Checking on TED

The TED Spread has calmed down. It now sits at about 25 basis points (bps), well below the 100 bps level that triggers alarm in the credit markets, and miles below the 500 basis points that it was a year ago.

I keep hearing people talk about hitting the bottom of this recession, and the bounce back that is happening. Fortunately, here in Austin, Texas, things never got as bad as they did in other parts of the country, like Detroit, or other parts of the world, like Iceland. I guess all economies, like politics, are local. Except when they're global.

As we near the end of the 2009 Atlantic hurricane season, it's hard to know if the storm has blown over, or if we're just sitting in the eye. As I wrote in this post, I keep thinking that confidence has a lot to do with our situation. If people feel like we are in a crisis, we will act like it, which will hasten the crisis, and a vicious circle begins. If we don't, then consumer spending and reasonable saving will continue, and we will avoid, or at least postpone, a crisis.

Either way, there are some fundamental personal risk management strategies we should all consider, such as eliminating all consumer debt, securing a long-term mortgage at a low fixed rate (a great hedge against inflation or hyperinflation), reasonable, though not excessive, cash reserves, retirement funds largely invested in Treasury issued Inflation Protected bonds (TIPS), and perhaps a modest amount in private equities, like stocks. The very best investment, though, is investment in our own personal health and knowledge, so that we can roll with the punches, adapt to whatever becomes the new working environment, and be happy doing it until we keel over, if need be, because there may be no such thing as "retirement" anymore, if the second wave of the storm is lurking.

Hello, Goodbye

We finally closed on the sale of our old home, and concurrently closed on the purchase of our new one. It took 8 weeks and 11 weeks, respectively, after approval. This was one of those Scenes from the Recession moments. Well, not moments- more like months. And we were the lucky ones.

Our old home was beautiful, less than 5 years old, and sitting on a half-acre, less than 15 minutes from downtown Austin, one of the hottest metros in the country. We listed it on the MLS through one of those DIY, flat-fee listing services, and it took four months to get an offer, more than double the "average" time on market (at least in days past; the average is skewing longer now). Our home was custom-built, weird configuration, so there were not any real comps, which contributed to the longer time on market. But, after the offer, it still took TWO MONTHS to close, and that despite the fact that our buyers had 10% down, strong credit, and affluent co-signers (their parents, who run successful businesses).

The closing kept getting pushed back due to piddly demands from lenders to produce this documentation or that documentation, then rejecting the loan at the last minute, forcing the lenders to shop at multiple lenders for the loan, after having been pre-approved.

"This is normal," their agent explained to us, wearily. "The housing market is fine here in Austin," he said. "But nobody can get loans." So supply is high, and demand is high, but the loans are scarce. Houses are sitting longer on the market, simply because lenders are too nervous to turn loose of the money to anyone but the highest-quality buyers, on the best-quality homes.

After breathing a sigh of relief when our deal finally closed, we then faced the exact same problem for the house we were buying: we had been pre-approved long ago, had 20% cash down payment, no debt (literally), good savings, and plenty of income. What's more, our house was a steal, a foreclosure flip that we had been pursuing for months. Because ours had liens against it, we had to wait to close, but even then, the date kept getting pushed back due to underwriting nit-picking.

It's good that lenders are being more careful, and it's good that loan money is flowing, even if it takes a lot longer to turn on the spigot. But had we not been in such a good financial position, carrying two mortgages for a few months could have been financial death. For sellers who are relocating for their job, carrying two mortgages is common.

So what has been the real-world effect of bank bailouts? Maybe I should have applied for my loan at Bank of Curtis.

New year, new hope... uh, right?

I took a hiatus from all the depressing financial news that I was hearing and promulgating on this blog, hoping that the Christmas spirit, Obama's inauguration, and a little time would help us crawl out of our economic hole.

Not so much.

I mean, the weird thing is that some economic indicators, like the TED spread, and commercial paper (very, very short-term loans to businesses) are starting to look more favorable lately. In Austin, even the housing market is fairly strong, at least for used houses. But other events point in the opposite direction:

• foreclosures in the prime California market are up 81% from last year, 225% from 2006;
• major employers are shedding jobs (this is an international phenomenon);
• shipping rates are zero!

I am not exactly sure what to make of this, but I continue to be amazed by the number of people who claim each week that we have "officially hit bottom". I think we're a long way from bottom.

But that does not mean that I am hopeless or depressed. Just realistic. And despite everything, cautiously optimistic.