The current focus is on the class of 2005. The delinquency rate has been flat for four months at an elevated 30% of loans made that year, but it's not getting worse. The past years when standards were more rigorous showed the same timing pattern. That is, three years into the seasoning, delinquencies seem to be peaking. If the timing holds, we can at least start to size the potential writeoffs with some arithmetic certainty. And while the numbers are bad, Wall Street can deal with bad, as long as it's certain. Much more to come, but it's at least a sign that the subprime problem is becoming more understandable.
There were a couple of articles in the WSJ that give hope the European Central Bank might be forced to consider a cut in interest rates, which would help our weak (but improving) dollar. The Euro zone, says the Journal, is experiencing slower growth and a lower rate of inflation. The President of the European Central Bank, Jean-Claude Trichet, speaks this Thursday, and we might get some direction then.
What he has to address is the slowing manufacturing outlook in the southern economies, especially Spain and Italy, and the barely breakeven levels of activity in France. March retail sales fell in Germany and the London Telegraph reports one-third of Germans surveyed want to ditch the Euro and bring the deutschmark back. The Telegraph also reports property values, which have fallen in Ireland, Spain and Italy, are declining in Germany.
I'm guessing the dollar is ripe for a rally, and the ECB could help the process.
Market Commentary Getting a Proper Read on the Jobs Number 5/2/2008 4:50 PM EDT The report came in better than expected, but it shouldn't have been a complete surprise.
Market Commentary Five-Day Forecast: Cisco Rides Again 5/2/2008 3:44 PM EDT Also, a gold rebound could make Barrick jump, and RF faces tough expectations.
Vincent Farrell Jr. is a principal of Scotsman Capital Management. Prior to joining Scotsman in April 2005, Farrell was chairman of Victory Capital Management of Cleveland and chairman of Victory SBSF Capital Management in New York. He was a founding partner of Spears Benzak Salomon & Farrell, which was acquired by KeyCorp in 1995. Vince held a variety of positions in his 23 years at SBSF, including chief investment officer, and he served as the portfolio manager on a number of the firm's largest client relationships. He is a regular guest on CNBC as well as other national print and broadcast media.
Prior to joining SBSF, Vince spent nine years at Smith Barney as a vice president, sales.
Vince graduated from Princeton University in 1969 and received his MBA from the Iona College Graduate School of Business in 1972.
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