60 Minutes interviewed a handful of Wall Street outsiders who realized the subprime mortgage business was a house of cards and found a way to bet against it. Author Michael Lewis talks about the current situation on Wall Street, the large bonuses still being paid and his predictions for the future of the industry.

Part 1:


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Part 2:


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Hat tip: Jim Miller   more »

Interesting interview from Larry Doyle at No Quarter Radio this week. He spoke to Rick Davis of the Consumer Metrics Institute (CMI). Davis reports a consumer composite index of leading indicators which he says has led traditional GDP numbers by about 17 weeks. The elements of CMI's composite are further up the economic pipeline being focused on consumer demand (70% of US economy) as compared with the later manufacturing focus in traditional GDP.

Bottom line is that CMI's index has been contracting since August 2009 and now suggests 2010 Q1 GDP is likely to come in at 2.5%, and Q2 is likely to be back in contraction mode at -1 to -1.5% annualized. If they are correct, the presently lofty stock market does not yet see this coming.

You can see more on their method as well as their recent composite charts on the CMI web site here.

And the interview starts below at audio marker 53:00:

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Prof. Robert Shiller appeared on Bloomberg this morning discussing his latest Case-Shiller Index results for January and why we may still see a double dip in housing and the economy:

"The big cloud on the horizon is the withdrawal of government support for the mortgage market [starting tomorrow]...Usually when we have a recession we emerge to some clear sailing ahead, this time is different I think:"

Watch the segment here.   more »

Ms. Park was a guest on Business News Network (BNN) this morning, Wed March 31 at 8:50am EST. A clip of her appearance is available on the BNN web site.

**Please note: Danielle mis-spoke when explaining that the VIX under 17 suggests people are "uber-bearish", she meant to say this was evidence that many are now complacent and "uber-bullish" about further market gains. Sorry for the confusion!
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By the end of 2010, about half of all commercial real estate mortgages will be underwater, said Elizabeth Warren, chairperson of the TARP Congressional Oversight Panel, in a wide-ranging interview on Monday.

“They are [mostly] concentrated in the mid-sized banks,” Warren told CNBC. “We now have 2,988 banks—mostly midsized, that have these dangerous concentrations in commercial real estate lending."

As a result, the economy will face another “very serious problem” that will have to be resolved over the next three years, she said, adding that things are unlikely to return to normalcy in 2010."

Warren explained recent numbers to CNBC:

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Stocks & Commodities magazine interviewed me recently for their April edition. An hour is a luxurious interview these days. I appreciated the time and breadth of questions. We were able to go into more detail than typical spots. The magazine is available on news stands now. A link to the article can also be viewed on their web site here.   more »

Coming up to its third anniversary since release "Juggling Dynamite" is still resonating with readers and getting postive reviews, like this one from balancejunkie.com yesterday:

"This book came out early in 2007, before the worst of the financial crisis hit. Bear that in mind as you read it. And I do recommend that you read it. Many of the ideas expressed in the book were far from conventional just before the crisis hit. In retrospect, they might be considered quite prescient. I think they’re just as appropriate (maybe even more so) for today’s climate."

I am humbled and appreciative. It's good to be relevant. Since human nature will never change, the material is timeless.   more »

Yesterday I talked with Stirling Faux of the Money and Wealth Show in Victoria, BC about the Canadian housing market. You can hear the 16 minute audio clip here.   more »

US Final Q4 GDP was revised slightly lower this morning to 5.6 from the previous estimate of 5.9. I think a year from now this may be revised lower still. More importantly Q4 seems to have been a stimulus-manufactured anomaly compared with the anaemic growth we will see for 2010. Christian Menegatti, VP for global economic research at Roubini Global Economics says growth in Q1 and Q2 is looking to be heavily below potential (less than 3%) and then slowing further to less than 2% in the second half of 2010. He explains his views to CNBC's Karen Tso, Martin Soong & Sri Jegarajah. I like the Roubini Economics analysts because they are independent number crunchers hired for their brains and diligence rather than their looks. They tend to be the opposite of the slick sell side analysts we so often see on business news.

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In the debate to overhaul financial regulation, Elizabeth Warren has divided Washington in her push to create a new consumer financial protection agency. I find it refreshing to hear from people who can't be bought. It seems they are few and far between these days. The banking/finance conglomerate is so often a self-serving sewer of greed and corruption. Warren's clips are hopeful because they remind us of the principles that should be governing our financial reform discussions from here. Watch this NY Times Video clip here.   more »

This afternoon the familiar low volume "two guys trading" are driving stock prices higher again, supposedly based on Fed Chairman Bernanke's testimony today that the US economy is still weak and still needs emergency low rates to try and stave off a retrench into recession. Wow that is exciting!

