I made a comment on Facebook yesterday…..

about being frustrated with unrealistic market expectations.   I thought I’d take a minute and explain what I meant a bit more:

• I feel that the media and the government are overly simplifying the Chrysler bankruptcy and downplaying what it’s going to mean to the overall economy.
• I’ve talked to 5 people in the last 5 business days who either have overly optimistic views on what their house is worth or expect that their house will sell within 30 days even though the average marketing time is, I’m guestimating over 180 days.
• And then there’s the banking system.   I’m not going to say much about it other than to hand the “reigns” over to Dr. Roubini who is much more eloquent and more knowledgeable than I could claim to be.

Are things calmer than they were 6 months ago?  Yes they are.    But there are still a lot of issues brewing and a lot more challenges underneath the surface.

Does that mean that I’m “anti real estate?”   Absolutely not.   I think that this is a market that calls for calm reason and analytical calculations.  It’s not a time for emotions to override the details of what the market is saying.

Now there’s a certain reader out there (you know who you are, Jeff) who is going to accuse me of going all “Michigan” on him.   He’s going to say that I’m justifiably jaded due to living in an auto industry state that’s been in a recession since before the year on the calendar started with a “2.”   He might be a little bit right but if you look at what I’m saying above, it’s a call, not for negativity, but a call for reason, rational thinking and crunching numbers.

Now read what Dr. Roubini says about the banking system, take a deep breath and we’ll continue on…..

Thanks for listening!

Tom Vanderwell

We Can’t Subsidize the Banks Forever – WSJ.com

The results of the government’s stress tests on banks, to be released in a few days, will not mark the beginning of the end of the financial crisis. If we are to believe the leaks, the results will show that there might be a few problems at some of the regional banks and Citigroup and Bank of America may need some more capital if things get worse. But the overall message is that the sector is in pretty good shape.

This would be good news if it were credible.

Dr. Roubini

Dr. Doom or Dr. Realist?

2 years ago, I have to admit that I had never heard of Dr. Nouriel Roubini.   Now I’ve “sat in” on some conference calls that he has done, read anything of his I can, and follow him on Twitter.   As Paul Kedrosky told me the other day, “Not only is Nouriel smart, he’s a really nice guy!”

A couple of interesting “highlights” from this Newsweek interview:

• He agrees that the rate of decline is going to slow down, but while others think growth will be positive in 2009, he doesn’t see it until 2010.
• He’s less worried about a depression than he was 6 months ago.   That’s a good thing.
• He believes that banks are going to have to be “taken over” and cleaned up and we’ll find out more on that on May 4.
• He has some interesting and disconcerting things to say about China and their long term appetite for the US dollar and for Treasuries.   A topic for another day but given his track record, don’t forget about it…..

Tom Vanderwell

Economist Nouriel Roubini: ‘I Am Dr. Realist’ | Newsweek Business | Newsweek.com

The rate of economic contraction you have seen in the last two quarters—6 percent annualized—is going to slow down. The optimists are already talking about the “green shoots” of spring, about economic activity becoming positive. [They say] we will have positive growth in the third quarter, and in the fourth quarter we will grow 2 percent over the previous quarter. They expect that next year, growth will go back to above 2 percent.

Compared with this optimistic consensus, I believe that the rate of economic contraction is going to slow from minus 6 percent in the last two quarters to minus 2 percent by the fourth quarter. Next year, I believe that the growth rate is going to be 0.5 percent for the U.S. average. Even if we are technically out of a recession, we are going to feel like we are in a recession. The bottom of the economy is not going to be in three months, but rather toward the beginning or middle of next year.

Six months ago I was more worried about an L-shaped near depression. Today, after the very aggressive policy actions taken by the U.S. and other countries, the risk of that near-depression L has been reduced from 30 percent to 15 or 20 percent. We are instead in the middle of a U.

 And on the banks, I believe after the stress tests it is going to be obvious that even some of the largest banks are so fundamentally in trouble that you cannot buy their toxic assets. You need to take over these banks on a temporary basis, clean them up and then sell them back to the private sector

Dr. Doom, Dr. Roubini

Dr. Doom on the Banking World….

You know, I have to say that if I had to pick one person in this whole “mess” who I’d like to sit down and have lunch with, it would most likely be Dr. Nouriel Roubini.   He’s one of the most fascinating and unbelievably correct economists/analysts in predicting not only what has been happening but what to do about it.

A couple of points about what he says:

• Nationalization will be temporary and will happen soon.   I tend to think that his 3 to 6 months is a bit more optimistic than reality.   Stock prices say it would happen sooner.
• When the banks get reprivatized, they will look substantially different than they do now.   There probably won’t be a Bank of America any more, but there might be a Bank of the Southwest, Bank of the East, Bank of the NorthEast etc. 
• That brings up some humorous (or at least I think so) possibilities with the name of the bank that I work for.  Would Fifth Third become something else?

Stay tuned and read his entire artticle, it’ws worthwhile.

Tom Vanderwell

Nouriel Roubini Says Nationalizing the Banks Is the Market-Friendly Solution – WSJ.com
  Mr. Roubini tells me that bank nationalization “is something the partisans would have regarded as anathema a few weeks ago. But when I and others put it in the context of the Swedish approach [of the 1990s] — i.e. you take banks over, you clean them up, and you sell them in rapid order to the private sector — it’s clear that it’s temporary. No one’s in favor of a permanent government takeover of the financial system.”

“So if you took over a big bank, and you split the assets in three or four pieces, maybe you create three or four regional or national banks, and they’re stronger! Nationalization — or ‘temporary receivership,’ if you like, if the N-word is a political liability — is an occasion to undo the sort of consolidation that has created an even bigger systemic problem. And the only way to do it is by essentially taking them over and breaking them up.”

Note – I actually wrote this on Saturday and set it to post on Monday morning.

Dr. Roubini, Nationalization

Dr. Doom speaks again…..

A couple of thoughts about this video:

Dr. Roubini has a reputation of being incredibly accurate over the last couple of years.

He has also earned the reputation of his nickname Dr. Doom because of how negative he is.

Why am I even bothering put this up?  A couple of reasons:

1. I think that we are heading toward the “third wave” of the financial mess and it’s going to get really ugly soon.
2. I think it’s important that people realize what’s going on and plan for it as best as they can.
3. I think that its important people realize I’m not the only one with a negative outlook on things (we won’t mention who I’m referring to but let’s just say that he calls it my “Michigan disease.”)

I’d say to “enjoy” but you really shouldn’t.   But watch it any way.

Tom Vanderwell

Dr. Roubini, Dr. Doom,