PANIC ON WALL STREET!!!!

Thursday, August 16, 2007
Or, mebbee not. Well, if there wasn't a real panic today, maybe there will be one tomorrow. Except.... if mortgage defaults are going to drive the economy to its knees, why didn't delinquencies jump in the first quarter? And why aren't home values in a much larger slump?

There is no denying that sales are way off, new starts are off and permits aren't improving but prices are only slipping very, very slightly on a national basis.

I may be missing something but this looks like a bottom to me. I have felt that the smash talk on home prices was a political counter to the "ownership society" for some time and I've wondered how the DEMSM would handle it through the '08 election. Fear is a good driver when the opposition controls both the Executive and the Legislative branches but shared responsibility has to cut into fear mongering.

Any bets on whether the Dems propose "save the flakes" credit legislation this fall? Moral hazard is meaningless to them, so they might make another run at it.

1 comments:

tet said...

Rick, couple things going on here:

One of the major factors contributing to the volatility right now (if you consider the market a chaotic engineering system) is that one of the governors has been removed.

The '29-era rule stating that one could not sell short on a stock unless it has increased in value was lifted last month. It is possible that this may be contributing heavily to the wild swings of the last few days. There's insufficient data so far to confirm or deny this.

In the past, mortgage companies who lent money to individuals who were incapable of repaying them were punished by the market. For a period of about four years, this economic rule was suspended due to a combination of favorable events/actions (in particular, a prime rate at 1% and buyers willing to purchase the mortgage companies' paper.)

I think that the "Economic Sheriff" has just arrived in town. Watch what happens to Countrywide Financial over the next few days, they could be a bellwether.

There's a lot of ways that one can "trick" the market for a little while, but sooner or later, the Invisible Hand spanks you.

Tom