Daily Market Commentary
February 22, 2008
Yesterday's mid-day Philadelphia Fed index was a terrible print. The Philly Fed is a survey of the business outlook from the Federal Reserve Bank of Philadelphia. Where 0 is the boom/bust line, we printed at -24, the worst number since 2001 (where it was negative for the whole year). It's interesting to note that in 2000 the index was hovering around and just below 10 before plunging deep into the negative, just like it has done recently.
This got the curiosity running so we compared all the business survey and purchasing manager surveys so see which are looking negative. Out of the six we looked at (ISM Manufacturing, ISM non-manufacturing, Milwaukee Fed, Chicago PMI, Philly Fed and Empire Manufacturing) 2 are below their boom/bust level, two are right on the line, and two are slightly positive. Check out ideaShare for more details.
Washington Mutual reportedly has given up trying to foreclose on a $1.5M mortgage in Florida, as they can't prove they own the mortgage, and nobody kept the paperwork! Nobody can produce the documents, so the house cannot be foreclosed. As an investor, this is HORRIFYING. WaMu and the other securitizers are charged with maintaining the mortgages for the Mortgage Backed Bond holders (one of the reasons that MBS ratings are based on the assets they hold AND the credit worthiness of the mortgage trustee). No matter how many times a mortgage gets securitized and repackaged, the trustee should remain the same and maintain the note. Their failure to do this means the value of the mortgage to the investor is essentially zero, as they can't even recover the property value. As a homeowner, I will now go home and shred my mortgage paperwork.
MBIA CEO Jay Brown says the insurer needs to split into a stable muni insurer and a very unstable ABS insurers. We've heard a lot of this type of "fix" lately. Creating a "super SIV", restructuring note terms, splitting insurers into junk and non-junk... the list seems to go on forever. We're not sure why so much time is spent on this, aside from protecting the municipal market (which we would argue needs little help outside of the tax exempt status it already enjoys). You can come up with as many ideas as you want to carve out the junk, but in the end, sending the lepers to a leper colony doesn't cure them. These assets are still impaired no matter who you stick them with.
Canada's Retail Sales were lower than expected this morning, sending the loonie lower. Ex-autos, retail sales actually dropped 0.4% (when a gain of 0.4% was expected).
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