May 13, 2008 at 4:53 am
…but I think the market will rise on expectation the Fed will cut rates again.
I just cannot see that happening. At that point it will be all but impossible for the Fed to make a credible case that ‘growth’ will be appreciably stimulated by cutting rates again when they are already so low, and that inflation is still the lesser concern. Bernanke would make himself look even more like a Wall St toady than he already has.