This blog post originally appeared on RealMoney Silver on July 9 at 7:50 a.m. EDT.
Three blind mice. Three blind mice.
See how they run. See how they run.
They all ran after the farmer's wife.
She cut off their tails with a carving knife.
Did you ever see such a thing in your life
As three blind mice?-- Thomas Ravenscroft (1609)
Yesterday, OFHEO's James Lockhart, the
Ben Bernanke, the Treasury Department's Henry Paulson and
Jamie Dimon chimed in. The good news is that Tuesday's surge in U.S. equity prices (especially of a financial kind) is an indication that investors will rejoice at the slightest provocation and that, maybe, stocks have discounted most of the poor credit and economic backdrop. The bad news is that the interviews and speeches (summarized below) were generally geared toward the intermediate term, are too little and too late and will do nothing to materially improve the housing markets (i.e., ground zero of our financial problems) nor will the recommendations change the slope of the domestic economy, improve the state of the credit cycle or lower oil prices.
- OFHEO'S Lockhart said that the government-sponsored agencies -- Fannie Mae (FNM) and Freddie Mac (FRE) -- are adequately capitalized and that FAS 140 should not pressure the companies to raise capital. I have been short both stocks for over a year and will remain so as the capital needs/requirements away from FAS 140 might be almost insurmountable, leaving equity shareholders with little consolation and not much equity.
- Bernanke suggested that the window for Wall Street might be extended into next year and addressed the need for new rules governing mortgage lending. But, with the abusive, low- or non-documented lending horse already out of the barn, this will do little to stem the rise in delinquencies and foreclosures, and a housing recovery now appears to be delayed until 2010.
- Paulson addressed the need for long-term financial reform. Again, it's too late for this; the problems need more immediate attention.
- JPMorgan's Dimon gave a perspective on the credit cycle, which was not news to anyone, and continued -- à la Lehman Brothers' (LEH) former CFO -- to blame short sellers for the demise of Bear Stearns. His speech was roundly cheered in the media, for no apparent reason -- with the exception of CNBC's Charlie Gasparino, who was justifiably critical and continues to stay independent, objective and above the cheerleading.
Stated simply, there continues to be a need for several proactive Marshall Plans to turn around the beleaguered housing market and to decrease our dependence on foreign oil. Here is Boone Pickens'
on the subject in today's
Wall Street Journal
Until (or unless) these issues are addressed -- to date, neither Presidential candidate has done so -- and the housing markets are stabilized and the stranglehold of high oil prices is reversed, the upside to equities will remain muted.
Doug Kass writes daily for
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At the time of publication, Kass and/or his funds were short Fannie Mae and Freddie Mac, although holdings can change at any time.
Doug Kass is founder and president of Seabreeze Partners Management, Inc., and the general partner and investment manager of Seabreeze Partners Short LP and Seabreeze Partners Short Offshore Fund, Ltd.