Today is the magnificent celebration of the birth of a giant walking the earth, my mother, Lelda Will. Congratulations and Happy Birthday to a mother who was born to be a mother first and foremost, to the most resilient person I've ever known or will know, the most inspiring person one could ever hope to know, and on top of that and in large part because of all that... the very best business partner I could have ever imagined and had the great fortune to join in a common journey together, each day of which I will never regret and always cherish. I love you, Mom. Happy Birthday.  -Nick Will

We're going live! After over FOUR MONTHS of planning, from design, to content, to really easy to use new features to help buyers search and sellers sell, to new ways of featuring our listings and featuring our agents as we prepare to launch a full-on agency, to industry-leading training and support for agents on the log-in private intranet site, it's happening as we speak. The team of designers and project managers in California who've been working closely with our office to build the new site are in the process of moving the new site from its staging area to the actual domain willandwill.com to replace this site. We couldn't be more thrilled to share it with the world, and as time goes on, you'll continue to see new content and features built out and added to the new site, which you'll be seeing right here at willandwill.com very soon...

We're excited to announce that within the next couple of weeks, Will & Will Real Estate Brokers will be launching a new, custom website that will have new features to better support our visitors, our clients, and our agents. You can expect an even easier & faster layout, even better presentation of our own featured listings, more frequent blogging, multi-media content, an easier way to search the entire Houston MLS than anywhere else, many seller and buyer resources - and our current and future agents will find a wealth of new support services on the back-end. New content on this site will be limited to our listing clients until the brand new site is launched. The address will stay the same, willandwill.com. We can hardly wait to show you!

Okay so I'm remiss not to have posted in almost a month, but frankly not a lot has changed - we're still on a bumpy path sideways, and that's to be expected. It fits the fundamentals and the fundamentals, while they could have shifted, they haven't. There's nothing really new going on, and that includes continued volatility from which everyone should be making money, upward and downward.

Yesterday, September 6th, everyone was freaking out about uncertainty in Europe. Today Germany's courts have approved a system wherein Germany can participate more freely in EU bailouts (hello Greece). But has there ever been doubt that a bailout or series of bailouts are going to happen? Is there doubt that there will be some kind of managed Greek default? How substantially different are those things? These are questions answerable a month ago. From Reuters:

European stocks bounced back from a two-year low after the court rejected lawsuits aimed at blocking the country's participation in aid to Greece and other nations.

But the court said the government must first get approval from a parliamentary committee, which could further slow a response. The FTS Eurofirst 300 index of top European shares increased 2.8 percent.

Blah blah blah. In terms of crisis management, this is a big "Duh!" moment. And it moves markets. The key to crisis management is bringing stability. It never comes fast enough. But the pursuit of stability creates an atmosphere of predictability.

This is what sideways feels like. We dive onto the banana slide in the back yard and tumble off the end into the grass. Our knees hurt and we don't go back to the line to do it again. Then the sting wears down, the water is spraying, everyone's having a good time, and we throw ourselves down onto the banana slide again... rinse repeat... rinse repeat...

France has a AAA credit rating from S&P, though it too is threatened by S&P. What other countries does S&P believe deserve a higher credit rating than The United States?

AAA countries according to Standard & Poor’s:

Austrailia

Austria

Canada

Denmark

Finland

France

Germany

Guernsey

Hong Kong

Isle of Man

Liechtenstein

Luxembourg

Netherlands

Norway

Singapore

Sweden

Switzerland

United Kingdom

Really? Really. All of these countries have socialized medical care. And they still get AAA rating from S&P. More importantly, another thing most all of these countries have is a parliamentary system, in other words, no filibuster, and therefore true"majority rule." Gridlock not only is less likely, it's practically impossible since governing is by definition about forming 51% in government formation and in decisions. Again, no filibuster, no "pocket filibuster," no presumed filibuster or "holds" in the Senate requiring 60 votes on everything. Their fiscal battles are hard fought and the austerity measures being imposed in some of the Eurozone parliamentary countries including France are causing riots. But the work is getting done.

None of those countries have a "debt ceiling" law either. S&P, which are not political prognosticators and whose decision was primarily steeped in politics, cites mostly the political dynamics of The United States, not fundamental fiscal problems.

Some choice quotes:

The political brinksmanship of recent months highlights what we see as America's governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. ...

Our opinion is that elected officials remain wary of tackling the structural issues required to effectively address the rising U.S. public debt...burden in a manner consistent with a 'AAA' rating and with 'AAA' rated sovereign peers...

In our view, the difficulty in framing a consensus on fiscal policy weakens the government's ability to manage public finances and diverts attention from the debate over how to achieve more balanced and dynamic economic growth in an era of fiscal stringency and private-sector deleveraging...

And lest you think S&P wants all spending cuts, witness:

It appears that for now, new revenues have dropped down on the menu of policy options.

What else? Oh, part of their downgrade reasoning is because they now believe that Congress and the President have indicated by their actions that they will not allow The Bush Tax Cuts for the super wealthy to expire, thereby limiting the potential for signicantly higher revenue opportunity in the nation's finances. Clearly S&P knows basic finance: that tax cuts do not help deficits.

Compared with previous projections, our revised base case scenario now assumes that the 2001 and 2003 tax cuts, due to expire by the end of 2012, remain in place. We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act.

