Fed Speak Redux
Re: NAHB President Brian Catalde's comment "we expect housing to exert a drag on economic growth during the balance of 2007."
Our Nattering: (that said quote) "is "flyin' in the face of Fed speak."
In a recent post, Dr. David Altig at Macroblog (whose work we do admire and respect.) notes:
"I'm not so sure "flyin' in the face of Fed speak" is a completely apt characterization".
Alrighty then, let's see whats been said of late... in chronological order.
Our natterings re: Bernankes comments 02/28/07:
"if current corrections under way in housing and the amount of inventories being held by business stabilize in coming months."
What correction in housing? What inventory stabilization? In the last 4.5 months since the comment was made, both situations have worsened.
re: subprime lending "It's a concern, but at this point we don't see it as being a broad financial concern or a major factor in assessing the course of the economy."
Oh come, come now, Nattering One. You can't blame Benny for being an optimist, right? Moving West...
Our natterings re: Paulson's comments 03/06/07 :
"the weak U.S. housing market and growing worries about sub-prime lending will not have a major impact on the financial sector or the global economy."
Flashback... Gaithner warned about derivatives two months earlier 01/11/07: "gains (from derivatives) may have come at the price of increasing uncertainty and potential losses if we end up in the 'tail'"
The "tail" - a bankers' term to describe the chance of a statistically rare event occurring.
Flashforward, same day, Benny & The Feds suggested limiting FHLMC & FNMA's massive holdings to guard against any danger their debt poses to the overall economy.
Bernanke said that FNMA & FHLMC "continue to represent a potentially significant source of systemic risk."
Excuse me, but is there a slight hint of a problem here? If subprime slime is NOT going to have a major impact on the financial sector...
then where is the systemic risk that Benny claims the GSE's pose and how would it manifest? Perhaps Gaithner knows at bit about derivatives, MBS & CDO's, ya think?
This fed speak sounds like, managing expecations is the charter... much like, inflation is tame, but we are very worried and vigilent against this supposedely tame thing.
I digress... moving West...
We nattered re: Coles 03/22/07 US Senate testimony:
"at this time, we are not observing spillover effects from the problems in the subprime market to traditional mortgage portfolios or, more generally, to the safety and soundness of the banking system."
("At this time", is the operative phrase!!)
Our Natterings re: Bernanke's 05/17/07 speech:
"we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited."
"we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system."
"We believe" and "We do not expect", are the operative phrase as an optimist and one who is in charge of MANAGING EXPECTATIONS would not believe nor expect such calamity.
Friday night 06/15/07 Bernanke: Changes in house prices could have a bigger effect on consumption than the traditional “wealth effect” suggests, and...
in addition to making homeowners richer or poorer, changes in house prices might influence the cost and availability of credit to consumers.
Oh really! This "about face" pretty much contradicts all the previous fed speak which indicated that:
subprime slime, cost and availability of credit and the weak housing markets effects on consumption will NOT be any of the following:
"a broad financial concern"
"a major factor in assessing the course of the economy"
"have a major impact on the financial sector or the global economy"
"no spillover effects to the traditional mortgage porfolios...or banking system"
"will not have significant spillovers to the economy and financial sector"
Lets ask around how these things have NOT come to pass.
In Fed Speak: Ask dwindling economic slack, rising "stagflated" costs combined with slower productivity growth, and a still very "accommodative" monetary policy.
And for more Fed Speak: Ask the Fed Beige Book which had some choice comments on our economic lynchpins.
Better yet:
Ask the builders who are building 33% less new homes (-600K this year).
Ask the housing sector responsible for 75% of all new jobs since 2001.
Ask $2.5 Trillion in Mortgage Equity Withdrawals since 2001.
Ask realtors as median home values had gained 50% plus since 2001.
Ask the 10% of homeowners with ZERO or NEGATIVE equity.
Ask the 30% of homeowners with mortgages equal or exceeding the homes value.
Ask the truckers after consecutive quarters of twindling freight volumes.
Ask the shippers about the Baltic Dry Index (a measure of dry raw inputs being shipped globally) dropping 17% since mid May.
Ask the GDP which shrank from 2.6 to 1.3 to 0.6.
Ask interest rate sensitive homebuilding, business capital spending & consumer durables which accounted for 50% of US GDP growth recently.
Oh and regarding systemic crisis: Ask FHLMC why they posted a Q1 loss on derivatives?
Ask Bear Stearns, JP Morgan & Merill Lynch why they are ready to fork out $2 Billion to bail out Bear's failing hedge fund arm?
Ask China & The USA responsible for 50% of WORLD GDP growth since 2001.
Ask Japan, Germany & China, large economies that lack the core support of self sustaining internal demand and are dependent on our consumer spending.
Our consumer spending depends on our economy. Our economy is an emasculated carcass from greedy misallocation of capital, so its a dead man walking.
Can you say spillover into financial sector, broader US economy & global economy? I can. Banking system to come...
Can you say "we expect housing to exhert a drag on economic growth... for 2007" as "flyin' in the face of fed speak".
