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Thursday, January 14, 2010

Morning Market Report

Major financial services company CEO's were up on Capitol Hill yesterday and one statement summed it all up. It was said by Jaime Dimon, CEO of JP Morgan Chase.




housing prices were nearly double their trend growth levels and JPM never even considered a scenario in which they might fall.


If you've been reading this site for a while, this statement shouldn't surprise you in the least. The entire industry, not merely Chase, was under the impression that real estate was going to go up forever. As silly and dangerous as that sounds now, that was the conventional wisdom. It also explains why the obscene loans that we now refer to as "toxic assets" were made. If you thought a property would be worth 20% more in a year, it made a lot more sense to give someone a loan without verifying their income. Dimon characterizes and industry and it was a remarkable admission.



Dimon's mindset is also SOP of the mindset of someone participating in a bubble. We can't go back now, but everyone must learn the lesson so that they don't get caught up again. When EBAY et al were trading at 2000 times earnings, we also had a lot of so called experts not seeing any scenario where that could fall. In terms of mindset, there's absolutely no difference between the way that Jaime Dimon viewed the real estate market and many so called experts once viewed the internet market.



Meanwhile, in current news, the weekly jobless numbers were slightly worse than expected. The first time weekly jobless claims came in at 444,000 up 11,000. There are three types of recoveries, U, V, and W. V is the most successful. U is slower but steady. W is characterized by starts and stops. It's the worst kind of recovery. (in fact, there's an L recovery which is no recovery) The latest monthly jobs numbers and this number are all evidence that we're in a W shaped recovery. That means we're going to be taking steps back all throughout. It's economically painful and even worse for the politicians in charge.


Meanwhile, in the markets, equities are about even. Bonds got whacked toward the middle of the day yesterday but the ten year is showing strength again. It's back down to 3.76% after gaining nearly seven basis points inter day yesterday.

2 comments:

Anonymous said...

Hi Mike, You were investigating the VA and the Legionnaires...I think it was another data hoax. Cloward and Piven - Agenda 21 - Sustainable Development. They were holding onto the data as it was useful to use for other wasteful spending things...like cancer in the water. That other woman and her son was perhaps involved in the scheme. Time limited so I couldn't look up the full story to check them out.

Take care,

Annie

AG said...

Frankly, as someone who has witnessed the job market collapse both when he was preparing to graduate from Undergrad and Grad school, I for one can't help but feel like we've been in a 'W' recovery since the .com bubble collapsed.

As far as the housing market is concerned, never overestimate American's appetite for overpriced goods. Nothing brings prices down like consumers inability or unwillingness to pay for them. We cannot assume that Americans absolutely cannot survive without McMansions and SUVs. After all, there are people in Haiti literally eating dirt to survive.