Not Good
By: Mark W Adams

Most of you know that Duncan Black. PhD. (aka Atrios at Eschaton) is a full fledged Doctor of Economics. He's been saying, "WHEEEEEEEEEEEEEEEEEEE" way too much lately, and he's not gloating over George Bush's approval numbers.

If Ambac and MBIA lose their top ratings, billions of dollars of muni bonds will be downgraded, and the guarantees that have been sold on mortgage-related securities such as collateralized debt obligations, or CDOs, will lose value.
"The destruction of the bond insurers would likely bring write-downs at major banks and financial institutions that would put current write-downs to shame," Tamara Kravec, an analyst at Banc of America Securities, wrote in a note Friday.
Kravec cut her rating on Ambac and MBIA on Friday because she thinks that ratings downgrades are "highly probable" now.
And Ambac is downgraded.
While he doesn't go as far as Mort Zuckerman, who's been worried for a while and repeated his warning on the McLaughlin Group today by predicting that we are going head on into the worst recession since the Great Depression and will last over a year, housing taking several years to recover -- but I doubt if Duncan would disagree.

Hale "Bonddad" Stewart is much more analytical than Duncan's blogish entertainment, and less shrill than anyone on the McLaughlin shout-fest. In fact, he's quite the internet guru on all things economic. Bondad has a knack for explaining the economy in basic English, complete with charts and graphs that I never can grasp except their steady drop-off to the right.

Here, he cuts to the chase.

So, the basic overall economy situation is not good.

  • The employment report indicates that employment growth is slowing. This indicates businesses are not confident about the future.
  • Christmas sales were OK, but not great.
  • The consumer is hemmed in by rising oil and food prices
  • The Federal Reserve is hemmed in by high gas and food prices.
  • The financial sector is still dealing with the fallout of the sub-prime mortgage mess and probably will be for the foreseeable future

In short, things do not look good right now.

I don't know, but maybe Atrios does have the best advice. Just hang on baby, cuz the ride is going to get bumpy.

(But don't worry, I'm sure they'll figure out a way to blame this all on the Clintons.)

1 Comment:

G. A. Roach said...

This is in-line with an insiders report from George Freidlander, a Citi Bond Guru. The Recession is already taking place; it's the stagflation that hurts!