I can, until last Friday. And come to think of it, it may not be a completely apt characterization after all.
Our Nattering: (that said quote) "is "flyin' in the face of Fed speak."
In a recent post, Dr. David Altig at Macroblog (whose work we do admire and respect.) notes:
"I'm not so sure "flyin' in the face of Fed speak" is a completely apt characterization".
Alrighty then, let's see whats been said of late... in chronological order.
Our natterings re: Bernankes comments 02/28/07:
"if current corrections under way in housing and the amount of inventories being held by business stabilize in coming months."
What correction in housing? What inventory stabilization? In the last 4.5 months since the comment was made, both situations have worsened.
re: subprime lending "It's a concern, but at this point we don't see it as being a broad financial concern or a major factor in assessing the course of the economy."
Oh come, come now, Nattering One. You can't blame Benny for being an optimist, right? Moving West...
Our natterings re: Paulson's comments 03/06/07 :
"the weak U.S. housing market and growing worries about sub-prime lending will not have a major impact on the financial sector or the global economy."
Flashback... Gaithner warned about derivatives two months earlier 01/11/07: "gains (from derivatives) may have come at the price of increasing uncertainty and potential losses if we end up in the 'tail'"
The "tail" - a bankers' term to describe the chance of a statistically rare event occurring.
Flashforward, same day, Benny & The Feds suggested limiting FHLMC & FNMA's massive holdings to guard against any danger their debt poses to the overall economy.
Bernanke said that FNMA & FHLMC "continue to represent a potentially significant source of systemic risk."
Excuse me, but is there a slight hint of a problem here? If subprime slime is NOT going to have a major impact on the financial sector...
then where is the systemic risk that Benny claims the GSE's pose and how would it manifest? Perhaps Gaithner knows at bit about derivatives, MBS & CDO's, ya think?
This fed speak sounds like, managing expecations is the charter... much like, inflation is tame, but we are very worried and vigilent against this supposedely tame thing.
I digress... moving West...
We nattered re: Coles 03/22/07 US Senate testimony:
"at this time, we are not observing spillover effects from the problems in the subprime market to traditional mortgage portfolios or, more generally, to the safety and soundness of the banking system."
("At this time", is the operative phrase!!)
Our Natterings re: Bernanke's 05/17/07 speech:
"we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited."
"we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system."
"We believe" and "We do not expect", are the operative phrase as an optimist and one who is in charge of MANAGING EXPECTATIONS would not believe nor expect such calamity.
Friday night 06/15/07 Bernanke: Changes in house prices could have a bigger effect on consumption than the traditional “wealth effect” suggests, and...
in addition to making homeowners richer or poorer, changes in house prices might influence the cost and availability of credit to consumers.
Oh really! This "about face" pretty much contradicts all the previous fed speak which indicated that:
subprime slime, cost and availability of credit and the weak housing markets effects on consumption will NOT be any of the following:
"a broad financial concern"
"a major factor in assessing the course of the economy"
"have a major impact on the financial sector or the global economy"
"no spillover effects to the traditional mortgage porfolios...or banking system"
"will not have significant spillovers to the economy and financial sector"
Lets ask around how these things have NOT come to pass.
In Fed Speak: Ask dwindling economic slack, rising "stagflated" costs combined with slower productivity growth, and a still very "accommodative" monetary policy.
And for more Fed Speak: Ask the Fed Beige Book which had some choice comments on our economic lynchpins.
Better yet:
Ask the builders who are building 33% less new homes (-600K this year).
Ask the housing sector responsible for 75% of all new jobs since 2001.
Ask $2.5 Trillion in Mortgage Equity Withdrawals since 2001.
Ask realtors as median home values had gained 50% plus since 2001.
Ask the 10% of homeowners with ZERO or NEGATIVE equity.
Ask the 30% of homeowners with mortgages equal or exceeding the homes value.
Ask the truckers after consecutive quarters of twindling freight volumes.
Ask the shippers about the Baltic Dry Index (a measure of dry raw inputs being shipped globally) dropping 17% since mid May.
Ask the GDP which shrank from 2.6 to 1.3 to 0.6.
Ask interest rate sensitive homebuilding, business capital spending & consumer durables which accounted for 50% of US GDP growth recently.
Oh and regarding systemic crisis: Ask FHLMC why they posted a Q1 loss on derivatives?
Ask Bear Stearns, JP Morgan & Merill Lynch why they are ready to fork out $2 Billion to bail out Bear's failing hedge fund arm?
Ask China & The USA responsible for 50% of WORLD GDP growth since 2001.
Ask Japan, Germany & China, large economies that lack the core support of self sustaining internal demand and are dependent on our consumer spending.
Our consumer spending depends on our economy. Our economy is an emasculated carcass from greedy misallocation of capital, so its a dead man walking.
Can you say spillover into financial sector, broader US economy & global economy? I can. Banking system to come...
Can you say "we expect housing to exhert a drag on economic growth... for 2007" as "flyin' in the face of fed speak".
I can, until last Friday. And come to think of it, it may not be a completely apt characterization after all.
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