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Tuesday, July 31, 2007

I'm Not Really A Pessimist

Really, I'm not. I'm a raving optimist by most people's standards. I'm a cheerful person too. Today I had to deal with the saddest looking, droopiest tech I have ever encountered. By the end I had him laughing. (He's got twins just about to turn one, and it's driving him nuts!) I have had enough tough times in life to appreciate the value of an optimistic outlook.

That's why it bugs me to have to keep writing these pessimistic blurbs about the economy. But what is, is. If you haven't brought in your financial brass monkeys, now is the time to do so.

I finished the walkabout first stage (hint - don't think you can casually wander into your local bank and inquire about CD rates. A horde of determined people will descend to take your money.) Then I swung by my mother's house to take care of some stuff there. I've pretty much been sitting around waiting for people to come while sorting through piles of old papers - you know how that goes. Today the phone company finally came and installed FIOS, so now I'm back online and I'll be blogging pretty regularly.

AHM finally blew its top. Here's a quote from a Bloomberg article gloomily prognosticating a Street meltdown:
Jeremy Grantham, the money manager who oversees $150 billion as chairman of Grantham, Mayo, Van Otterloo & Co. LLC, said credit-market declines may force as many as half of all hedge funds to close in the next five years.
...
Grantham said investors putting money into private-equity funds will lose most of their money because of the amount of leverage used in deals and profit-sapping fees. An overload of debt will sink at least a couple ``very large'' firms. He didn't say which firms may be imperiled.

``These guys are in a big hole,'' he said. ``Most of the money going into private equity today will be a total loss.''
He's more pessimistic than I am (I only expect about 25-34% of hedge funds to shut down) but one thing is unquestionably true: there is no chance of all this being confined to subprime, nor to just subprime and Alt-A, and a lot of corporate credit is less secure than these subprime loans. Every time some Fed head starts talking about "subprime", mentally change that to "lending", and you'll immediately understand just how ridiculous the statement is. The impact of this should be beginning to propagate through the rest of the economy in September or so, although of course it is happening right now in finance.

One of the things that worried me the most is that in the Northeast, I think the downdraft is now coming from the top AND the bottom. This is not the case in the South yet, so I'm glad I did this.

But be of good cheer. In a few years, money is going to buy a lot more in the domestic economy than it does now for many asset classes. Every cloud really does have a silver lining. Treasury yields are going down because of a flight to safety which is causing their price to rise.


Comments:
M_O_M:

I'm still worried--at times you sound almost as down as a Democrat.
 
Banking is that way, you know. You can't talk someone into being creditworthy, although you can teach almost anyone to get there.

This is a very serious situation.
 
Its not all black though, is it? Other places in the world are growing at very high rates, and soaking up lots and lots of consumables and manufactured items.

At this time, consumer confidence remains high due to high employment. Employment is likely to remain relatively stable based on foreign demand, don't you think?

Put another way, Joe Sixpack in India wants his Harley Davidson and his Colgate toothpaste, and now he's got money to buy it with.
 
Yes. India and China are two. The battle there is to get people prosperous enough to consume.

This week India's banks raised reserve requirements to try to stem inflation. There has been a RE bubble similar to the one in the US, Australia, and Europe in parts of India.
 
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