The Shakespeare Festival is still going strong in Ashland Oregon, but I often wonder what “The Bard” would write about the comedy of errors going on in Washington DC. Ben Bernanke made his second appearance today to talk to the “Apple Dumpling Gang” about the state of our economy.  In one day, Ben’s vision of the economy has gone from “doom and gloom” to “hey, things aren’t all that bad”.   Maybe he needs some Prozac ?  If not Big Ben, then the markets do for sure.  Yesterday was a “down day”, and today…..well the Dow is up over 200 points.

Think about it this way, the intrinsic value of the companies that make up the Dow can’t have changed that much in a 24 hour period.  If a company is worth a billion dollars, it doesn’t all of a sudden lose 5% or $50,000,000 in value in 24 hours.  Did their products lose that much in value?  Did their real estate holdings drop that much in one day?  Of course not.  But watching the markets, you would think that they did.  So, what’s my point?  The market is scared and is just as likely to believe that the sky is falling (from Big Ben’s testimony yesterday) as it is to believe that everything is all rainbows and prancing unicorns (based on Ben’s testimony today).

We talked about it yesterday, but the impact of the new FinReg (Financial Regulations) placed on the Ratings Agencies has already begun to show up. If you recall, now that Ratings Agencies can be held liable for inaccurate or misleading information, newly issued debt will no longer include their “official” ratings. In short, the three major ratings agencies no longer feel comfortable rating issuances if they can be sued if they “miss” on a bond rating.  Another way to look at this is to compare it to car shopping.  It’s sort of (in a very simplistic way) like saying that if I take advice from Consumer Reports on a particular car, and if that car turns out to be a lemon, then I can sue Consumer Reports?  Well, that’s silly.  Shouldn’t I test drive the car first? Shouldn’t I look under the hood? Shouldn’t I have my mechanic look at the car?  Well, large investment banks that buy these bonds have skyscrapers full of analysts, attorneys, and traders that review these transactions………but now the ratings agencies are liable.  Don’t get me wrong, I think that (in many cases) the ratings agencies missed the mark on quite a few bond issues over the last few years, but that doesn’t mean that we don’t want them doing their jobs……………and the new FinReg is causing them to step out of the market to protect themselves.

Case in point, last night Ford Motor Company pulled back a financing deal because they could not get a printed rating on the debt offering. Rumor has it, that there are a number of other bond offerings that are being scuttled because of this.  We will continue to follow the fallout from this part of the new FinReg.  We will also begin to see how this impacts mortgage financing.  No matter what happens, it will be interesting to say the least.

Since “they” say that a picture is worth a thousand words, I recommend that you check out this article (especially the graphs) from The Big Picture – it speaks volumes. Now, remember, recoveries and recessions never happen in straight lines, so trend-lines could tell the whole story or be completely useless.  In this case, I think the trend lines tell a very cautionary tale.  Many of the traders that I know have “gone to cash” as they are very concerned that we are not done with an overall decline.

Which brings us to the biggest surprise of the day – we are going to agree with Bernanke. He said yesterday that the economy is “Unusually Uncertain”. At this point, hindsight needs glasses to see well and foresight is running into walls left and right. With government intervention doing a number on our financial reports, we can barely see our proverbial hands in front of our faces. Next up to bat is the Unemployment Extension bill which, politics aside, will make it even harder to see the trend, since at this point a jobless recovery is about as likely as BP making a good public relations move.

The next few months will see a slight decline in housing numbers, but I personally believe that we will see a slight upturn in the fall and then another drop during the December-February months.  Also, keep an eye on consumer savings rates.  A big increase will signal a scared consumer and project less movement of housing inventory.  A drop will indicate a more comfortable consumer and a possible increase in housing activity.

As always, thanks for checking us out and please pass us on to anyone that could use some insight from us.

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Geoff Boyd – PrimeLending – Clackamas, OR

Yesterday was a fairly quiet day financially, the market did not show much enthusiasm or optimism, and stocks / bonds / rates seemed to have hit a lull.  The major report for this week is the Consumer Pricing Index, due out Thursday; but we all know that even minor reports can have a big impact if they show an unexpected number.

Today was a bit like a surprise birthday party that you planned for yourself; you can really see this stuff coming from a mile away.

Early this morning, the Empire State Index came out and was right in line with expectations – no surprises there, the Home Builder Sentiment came out later in the day and, surprise, home builders aren’t doing very well.  The Home Builder Sentiment came in low, at 17%, with all 3 categories over all 4 sections of the country reporting depressed home builders.

The day continues to offer eye-roll-worthy news; Greece’s sovereign debt has been downgraded to Junk Status (see The Big Picture’s Article on the subject; I couldn’t agree more) – the other housing data set to come out this week will not inspire optimism; industry expectation is that housing starts are going to fall 7% and New Home Sales will drop 11%.  Existing home sales will be up, but that number reflects all the houses that are closing on their New Homebuyer Tax Credit – this number has the potential to actually shake up the market, but we already know most of the information that will drive this number up or down, so it should fall in line with expectations.

A group of executives from the major oil companies are set to show up on Capitol Hill today to talk about offshore drilling.  I’m predicting that they are in favor of it.

Oil and tech jumped today and, with lowered euro zone concerns, the markets jumped.  Mortgage Bonds are down, so watch for negative re-pricing through the afternoon.

The biggest issue facing our economy right now is the massive unemployment and underemployment – the majority of Americans have tightened their belts several times over at this point, so even a gain in consumer confidence or employment doesn’t necessarily do much for an economy that is upside down.  Watch for foreclosure rates to continue to climb, especially as banks attempt to keep up with the number of delinquent homeowners. Some people are predicting a “jobless recovery” – but I dont see it happening.

Follow us on twitter for current news, advice and market status updates.

Have a question or something to add? Leave a comment or send us an email

Geoff Boyd – PrimeLending – Clackamas, OR