Tuesday, June 9, 2009

Offsetting The Stimulus Package

An interesting tidbit from Rosie's am commentary. He points out that between commodity inflation (gas prices), the pounding in mortgages (drop in mortgage refis and implied housing net worth) and dropping wages (yes, the skyrocketing unemployment rate does tend to do that), and there go the purported stimulus package benefits.
U.S. retail gasoline prices are now up a full buck from the lows, to $2.62 a gallon (up 41 days in a row) — the equivalent of a $130 billion drag on discretionary spending at an annual rate. Tack on the 60bps bounce in mortgage rates too, which has triggered a near-60% collapse in mortgage refinancings. Then tack onto that the 0.2% decline in average weekly earnings in May — down now in two of the last three months — and a consumer relapse could well be in the offing and end up snuffing out this ballyhooed inventory-led recovery that has underpinned equities and undermined Treasuries over the last 3-4 months. Have a look at the article Relentless Rise of Treasury Yields Could Choke Nascent Recovery on page 23 of the FT. Also see On Borrowed Time: Consumer-Led Recovery on page C1 of the WSJ.
Also good to note that Rosie is focusing on commercial real estate once again.
The [mortgage delinquency] problem has also spread more visibly to the commercial real estate market, where the default rate is set to hit a seven-year high of 4.20% by the end of the second quarter, from 2.25% at the end of March. Along with credit cards — the delinquency rate at 1.32% in Q1, up from 1.19% a year ago — this is not only the next shoe to drop but is a shoe that is already dropping (more than $300 billion of commercial mortgages have to be refinanced this year).
No facts, however, can curb the ceaseless programs buying and selling shares here and there with no noticeable pattern except for that embedded in over 2,600 cores by some semi-inebriated signal programmer at 3 am on a cold winter night, (visibility into what is going on in dark pools is limited from the Paper Street HQ) as cash traders have extended their siesta from 10 am until 3 pm. Sphere: Related Content
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