In the Belly of the Beast

I'm feeling a bit vulnerable here in the belly of the Beast aka Manhattan - no defenses or personal protection devices except my boxing and self-defense skills. I expected to see droves of zombies walking around with vacant stares wearing scars of subprime defaults and other doom and gloom. Instead, the streets are crammed with shoppers - many from overseas, yes. And the New York Athletic Club where I stay is still having many parties and events.

Gosh, maybe the world is not ending.

The Apple store on Fifth Avenue was packed at 3:30 PM - long, but organized checkout lines. Those stores are so well run - plenty of people around to ask for help and they are very knowledgeable.

I heard on Babblevision - golly that is so depressing nowadays with their endless fear and crisis mongering - that Moody's was downgrading some SIVs. That's all they said. So reading the WSJ this morning I spied a vital fact. "Moody's said it wasn't taking the ratings actions because of quality of the assets themselves. Instead, Moody's said the SIVs problems stemmed from the drop in the market value of the assets the SIVs own as investors shun those investments amid the credit crunch."

So the underlying assets are not showing sufficient defaults to impair expectations of full and timely recovery of interest and principal even under today's known stressed environment. That just sums up the situation - it's fear, not reality, causing the considerable drop in "market value" of these highly rated securities. Paraphrasing Clara Peller of "Where's the Beef" fame,

Where are the defaults?

I've worked with Moody's, S&P and Fitch in the past and I have a lot of respect for their intellectual and analytic abilities. They are not perfect and make errors. But AAA securities have defaulted in the past, viz, I remember Texaco defaulting due to the Pennzoil judgement. Nowadays, everyone is bemoaning that securities originally rated BBB- will default. Sheesh, statistically quite a few of those are EXPECTED to default over their lifetime.

So if unexpected waves of defaults were showing up in the trustee reports of structured securities - they are highlighted in those, by the way - it would be known and quickly reflected in ratings IF they were beyond the expected stressed levels for the ratings. That is particularly true now when so much attention is focused on these.

I heard this AM that Costco same stores sales were up 9%. Where's the consumer stress?

Where's the recession?

Phooey! This is Rich Man's Panic, round 3 or 4 - I'm losing count. This is getting boring.