Subprime Blues

Quick post here.

I just want to point out that in the Fed’s Senior Loan Officer Survey 66 out of 70 banks reported they are no longer even originating sub prime loans.  That’s a whopping  94%.  In comparison 40% responded they are easing credit standards for prime loans.  What does all this suggest?  Well that banks have very little confidence in anyone but the very top of the economic food chain.  So much for looking to housing to boost consumption through the ‘wealth effect’.  Not only does housing not create a wealth effect today (as discussed in an earlier post – “Caution Correlation Breakdown”) but even if it did, when one cannot buy a home one cannot feel wealthy from it.

Again geopolitics can slow a bull market but geopolitical situations are temporary.  Temporary events do not sustain a bear.  If you really feel this sell off is geopolitics than you should be buying everything you can get your hands on.  However, if you believe there is more going on below the surface (as banks obviously do) then simply geopolitics, and I’m certainly in this camp, I would suggest letting the knife hit the ground before picking it up.