Thursday, May 6, 2010

Volatility, Uncertianty, and Contagion: Weekend Economic Potpourri

Today was an interesting day in the markets to say the least. The DOW crashed by 1,000 points, and recovered well over half of that -all in roughly 15 minutes time thanks to HFT algorithms run by too big to fail banks gone haywire. Remember, these "banks" are borrowing cash from the Federal Reserve at near 0% to profitably trade away their toxic loans. Bond prices soared while yields tanked due to riots in Greece as fear of European contagion forced a flight to "safety" in the US dollar.

This bodes well in the short term for mortgage rates of course. Yield on the 10 year T-note plummeted to ~3.4%. Good news for Portland's housing market right!?!?!?

Well, there is that pesky couple of trillion dollars in toxic mortgage backed securities that the Federal Reserve needs to unload onto the private market -or- onto the taxpayers sooner than later. Oh, and congress is considering a mandatory 5% minimum down payment for all real estate loans!

Also this week we learned that the likes of Fannie/Freddie are still bleeding cash that will be absorbed by you, the taxpayer at some point as well. Mind you, Fannie/Freddie were quietly granted UNLIMITED taxpayer funding via our elected government rather quietly on Christmas Eve in 2009.

If you care much about macro economic finance, or even housing and are starting to think that in fact the storm has passed, and that the economy is recovering, or that the housing rebound is right around the corner -you clearly are not paying attention to the big picture. Fundamentally, nothing was "fixed" after the meltdown in late 2008. Congress is still bought, sold, and paid for by the banks, and those same banks were granted legal authority to lie about their balance sheets with the suspension of mark to market accounting (FASB 157).

Until the bad loans are cleared from the books, and until global deleveraging has run its course, please consider the following bit of advice recently posted in the comments of the last thread:

"Anyone who buys a home in the present market is either a fool or unconcerned by the prospect of losing money"

And if media sources such as blogs just don't sell you on how truly teetering and ponzi like our entire financial system still is, please consider this clip from a more main stream media outlet.

"The dirty little secret is, the world has no money and the emperor has no clothes.
If I wasn't a tad too close to this, I'd probably not leave the house, but that's
how bad it is. So, enjoy your meal."

-Brian Williams on Letterman 5-6-10