News that Moves: GM Bankruptcy & Obama Comments, Fed Mortgage Efforts, California’s ‘A’ rating in question

Securitization is like fertilizer. You can grow tomatoes or blow up buildings.

-Simon Mikhailovich

RCM Comment: The government sponsored bankruptcy of GM goes into effect today. President Obama tried to give an encouraging speech this morning from the White House stressing his desire not to run a car company. He tried to make it clear that government ownership of corporations was not the goal. As Shakespeare would say, “The lady doth protest too much, me thinks.” – Hamlet (III, ii, 239)

US treasury bond prices plummet (yields rise), the US$ continues to sell off vs. a basket of currencies, oil up another 3%; the markets are speaking and they don’t like this fiscal irresponsibility.

Food for thought that may have salmonella: The government sponsored programs’ total cost to date equal more than 18% of GDP. This is a gargantuan number. To put it into perspective, during the entire depression of the 1930s the government programs’ cost totaled just 7% of GDP. Gold rallied $100 in the month of May, oil up 25% — that roar you hear is the wave of hyperinflation headed our way.

RCM Comment: When governments interfere with business this is usually the result…
Fed mortgage efforts prove costlyWSJ
WSJ reports the U.S. Federal Reserve’s program to keep mortgage rates low by buying securities and Treasury bonds so far has been costly and seems to be having a fleeting impact. An analysis of the timing of the Fed’s purchases of mortgage-backed securities by J.P. Morgan Chase shows the Fed is “under water” on its portfolio by about 10%, and it would have to take about $5 billion in losses if it were to mark its portfolio to the market. The Fed has spent about $2,500 per borrower, by J.P. Morgan’s analysis — more than it costs a typical mortgage borrower to refinance their debt. Higher fees and adjustments based on a borrower’s credit score or home’s value have been an impediment to borrowers looking to refinance a mortgage, damping the refinancing wave the Fed hoped for, analysts say.


RCM Comment: This is just the beginning, other states to surely follow…
Fitch revises to negative the outlook of the state of California’s ‘A’ rating
Fitch Ratings affirms the ‘A’ long-term general obligation (GO) bond rating on the State of California and revises the Rating Outlook to Negative from Stable. The revision in the Outlook to Negative also applies to the state’s GO Veterans, economic recovery, and other bonds tied to the general credit of the state. The state’s long-term ‘A’ rating is based on its broad economy and a moderate, though growing, debt burden. However, California’s ‘A’ rating is the lowest among U.S. states, due to its revenue volatility and the fiscal inflexibility posed by voter initiatives. The revision of the Outlook to Negative reflects growing concerns with the state’s widening budget and cash flow deficits….

About Bret Rosenthal

Interpreting the news that moves markets. Principal of RCM, LLC, and founding partner of the Fortune's Favor Family of Funds
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2 Responses to News that Moves: GM Bankruptcy & Obama Comments, Fed Mortgage Efforts, California’s ‘A’ rating in question

  1. Pingback: America’s Economy Needs to Find Its Bottom before Regaining Sobriety – Obama – The BOPAC Report « “The BOPAC Report” & Larry Sinclair’s Allegations – ZachJonesIsHome

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