This is the peak of the stimulus...
Whatever money that has been made available has been spent...
* The "quantitative easing" performed with $300B of Fed spending will end in October. Will 10y Treasury Rates (which dictate mortgage rates offered by lenders) stay low???
* Over $800B of the $1.25T of mortgage debt to be bought this year has already been purchased to lubricate the housing market. Has housing bottomed???
* 3/4 of the $232 tax cut of the Obama administration has been doled out to the American consumer. Has retail rebounded???
* 1/2 of the $550B in "shovel ready projects" have been paid out
Banks have made their bed...
* Banks are expected to write off another $1T by the end of 2010
* The accounting rule grace period has ended and banks will need to bring $700B of off balance sheet assets on balance sheet
* The banks have paid back the TARP explaining that they are not in need of assistence. Can they go back to the government for another loan if the writedowns are enforced by conscientious auditors? What do you think the regulators will do this time when they come in for money? I think there will be at least one "accelerated wind down" scenario to play out.
* The banks paid back TARP, not because they want more freedom to lend to business in this difficult economic period, but instead because they wanted to freedom to curtail lending and preserve capital during this tough period.
* A non-TARP company loves to see a TARP trapped bank oblige the government and give out loans to the broader market because it means distressed assets to buy at a discount with less hassle later.
* The foreclosure moratoriums have all expired and all the mortgage modification programs have expended tremendous amounts of effort to offer reprieve to the overextended to minimal effect
* A wall of unprocessed foreclosures are mounting and the forecasted peak of homeowners entering the foreclosure process has not even topped out
Obama is facing a challenge to prove his metal...
* What more can Obama do? Better yet, what more can Obama and Congress push through without a revolt? Obama has already moved the public opinion needle from "Fearless change agent" to "Soft on big business". It would be a popularity killer to let opinion turn even further to point to "In Pocket".
"...mortgage rates are very dependent on the Fed's purchases of $300 billion in Treasury debt that will expire in October and $1.25 trillion in mortgage bond purchases that will expire at year-end. Unless the economy stumbles, we're likely to see higher rates in the fourth quarter."
Government orgs to keep housing afloat are reaching limits
* Fannie and Freddie have a mandate to wind down operations
* FHA has so many deliquent loans that it will not achieve the federally mandated 2% capitalization requirement and thus will require a bailout
So what does this mean...
...it is all downhill from here...
The author is long SDS at $44.5.