Third Quarter 2008

Credit Crisis Intensifies

We have now entered a time of uncertainty (to put it mildly) in some ways reminiscent of what we experienced in 1987 or 2001. The panic mentality has set in; investors, seeing their account balances seemingly shrink every day, fear for their future. But unlike 1987, when the pain was contained primarily to one day, today we’ve experienced seemingly endless daily multi-percent drubbings. If the crash of ‘87 was akin to ripping the Band-aid off of a wound very quickly, the current environment is more like a never-ending root canal where sometimes the Novocain has no effect.

Second Quarter 2008

Shallow Downturn, Shallow Recovery?

Amid all the turmoil—rising inflation and unemployment, rapidly declining consumer sentiment, a still declining dollar, housing market trying to find a bottom, skyrocketing oil prices and continued fallout from the credit crisis—the IMF recently issued a somewhat surprising report. Given the focus on the daily dose of bad news doled out by the financial markets, this report went relatively unnoticed; but does contain some interesting material.

First Quarter 2008

Housing 2008: A Tale of Two Snakes

While it would be imprudent, in our opinion, to view the plight of the housing market through the eyes of the optimist, and ignore the "perfect storm" of bad news we’ve experienced, it would be equally imprudent to take the pessimists view – which is grounded in depression-like scenarios. While the headline news, pundits and media outlets continue to paint the bleakest of pictures for housing, we do see some light at the end of the tunnel.

Fourth Quarter 2007

   The "R" Word - Are We There Yet?

Given the nearly even split between days the Dow was plus or minus a percent or more, you might conclude that the markets were manic depressive, suffering from a split personality, or just reacting to the continuous flow of positive and negative information, available day by day and sometimes hour by hour.  We’d propose that the third scenario is the obvious choice.

Third Quarter 2007

   From Doomsday to Payday?

Much to their chagrin, investors became accustomed to a new word during the third quarter of 2007: subprime.  This new buzzword, the villain behind Q3’s market volatility, was the impetus for investor fear and market volatility.  But as the equity markets recently approached, or hit, new highs, few remembered that just two months ago, we were in the midst of a market correction, as the S&P 500 fell 12% over a 26 day period, a credit crunch punished fixed income investors, countless mortgage companies went under,and some fixed income securities were priced for Armageddon.  Meanwhile, home prices were falling, home inventories were growing and many Americans with adjustable rate mortgages faced foreclosure.  All of this combined into a potential nightmare situation, which many feared would lead to a recession.

Second Quarter 2007

 Crude Realities: Thoughts on the Price of Oil

Lehman Brothers recently conducted an unscientific poll of their institutional clients, asking them to identify the biggest surprise event of the second half of 2007, given six choices...The folks at Lehman found it “somewhat surprising” that not a single respondent thought that oil prices would go to $85 or beyond in the second half of the year.  Our interpretation of the results was a bit different; namely that 0%, or none of the respondents, would be the least bit surprised if crude topped $85 in the next six months.

First Quarter 2007

   Subprime Time

In this article we consider the subprime mortgage market and gauge the possible spill-over effects to the rest of the economy. We then examine one of the prime underlying causes of the weakness in the housing market, the slowing economy driven by the massive liquidity extraction in 2005-2006. We conclude with a broader outlook for credit over the balance of 2007.