The options speculation index today is back at record-breaking bullishness, about 30% higher than it was when the stock market peaked in 2007! We are living in wacky times indeed. I can't help but shake my head that we could be back in the wack so fast this time. Usually it takes at least 3 or 4 years for stock prices to soar this far past the realm of reality. This time, it has happened in record time albeit with remarkably few participants. This is precisely of course, what makes present price levels so incredibly dangerous for investors now. Week by week the market taunts a few more "sheeple" into the madness. Those who suffered heavy losses in 2008 are particularly vulnerable here. They feel desperate to regain losses. They want to believe in the market again. They want to somehow end the agony.

Stock markets are a mental game. They prey on those who are unable to ignore the taunts, those unable to sit tight and wait for attractive prices to re-appear.
But at times like this it is more important than ever to resist the temptation for wild abandon. Rational people must plug their ears and hum. They must say focused on rational facts in order to avoid the looming sink holes.

The facts are that government intervention notwithstanding, the US housing market and its dependent economy have stalled out again and are sliding back into decline. Today’s data shows that US new home sales hit a new record low in February. The emergency rescue has cost more than a trillion and failed in lasting effect: housing inventory is back towards 9 months supply and that is not counting some 5-10 million homes just heading into foreclosure. There are more than 18 million residential units sitting empty in the US today; homebuilders are on average taking more than 14 months after completion of new units to find a buyer. Meanwhile international markets are no better off; in fact some have more downside ahead of them than even the US at this point. Canada, New Zealand, Australia and China are blowing up their own latent credit and real estate bubble as I write. Most European countries are slipping back into recession and worse. Global demand is decelerating off its sugar high of the past few months. The Shanghai index has stalled since December and several other emerging markets have registered negative gains year to date.

Meanwhile the VIX has fallen back to 17 (the level it last touched btw at the S&P peak of October 2007 and the TSX peak of 2008).

Now is not the time to fall asleep with complacency in these markets. Protect yourselves. Remember crazy prices can go crazy for longer than we like; but that doesn’t mean they are right, good or rational. Protect yourselves. Think about your plans for summer fun. Then plug your ears and hum.   more »

For the past 4 years I have been increasingly concerned about unsustainable trends in the Canadian housing market.

As I have mentioned many times, Canadians have been lulled into a false sense of security by mortgage rates that are now at their lowest level in 75 years. Our government mortgage agency CMHC has been underwriting the vast majority of Canadian mortgages for the past few years. Between 2007 and 2009 CMHC underwrote nearly 90% of all Canadian mortgages. They were able to fund this by issuing Mortgage Back Securities: the same weapon of mass destruction that eventually blew up US housing and credit markets in 2007.

A new 51 page report from Alexandre Pestov at the Schulich School of Business examines these trends in the Canadian market and comes to some stark warnings:
- "Bubbling" in the Canadian housing market over the past few years was no less intense in Canada than it was in the US
- the extent of the run up in major Canadian cities was at par with the 20 largest US metropolitans
- housing affordability in the four largest Canadian cities (Vancouver, Toronto, Montreal and Calgary), is currently at par or worse than that of US hotspots in their boom
- Canada has experienced the same real-estate bubble as the US did. It just hasn't burst yet:

"Canadians own no favours to Steven Harper, Jim Flaherty and Mark Carney. They did not prevent the bubble from bursting; they merely postponed it. There are no miracles in how the Canadian housing bubble managed to stay afloat. However, at the end, more homeowners will suffer from the upcoming housing market correction. The ballooning national debt due to the careless sub-prime lending of CMHC and wasteful programmes designed to re-inflate the housing bubble will be shared by all Canadians. According to the CMHC financial statements, the corporation has only $8 billion equity backing $200 billion in assets8. Once defaults rise, the Canadian government will have no choice, but to bail out CMHC. The scale of bailout will likely dwarf all other financial emergency responses done by the Canadian government in the history of Canada. Higher national debt, increased taxes and reduced social services will be the direct result of the Harper government’s intervention to maintain an illusion of the Canadian housing market health."

Canadian mortgage rates will trend up as the government withdraws its emergency interventions. Many over-levered Canadians will face mortgage payments which become impossible to service. We are not nearly through this challenging period.

The full report is worth reading here: The Elusive Canadian Housing Bubble   more »

"I don't think there's much the Fed can do to get banks to start lending again. That's a structural problem, the model is broken," Whitney told "Worldwide Exchange" this morning from Europe.

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The VIX is trading at the bottom of its two-year range, a possible signal that fear is leaving the market. Paul Britton, of the Capstone Holdings Group, and Nouriel Roubini, of Roubini Global Economics, share their insight this morning on CNBC.

I think Britton's points at the end re most investors not having portfolio protection or insurance of any kind is really important. People who have amassed a bulk of their savings have to be worried about protecting themselves from loss. The vast majority of financial "advisors" never address the issue of meaningful protection, as if market risk is a wild card that can't be predicted or controlled. Abosulte rubbish...

