Harry Truman
Doris Day
Red China
Johnny Ray
South Pacific
Walter Winchell
Joe Di Maggio.
Joe McCarthy
Richard Nixon
Studebaker
Television
North Korea
South Korea
Marilyn Monroe
- Billy Joel
When writing a weekly column, one might suspect that it's a challenge to identify 52 topics in a year. Much of the time, that is true; however, I sometimes find myself with far too many topics to discuss all at once (Was that Billy Joel's problem?). So, I've decided to briefly list several of the topics I wish I had time to explore further. They are in no particular order, although if you'd like to hear more about any specific idea please don't hesitate to drop me a note.
- In late December, 2009, the U.S. Treasury amended the terms of the Preferred Stock Purchase Agreements (PSPA) with Fannie Mae and Freddie Mac. Basically, the Treasury now stands behind the "twins" no matter the size of their future losses. What does this imply for mortgage losses in 2010 especially given the meteor-like rise in prime mortgage delinquencies?
- Bank failures in 2009 ended at 140, the highest since 1992 when we had 181 banks and S&L's close shop. Sheila Bair, the head of the FDIC, has commented that she expects more bank failures in 2010 compared to 2009. Presumably this will be a result of the faltering commercial mortgage sector. Will losing, say, 200-300 small banks send the economy into a double-dip or is this catastrophic outlook already built in?
- On January 7, 2010, the Federal Financial Institutions Examination Council (FFIEC), which includes the Federal Reserve, FDIC, OCC and OTS, issued an advisory to remind institutions to manage their interest rate risk, and where necessary, mitigate their exposure to potential increases in interest rates.
- This was an unusual move by the FFIEC, as the last time the council issued such an advisory was in 1996. Combined with the bullet point above, weren't financial institutions already aware they were taking on interest rate risk? Should financial institutions minimize this risk or should they use their skills to benefit from making investments in the curve?
- Consumer credit in November dropped a record $17.5 billion to $2.46 trillion and consumers cut back the use of their credit cards for the fourteenth straight month. For those predicting an economic recovery in 2010 and given the consumer is some two-thirds of the entire economy, what sector is expected to pick up the slack? If the government continues massive spending and creates several quarters of +3.0 percent GDP growth, is that a recovery?
- In 2009, the Treasury set nine monthly records of new bond issuance and yields in the front end of the curve went to zero (or below). What happens to all these Treasuries when the recovery comes and investors prefer exposure to risk assets? Will credit spreads run at abnormally tight levels for an extended period simply due to oversupply of Treasury bonds? Does the Treasury have a mechanism in place to reduce the supply of outstanding bonds when the economy recovers?
- Job growth apparently turned positive in November after the initial report was revised to a gain of 4,000 jobs last week for the first month of growth since December 2007. Even though we reversed course in December, losing 85,000 jobs, can we declare job growth flat and will we experience random readings around zero for months to come?
- The unemployment rate has risen from 4.4 percent in 2007 to 10.0 percent today. If you have not been in danger of losing your job, do you feel the effects of this move? In other words, is the unemployment rate really 10.0 percent or is it a binary outcome of either zero percent or 100 percent? Is 90 percent employment enough to support a growing consumer base?
Key Developments
The ISM manufacturing index improved for December along with factory orders in November; however, in general, we continue to get mixed signals from the non-services sector. It seems as though this important segment of the economy continues to struggle along what we hope is the "bottom" awaiting a catalyst for recovery.
Construction spending continued its decline in November, dropping 0.6 percent with a downward revision to October's data. Although the pace of decline has slowed since last fall, there seems to be little confidence this sector can put in any growth in the near future.
The jobs market lost another 85,000 in December, even as prior month revisions were slightly positive. The unemployment rate has settled at the 10.0 percent level for the last two months, possibly indicating October's read of 10.1 percent was this cycle's peak.
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