John At The Center

Some have argued that stocks are cheap because S&P dividend yields are higher than Treasury yields.

That presupposes dividend stay at present levels or increase

http://www.nakedcapitalism.com/2008/11/kiss-those-dividends-goodbye.html

Pretty good read.  Here are some excerpts:

More than half of homes with defaulted mortgages are beyond the reach of these [mortgage modification] programs, because they are owned by investors, not occupants…

Subsidizing defaults will do some additional damage, as a good policy would discourage defaults, not subsidize them.

Another questionable policy is a moratorium on foreclosures.

[Tax cuts and infrastructure spending] have the defect of failing to concentrate their effects when most needed, in the coming six months.

Combining their portfolios and MBSs, the [Frannie] stand behind $5.6 trillion in mortgages.

If capitalism could not solve this general type of problem, capitalism would not be viable. While there does appear to be irresponsibility at nearly all levels of the subprime mess, similar chains of responsibility in the prime mortgage market were present since the creation of Ginnie Mae in 1968, and have operated successfully. The subprime failure is unique.

As in the 1990s, when critics thought the Fed should compromise inflation performance by discouraging the stock-market boom, it has become virtually a consensus that the Fed made a huge mistake by stimulating a housing boom with its policy of low interest rates. In our view, this consensus is badly mistaken: Had the Fed pursued a high-interest policy in the late 1990s to cool off the stock market, deflation would certainly have occurred, creating a intractable problem. Similarly, the economy would have slipped into deflation in 2002 under a higher-interest policy attempting to head off a housing bubble.

Most experts believe that the cause of the financial crisis was the decline in value of mortgages and the claims on mortgages, MBSs and CDOs

As the crisis advanced, it became apparent that many financial institutions lacked not just liquidity, but capital.

A recent debate broke out between a group of Minneapolis economists (paper) and two groups of Boston economists (papers) about the behavior of bank lending to business. The middle ground seems to be that bank lending to business has grown normally during the crisis, but the composition of the lending has shifted—more occurs because businesses are drawing on previously established lines of credit and less from new lending relationships.

Many economists have become concerned that the Fed’s huge expansion of liquidity amounts to a monetary expansion that will lead to an explosion of inflation. We believe that this concern is totally misplaced

Many economists have become concerned that the Fed’s huge expansion of liquidity amounts to a monetary expansion that will lead to an explosion of inflation. We believe that this concern is totally misplaced,

The Outlook: Forecasters expect a substantial contraction of the economy in the current quarter, continuing less ferociously in the first half of 2009 (sources). Specifically, real GDP will decline by 2 to 4 percent at annual rates (that is to say, an actual decline of 0.5 to 1 percent) in the fourth quarter, with smaller declines in the first two quarters of 2009. Real GDP for all of 2009 is forecast to decline about one percent from its 2008 level. These forecasts would make the recession one of the worst since the Great Depression. The forecasts show a recovery beginning in the second half of 2009.

The crisis is a good time to stop this practice and recognize that Fannie and Freddie are part of the federal government.

the government may not ignore hedge funds. In our view, the best approach to this problem is on the bank side—banks should treat lending to hedge funds as risky and hold substantial capital against the lending.

In retrospect, because AIG was insuring regulated banks and was critical to their satisfaction of their risk-based capital requirements, the government should have imposed capital requirements on AIG, just as other regulators required the company to hold substantial capital against its other insurance commitments.

Robert Hall, chairman of the Business-Cycle Dating Committee:  of the National Bureau of Economic Research:

The first author is chairman of the committee at the National Bureau of Economic Research that identifies the month when a recession began. The committee has not yet acted, but only because of some puzzles about the timing. A recession is definitely underway, in the authors’ opinion and that of virtually all macroeconomists.

…

The committee has not yet acted, but only because of some puzzles about the timing.

PDF

It could simply be that the two markets, nominal and real government securities, are segmented, telling us little about expected inflation. There has been a great deal of demand for nominal Treasuries (more on the short end but also on the longer end, and don’t get me started on 30-year Treasuries), so the spread could simply be due to the drop in nominal yields and an increase in real yields.

http://www.economist.com/blogs/freeexchange/2008/11/whats_the_matter_with_tips_the.cfm

Does Christina Romer believe fiscal policy won’t work to cure a recession? (No, she doesn’t)

http://economistsview.typepad.com/economistsview/2008/11/is-fiscal-polic.html

Johm Hempton disagrees with me and others that the problem in financial markets is fundamentally one of solvency, i.e. lack of adequate bank capital. He says it is a matter of trust, trust that was destroyed by lies and deceptive practices among other things. If he is right, bank recapitalization alone will not bring back the trust that is needed

http://economistsview.typepad.com/economistsview/2008/11/how-to-design-a.html

“While hedge funds are not in a great position to put money to work at this juncture,” the firm said, “they most likely would try to participate to limit annual losses and possibly retain other investors who are on the fence about reallocating capital.”

http://online.wsj.com/article/SB122730681869649181.html

Banks are different. Their health affects every sector of the economy, and there’s now widespread, if not universal, agreement among economists that a breakdown of financial intermediation–a.k.a. banking–was the main cause of the Great Depression.

http://curiouscapitalist.blogs.time.com/2008/11/24/why-are-we-so-mean-to-the-car-companies-and-nice-to-the-banks/

In a deflationary world, standard 10-year Treasurys will outperform TIPS because their coupon payment — the semiannual interest payment — is higher at 3.5% vs. 1.625% for TIPS, meaning Treasury buyers receive a bigger income stream at a time when that stream buys increasing amounts of goods and services.

But held to maturity, the bonds offer nearly identical yields.

http://online.wsj.com/article/SB122748080921451591.html?mod=googlenews_wsj

According to InsiderScore, “insiders are more bullish now than at any time since the two weeks immediately following the Black Monday market crash of October 1987“:

http://www.tradersnarrative.com/corporate-insiders-in-buying-frenzy-2096.html