How Bad Are Things Right Now?
Mar 8, 2009
Posted by Jody Eisenman | Filed under Uncategorized
President Obama gave a sound bite in Columbus, where he boasted of helping 25 new cops get hired due to his stimulus bill. Meanwhile, nationwide unemployment is soaring, and has now reached 8.1% officially. This is a jump of .5% in a month, or roughly 650,000 jobs. At this rate, we could hit 10% by the summer. With many potential bankruptcies on the horizon, I would think that 10% is quite likely. In Canton, there were over 700 applicants for a janitor’s position in a school. But hey, there are 25 new cops in Columbus.
– The real estate industry is getting crushed. As jobs disappear, consumer spending drops, and retailers are suffering. Some of the more prominent names to file in the last few months include The Sharper Image, Lillian Vernon, Bombay, Levitz, Fortunoffs and Wickes. As the retailers fail and close stores, the mall owners are feeling the pinch. These mall owners have billions cumulatively in debt that must either be repaid or refinanced. Either possibility would seem very risky today.
-According to the Wall Street Journal, many large banks got a total of $50 billion in the AIG bailout. The reason for this is that AIG still has many Credit Default Swaps (CDS) on real estate investments (CDOs and the like) that are owned by these banks. Should AIG default, these banks would be naked. In other words, a Chapter 11 filing without the government assuming these high risk liabilities could doom the counter parties, i.e. the banks.
– Speaking of CDS, according to a report from CNN, GE would have to come up with substantially more capital in case the ratings agencies decide to downgrade their credit rating. I think its’ rather ridiculous that GE still has a AAA rating, and its’ more than likely they will be downgraded this month. The question is just how far they will go. As I stated earlier this week, GE’s bonds are trading like junk paper in the market.
I continue to expect volatility in the markets. After a poor week, the Dow managed to eek out a 32 point gain with a late surge on Friday. All told, the DJIA lost over 6% for the week, almost 25% for the year to date. Despite this, the VIX is still at around 49, far below the panic levels of 80 back in November. This means that the implied volatility still may not have peaked, meaning the bottom could still be a way off. Then again, no rules seem to apply anymore, so anything is possible.
