Wednesday, July 23, 2008

"Rebound"--? No. Billions Lost? Yes. Again.

In the news: Large second-quarter losses at Wachovia and Washington Mutual revive concerns that the financial sector still has a long way to go before it recovers from the year-old credit crisis.

Huh? Did anybody really think we were in recovery?

According to the AP, "Investors who were growing optimistic after a string of upbeat bank results in recent days were jolted Tuesday when Wachovia, the nation's fourth-largest bank, racked up an $8.86 billion loss because of charges and reserves for bad mortgage loans. The Charlotte-based bank also cut its dividend for the second time this year and eliminated 10,750 positions. Washington Mutual, the nation's largest savings and loan, delivered a further blow, with a $3.33 billion loss." Investors Questioning "Rebound."

Honestly? Any investor who is "optimistic" at this point in history is suffering from innumeracy. We're not economists nor bankers nor mathameticians over here at Bubble Central, nor can we reliably see into the future with our psychic powers. We're just your ROTM investors, and daily news readers, and even we know that the bottom of the housing market, and the actual depths to which the economy will sink are a long way off.

NYU Economist Nouriel Roubini, who unlike we Bubblers is an actual professional, has calculations for the breadth of the mortgage crisis--about a TRILLION DOLLARS, which he shares in a video. He discusses the phenomenon of Jingle Mail--homeowners with Negative Equity who send their keys back to the bank--and what he sees as the Bottom of this Market, sometime in 2010, after prices have adjusted themselves and fallen 30%. Must-See TV.

If you prefer reading to gather more specific answers to where our economy is going, read the great article in the past weekend's NY Times. Here's a sample, addressing housing:

"With mortgages now hard to obtain and speculation no longer attractive, arithmetic has replaced momentum as the guiding force for housing prices. The fundamental equation points down: Even as construction grinds down, there are still many more houses on the market than there are people to buy them, and more on the way as more homeowners slip into foreclosure.

By the reckoning of Economy.com, enough houses are on the market to satisfy demand for the next two-and-a-half years without building a single new one."

Uncomfortable Answers to Questions on the Economy.

6 comments:

Montpellier said...

Mortgage rates are up sharply too - despite the fact that the fed is currently lending at a rate lower than inflation - that's gonna hurt!!!

Dave Phillips said...

It's really no big deal. The feds will just print more money, send us all stimulating checks and bail out Wall Street and the rest of the financial markets. It is an election year. President O'Cain is gonna have a lot of splainin to do Lucy.

Real C'ville - The Bubble Blog said...

dave...

you've come over to the dark side. we heart u.

xxoo,

bub

Dave Phillips said...

If this is the dark side, what is that bright light I see at the end of the tunnel?

George H said...

Dave,

Could it be that you have recently fallen on your head?

Dave Phillips said...

George,
No, despite what you guys think I say, I try to be as consistent as possible in my remarks. I am ALWAYS snarky on the feds and the financial markets. Sometimes I have to offer the positive side of an issue on this blog because, well, someone's got of give the other side of the story. I can find nothing positive in Washington except the restaurants, the Skins and the sites.