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Economist Stephen Roach appeared on CNBC Asia yesterday reminding us that the 9.7% official US unemployment stat dramatically under-states reality. The US Jobless rate today is actually 11.5% when we add back in the 3m disgruntled workers who have been unemployed so long that they have stopped looking for work: “For some bizarre reason, the U.S. statisticians do not count these poor souls as unemployed”. (The under-employed statistic is more like 20% when we count in the millions who are working less than they wish due to lack of employment opportunity).

"The demand side is going to be very impaired by the U.S. consumer and there's no other consumer that is going to fill the void," Roach continued.
While China and India make up nearly 40 percent of the world's population, Roach noted that the two countries will not be able to pick-up the slack in U.S. demand collectively, as their consumption adds up to $2.5 trillion, which is equivalent to 25 percent of total demand in the United States. That's a key reason to look for a double dip," he said, reiterating his view of a 40 percent chance of a double-dip in the next couple of years.

I wish I could disagree with him. It feels like October 2007 deja vu all over again.

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Ms. Park was a guest on MoneyTalk with Patricia Lovett-Reid Monday March 8 at 8pm EST. A clip is available on the web site here.   more »

There are many stories of late about people balking against tough choices needed to remedy their financial duress. Yes, being broke sucks.

But at the end of the day, laws of gravity do apply, and we humans must accept, adapt and move forward. These are remarkable times: the past couple of decades of falling rates and credit expansion have trained us to expect a high level of service and lifestyle that in many cases we can simply no longer afford. Actually one could argue that we never could afford some of these things, but thanks to 'credit magic' we were able to pretend otherwise for a good long while. It turns out, things weren't different this time; the piper has come for his payment.

See Bloomberg: German Politicians want Greece to sell islands.

And NY Times: As Budget cuts free prisoners, states face a backlash Remember all that hard-right crack down on crime under Bush Jr? Turns out most States can no longer afford the incarceration.

I am reminded of many real life examples over the years, where a bankruptcy or divorce, death or other misfortune suddenly demand a large financial reckoning to a family or individuals. Yard sale-like auctions of prized possessions are the norm. The initial response is usually always one of disbelief or outright rejection: "This is ridiculous!" "Over my dead body!" "I won't stand for it!" In the end, we all do what we must to change unsustainable habits and get back to the work of digging ourselves out and up. There are tough choices all around. But after stomping of feet and gnashing of teeth, the only solution is to cut the artifice, admit the mistakes and get back to honest, hard work.--the sooner the better. No more cake and eat it too. We have to give to get; and yes its hard to do.   more »

Stephen Roach, chairman of Morgan Stanley Asia Ltd., talked with Bloomberg's Maryam Nemazee about the U.S. economy and Federal Reserve monetary policy, See:Roach Expects `Very Modest' U.S. Consumer Spending March 4 (Bloomberg)
Bottom line from Roach: don't confuse the bottoming process in a 'new normal' global economy, with hopes for a 'bounce-back' recovery."

Also Robert Prechter, founder of Elliott Wave International Inc., talked with Bloomberg's Betty Liu about his stock market analysis and investment advice. See:
Robert Prechter Says Equities to Drop, Invest in Cash March 4 (Bloomberg).

And see this March 1, 2010 paper "Where are we now?" by respected Market Technician Dick Arms. (Hat tip The Big Picture Blog) Our market technician Cory Venable has been speaking about similar themes the past couple of months. I find it noteworthy when completely separate (and excellent) analysts use their own unique filter set and arrive at similar conclusions. Dick's paper is even readable for non-technicians—a bonus!   more »

MSN Money does a series of slideshows on market data which are often illuminating in terms of macro trends and big picture. This one: The bear market blues: 10 costly declines offers some interesting historical capture on 10 "bear' markets of the 1900's (not sure how they picked these ten, there were several other bad ones that were not included in the series).

Note some common themes throughout on human behaviour driving erratic markets. And keep in mind that only those not prepared for bear markets get mauled by them. Exit rules are required.   more »

I miss my grandparents. They have been dead for 26 years but I still think of them daily and miss them a lot. They lived through the depression; they knew how to make life from scratch. They were self-sufficient in ways that our generation seems unable to imagine. As a young analyst looking for mentors and wise counsel in the money business, I came up empty a lot. It seemed that the wise ones were extremely scarce and almost always at least 75 years old. Multi-decade experience reaching back to the 20's seemed to leave an indelible stamp of insight on a few. The trouble with 80 year olds is they eventually end sooner than we would like.

In April 2006 we lost John Galbraith. Last year Peter Bernstein and John Templeton in 2008. Paul Volcker, Warren Buffet and Charlie Munger are now 80 +. I guess they plan to just drop in their tracks some day; trying to teach right to the end. Trouble is I don't see many younger candidates to take their place to day. This interview with Charlie Munger is refreshingly candid.

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