Thoughts From the Frontline, October 2007

As the Subprime Turns

October 26, 2007

As the World Turns is a popular soap opera playing on American TV. It focuses, as do most soaps, on the lives and foibles of its characters, with plenty of dramatic flair. We are watching a different type of soap opera today which we could call "As the Subprime Turns. And the world is watching. It has plenty of drama, lots of flawed characters, a plot that is hard to understand, everyone saying it was the other guys fault and the world (literally) paying for the sins of exuberance in the US.


Taking Out the SIV Garbage

October 19, 2007

This week was not pretty for stocks. It all started off with the announcement of a special 80-100 billion dollar fund orchestrated by the US Treasury to bail out something called an SIV. Then Caterpillar gave negative guidance this morning, especially on its US business and the selling began in earnest. October 19 is still not a friendly day to the stock market 20 years later. But it was a great week for bonds. One-month treasury bills dropped 60 basis points in one day in a real flight...

The GDP Equation

October 12, 2007

A recession is technically defined as two consecutive quarters of negative growth in the Gross Domestic Product (GDP). This week we look at how the GDP is actually calculated to give us an idea as to the potential for a recession. We re-visit my concepts of a Slow Motion Recession and a Muddle Through Economy. We briefly look at the sliding dollar and housing, and see how it all adds up. You'll need to put your thinking caps on, but it should be interesting.

But first, a quick house-keeping...

The Slow Motion Recession

October 5, 2007

The market certainly seemed pleased with the new jobs number. The glass is more than half full - or is it? Fed Vice-chairman seemed to suggest that the economy was getting better and the Fed might not need to make any further rate cuts. Is it now "One (Cut) and Done?" This week we look at what employment growth tells us about the growth of the US economy, spend some more time looking at how a fall in home prices will affect consumer spending, and muse on whether the Fed is indeed done cutting....