Finally, this basic Q&A about the situation from Reuters is something that both retail and advanced investors should review. Bottom line: while it brings some interesting analysis to the table, S&P made bad calculations, has lost all credibility as its function as a credit rating agency, and is now better suited to make commentary in the FT, WSJ, Reuters, Bloomberg and elsewhere as merely political prognosticators.

Smart investors don't give a flip about S&P. Why do we even have credit rating agencies? Must we really outsource our own thinking to some big company that overvalued the mortgage-backed securities that turned out to be worthless and led to the biggest recession since the Great Depression? Records show they didn't even understand what they were rating then. Why should we think it's any different now?

I don't think we should. The 10-Year Treasury is at c. 2.5%. The world is begging The United States to borrow and invest in its economic recovery. This isn't Europe. We're strong. And S&P a) is that stupid or corrupt, or b) has been set up, and definitely c) is nakedly political (if not partisan) in its analysis as a credit rating agency, which should measure only the probability of default. Today's action and their analysis is absurd.

Okay yeah I know what's going on today around the world and indicators etc. But there is no good fundamental reason for today's market sell-off. None. Nothing is different today substantially from yesterday or last week. Strong corporate earnings with generalized cautionary notes of total CYA for Q3, but still... Strong earnings. Corporate balance sheets with fat cash. 10-Yr Note at 2.46%. This is generalized fear with no basis. That equals opportunity.

Buy buy buy. Borrow borrow borrow.

It's all just a little bit of history repeating...........

 

We tend to have short historical memory. Ronald Reagan signed bills to raise the debt ceiling 18 times. George W. Bush did it at least 7 times. Typically, doing so is so routine -- and such an obvious need for the economy -- that the bill to do so is one page. And now we have this manufactured crisis.

Let's review: If the United States of America defaults on its loans or can't pay for all the things Congress has already approved for spending, then the world's investors will no longer see the U.S.A. as safe an investment as it has always been. Remember the 10-Year Treasury Bond is the gold standard of safe investments (see prior posts). If that happens, then investors will require a higher interest rate for the 10-Year Treasury. If that happens, because the 10-Year Treasury sets the floor for almost all other interest rates, we will see a rise in interest rates that businesses use (big and small) to finance their businesses and therefore will incur a manufactured "tax" on their loan interests. Consumers will see a rise in interest rates in credit card rates, car loan rates, and most devastating of all, mortgage rates. If you don't like tax hikes, you will abhor this.

Still, there is this manufactured crisis that is threatening to become all too real right now, forced by our politicians over something that should be routine. Should there be a debate and resolution about sustainable financing of the government? Of course. Should it be at the threat of the nation honoring it's debt obligations? Oh hell no.

The time for the honest debate has now passed. We can continue it, but we can't let the United States of America default on its debt obligations. The market plunged 200 points today in the Dow. It may be occurring to "serious smart" money that the adults in Washington DC are actually, possibly, not in charge. Still, though... this too shall pass.

We won WWII and our economy rebounded. We fought the USSR and won. We dealt with 911 and $2+ Trillion in historical tax cuts while fighting 2 simultaneous, rather ill-advised wars. We took a budget surplus in 2000 and turned it into a stupendous debt even before the economic crisis happened. The debt in January 2001 was "only" $5.6 Trillion.

Can this nation have been through so much, and done so much in the past 10 years, that we can't set the course straight again? I doubt it. And so do the world's investors who are help fueling our frustratingly slow recovery, but still a recovery. Mortgages and the 10-Year are still historically low today, even with the Dow 400 points down this week.

How patient will the world's investors be, however, if our politicians continue not to be responsible with our nation's economy? Will this become another historical inflection point? I hope not. I hope the adults really are in charge. We'll find out what the world's financiers, who have our economic future in their hands by the decisions they make based on risk factors only, believe as they continue to watch the absurdities taking place in Washington DC. Let's hope the adults take the wheel soon. I predict they will.

Okay so here's what we got:

 

It took until today for a 2nd degree "veto threat" of the Boehner plan, which Wall Street and CBO has also warned would not avoid a downgrade in our AAA national credit rating by S&P. Key to understanding the current political theatre is bearing in mind how presidential elections are won in the end: within 2%. So winning the presidency, after the primaries, is thus: scare the base + motivate the base + independents = 51%.

So all of the fight for the incumbent presidency is about a fight for the middle 2% of the electorate. I think that's why the President kept a mostly moderate tone and didn't throw any serious jabs; at one point even paid credit to Speaker Boehner. Most watchers, including me, wondered if he was going to issue a 1st term Clintonesque unequivocal veto threat. That would have pushed away the middle 2%. Instead, today, only under the light of us wonks following every move, the White House issued the 2nd degree veto threat of the Boehner plan by saying that the Presidents "advisers" would recomend he veto it (namely a short term bill instead of one that Wall Street prefers and we need which would extend the debt ceiling through 2012).

The 1st degree threat is an outright declaration from the President himself. I doubt that's forthcoming. It would be like rubbing your feet on the carpet in a room full of gas. The markets still aren't reacting to the made-up crisis. That's encouraging. But Wall Street and Bloomberg News and the head of the IMF made clear today that the time for resolution is immediate. We'll see how seriously the "serious" people in Washington take that message.