Interest Rate Roundup

Thursday, August 16, 2007

Crazy busy ... thoughts on housing starts ... and more

I am busy ... crazy busy ... this week, with everything that's going on in the markets. That's why I haven't been able to post as much as I might like. A couple quick thoughts:

* First, the mortgage credit problems felled the small lenders. Now, those problems are spreading up the food chain. Here are a couple of stories (Reuters, AP) on what's happening at Countrywide Financial, the biggest mortgage lender in the U.S.

* The latest batch of housing data -- on July starts and building permits -- was ugly. Starts dropped 6.1% to a seasonally adjusted annual rate of 1.381 million from 1.47 million in June. Building permit issuance fell 2.8% to a 1.373 million SAAR from 1.413 million. Economists polled by Bloomberg expected starts and permits to both come in at 1.4 million.

Starts haven't been this low since January 1997, while permits haven't been this low since October 1996. The chart above shows just how severe this decline is when compared to what we saw in the early 1980s and early 1990s.

* The Japanese yen, a key measure of greed and fear, is soaring. That's a sign of wholesale panic ... and the unwinding of the so-called "yen carry trade." This Bloomberg story has more on the topic.

* I said that I'd be closely watching volatility gauges like the VXO to determine when the worst of the selling squall was over. Needless to say, these gauges continue to rise -- implying the worst of the turmoil could still be ahead of us.


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