by Jerome a Paris
Fri May 9th, 2008 at 02:13:22 AM EST
The eagerness over the past few days by pundits and financiers to call the financial crisis essentially over has been quite remarkable. I've been collecting articles all saying the same thing and have selected a few here.
A LOT of heavy-hitters have spoken in almost identical terms on the topic:
Paulson sees end of credit crunch
US Treasury Secretary Henry Paulson has said that the worst of the credit crunch may have passed.
Financial crisis mostly over, Dimon says
WASHINGTON (MarketWatch) -- The financial crisis that began last summer and rocked markets is mostly over, the chief executive of JPMorganChase & Co. said Thursday. "I look at it as like 75-85% done," said CEO Jamie Dimon.
Worst of US credit crisis over but economy to remain weak
SINGAPORE : John Thain, the newly-installed chief executive of US investment bank Merrill Lynch, has lent his voice to the view that the worst of the US credit crunch is over.
Several prominent people, including well-known investor Warren Buffet, have said over the last few days that the credit crisis in the US has eased.
Greenspan says worst of credit crisis over
(Reuters)--Former Federal Reserve Chairman Alan Greenspan said on Thursday that the worst of the credit crisis is over, according to sources who attended a speech he delivered in New York.
Paulson, Greenspan, Buffett, the CEOs of major banks - that's a lot of firepower in just a few days to say that things are all fine and dandy. And it has been accompanied by similar articles from known or unknown pundits, further solidifying the common wisdom:
The Housing Crisis Is Over
The dire headlines coming fast and furious in the financial and popular press suggest that the housing crisis is intensifying. Yet it is very likely that April 2008 will mark the bottom of the U.S. housing market. Yes, the housing market is bottoming right now.
Buy as bankers move from denial to depression
The Kübler-Ross thesis describes successive stages of denial, anger, negotiation, depression and acceptance. From banks, we have seen the phases of denial and anger. Denial that things were really serious. Anger that the authorities had not acted promptly enough to bail the industry out.
But those days seem to be over.
You even get oil price increases spun as good news, as they are apparently a sign that traders now believe in the resiliency of the US economy, ie leading to stronger gas demand.
So what's up??
As usual, the reality is in the fine print, present in most of these articles:
Pauslon
However, he acknowledged that the US economy was still facing tough times as people coped with soaring petrol prices and a weak job market.
(...)
"Later this year, I expect growth will pick up."
Thain
But like Warren Buffet, Mr Thain believes that the US economy as a whole continues to be in a poor shape.
(...)
But I'm still concerned about the US economy overall.
"I'm concerned that the impact of falling home prices, rising energy prices, rising food prices, rising unemployment - all (of these) will have a negative impact on the consumer, and that will be a drag on the US economy going forward."
Greenspan
Greenspan also said house prices still had a long way to fall and that it was unlikely they would stabilize by year-end, according to meeting attendees who provided Reuters details of the speech at the Alternative Public Strategies Conference.
(...)
The attendees, who declined to be identified by name, said Greenspan mentioned that U.S. growth was likely to be sluggish for an extended period of time and that a so-called doomsday scenario was unlikely to materialize.
Housing market optimist
Inventories will drop even faster to 400,000 - or seven months of supply - by the end of 2008. This shift in inventories will have a significant impact on prices, although house prices won't stop falling entirely until inventories reach five months of supply sometime in 2009. A five-month supply has historically signaled tightness in the housing market.
So, to be clear: financial markets are no longer in meltdown mode. The Bear Stearns bailout has been interpreted as both the bottom of the crisis, and a sign that authorities will do whatever it takes to bail out the sector. Financiers are no longer panicking, and think they have discounted the worst of the crisis now.
Which doesn't mean that such worst has already happened - just that financiers think they have the corresponding losses covered in their books. The losses are still due - they just won't be unexpected - what will drive the markets now is only the differential, if any, between the somewhat negative predictions they have made and the reality as it unfolds.
But that reality - housing prices falling for at least another year, growth stagnating for a while, joblessness and bankruptcies increasing - is still ahead.
It's just been discounted. Which is cool.
Except, of course, if you cling to the (Deeply Unserious) notion that the biggest bubble in history is unlikely to be followed by anything but the biggest bust in history, and the worst headache in history.
Or if you think that the current crisis, which occurred in the supposedly most benign economic conditions in years (with record growth, profits and corporate strength), is unlikely to stop as the economic outlook worsens, and companies fire workers or go bankrupt.
Or if you think that, given the housing market situation, people will stop having negative savings rate and will start tightening their belts a bit to build back the cushion no longer provided by their houses.
Or if you think that oil and commodity prices are no longer determined purely by the economic outlook of the US or Europe, and are on a long term upwards trend, which will further bite into consumers' spending capacity.
But hey, all these top bankers and policy makers tell us (and the media dutifully make the relevant headlines) that it's alright, so it must be...
