As I promised at the close of last week, I am here kicking off a series of posts outlining the data I was tracking in March and April which under girded my being pretty comfortable staking out a contrarian position on the economy – one which called out for reason when so many indicators (see below) were pointing that things weren't (and aren't) as bad as the press breathlessly reported.
The data making it through the filters of major media back in March was already indicating that the "crisis" in the banking and finance sector, stemming from the meltdown in mortgage markets, was beginning to abate:
Fannie, Freddie may raise $20 billion: report
Fannie and Freddie, public/private institutions underwrite a huge segment of the US Mortgage market. Their ability to remain solvent and continue to underwrite loans has a major effect upon the mortgage market. Without these two institutions, mortgage prices would likely rise beyond reach for most homebuyers – crippling our economy. As this headline reports, it was known in March that banks and institutional investors predicted Fannie and Freddie to be a wise enough risk as to place $Billions of speculative investments in these two institutions – during the midst of what so many forecasters were calling a global crisis, the worst banking situation since the 1930's and a full-fledged recession. Maybe these investors saw something else – something like a predictable business cycle. . . ???
Existing home sales post surprise rise
Then of course, media was reporting on the RISE in home sales in February – right in the heart of the supposed recession. This data also emerged in late March. I always greet this sort of data with caution as the real estate market is very susceptible to monthly fluctuations in sales between new and existing homes, mortgage rates, the general economy, local market trends, rental rates, etc. Yet, if the entire economy was caught in the downward pull of the proverbial toilet, one wouldn't expect to find positive trends in home sales of any sort.
Morgan Stanley earnings fall, but beat Street view
This is a huge point to which I kept returning when reviewing economic news these past couple of months: earnings and profits may be less than in the past (which is why I have acknowledged the pain of the current economy) but if companies are still making positive $'s, they are still making positive $'s. Making $ is a good thing. As long as major companies are still making $, the economy is not coming apart at the seams.
Citi says Lehman has ample liquidity
The mortgage markets are undergirded by huge banks which use these vehicles to diversify their giant pools of investment. When the banks are perceived to lack the ability to weather mortgage bankruptcies, the entire mortgage loses confidence and lenders raise the bars against the very first time home buyers and investors who were spurring growth. When the investment firms are determined to have liquidity, it is a sure sign that lenders will soon start to loosen the reins on new mortgages.
When positive liquidity is being found across the banking sector, it is a definite indication that things aren't as dire as the reports might otherwise indicate: Bank results soothe investors. Remember, it was the supposed rotting of the entire mortgage market that was supposed to be tanking the economy in the first Quarter.
Yet, any look at the banking sector by March would have provided the insight that a recession was not likely, a down turn was certain and a rebound probably coming sooner than being widely touted.
On Principle,
CBass
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