Consumer Confidence

Posted by T.W. Hanson - Apr 27th, 2008 at 17:04

Consumer Confidence

One of the economic indicators economists and Wall Street types follow is the result of a monthly University of Michigan survey on consumer confidence. The most recent report came out on Friday, April 25. It was the lowest level of the past 26 years. Many people, myself included, have no memory of an America with consumers this depressed. Even fewer have been working in the financial world when the numbers were previously this low. The uniform lack of knowing about this resulted in a muted response in the markets. We will see in the months ahead if this was appropriate.

I do not know what the direct impact of this sentiment divot means. Will people continue spending? Will companies reduce inventories? Is this only the beginning of the recession in the real economy, not just the financial sector? Will stimulus checks save us?

Leverage in a Global Economy

Posted by T.W. Hanson - Apr 2nd, 2008 at 20:04

 earth

The New York Times devoted an entire section of today’s paper to living in a leveraged world.  The potential problems of this reality are small compared to global climate change, but they are much larger than the current U.S. housing crisis.

This is a must read for vicenarians interested in how money, markets and the global economy functions.

Leveraged Planet

Exxon Vs. Venezuela, Round 2

Posted by T.W. Hanson - Mar 18th, 2008 at 20:03

oil platform

So you are the world’s largest company and operate oil wells around the globe. You wake up one morning, and you are told that your $5 billion investment is no longer yours. Apparently, Venezuela has decided to take away your oil assets in their region. Fortunately for you, the financial wherewithals of the two parties are about equal. They have a military, but I hear Blackwater is available for hire.

Step 1: Sue them everywhere in the world.

In January, Exxon won rulings from courts in London and elsewhere freezing Venezuelan assets around the globe.

Step 2: Wait for a reaction.

Since that ruling, Venezuela has responded by threatening to cut off oil supplies to the West and moved troops to the Colombian border, one of America’s best friends. They also continued to fight Exxon’s legal claims in court.

Today, a London court ruled in Venezuela’s favor. The assets were unfrozen and Hugo Chavez acheived a clear victory.

Step 3: Keep the legal challenge going and look up Blackwater’s phone number.

A Market Bubble Collapses: The Slow Motion Train Wreck Version

Posted by T.W. Hanson - Mar 16th, 2008 at 20:03

train wreck

Vicenarians don’t have much practical experience with the troughs in the business cycle. There was the savings and loan crisis in the late 80s and early 90s, but many of us were learning how to read during those years. The Internet/.com bubble collapse of 2000 is our primary frame of reference for distressful economic times. This crisis is appears very different. Although characteristics like increased unemployment seem to reappear each cycle, there are rarely perfect parallels from one downturn to another. One of the macro differences is the speed. The rate at which this credit markets are contracting is much slower than the rapid implosion of the Internet companies in 2000.

Unlike in 2000, today’s irrationally overvalued assets are homes and properties.  Prices for these assets are sticky.  Most are unique and take weeks, months or years to sell.  One result of this is that the securities tied to the value of these properties have fallen at a similarly and painfully slow pace.  Write downs of assets on bank balance sheets haven’t occurred all at one but have been stretched from quarter to quarter to quarter.  This is forecast by some to continue for quarters to come.

bubbleDuring the Internet bubble, company values were wiped out overnight.  Equity values disappeared, companies shut down, people and families felt pain and the economy took a hit.  However, it was over in a relatively short period of time.

The industry this is hitting the hardest is slowing down the bleeding even more.  The financial institutions provide and source the capital for all other industries.  Each day they are operating in a weakened state, other businesses and individuals aren’t getting the financings or financing terms that a fully functioning free market would provide.

When will the market recover and economic expansion resume?  When the financial sector reaches a catharsis resulting from both the final write down and the replenishment of tangible assets on their balance sheets.  Don’t hold your breath.

Bear Stearns

Posted by T.W. Hanson - Mar 15th, 2008 at 11:03


bank run

This is exactly what is happening.

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