Finding our Footing
CHICAGO, March 13, 2008 — "Renewed financial market turmoil, further seizures in credit markets, the ongoing collapse in housing, and signs that the credit crunch may be spreading beyond residential real estate into the commercial side of the market have all given doomsayers plenty to pontificate upon in recent weeks. Add to that, data that consumer spending remained flat on an inflation-adjusted basis in January, coupled with the fact that employment contracted for its second consecutive month in February, and it is hard for investors to remain calm," says Diane Swonk, chief economist of Mesirow Financial, in her March issue of Themes on the Economy.
"Panic is not only our enemy, but it is unwarranted. Comparisons between the current market environment and that of the 1970s are particularly naive and ill-informed. Unlike then, we don't currently have wage and price controls, most industries have been deregulated rather than regulated. Today's policymakers have learned from the past, and have proven a willingness to be creative in their approach to solving the problems that we face," notes Swonk.
In her March newsletter, Swonk provides a general summary of meetings that she attended at the National Association for Business Economics' Annual Policy Conference, March 2–4, 2008. Swonk shares insight into the direction of policy and what it all means for the overall economy, including:
- The Fed is expected to lower rates by another percent between now and the end of April. Monetary policy easing has already triggered a fairly substantial surge in mortgage refinancing and repricing of adjustable rate mortgages.
- The Fed has dramatically expanded the role of the Term Auction Facilities (TAFs), and broadened their lending to include AAA-private label and agency debt. This should help banks and other financial institutions better manage their end of quarter financing needs and, ultimately, ease for consumers.
- Congress and the Administration came up with a remarkably fast fiscal stimulus package. The fiscal stimulus plan is not targeted to address the subprime debacle per se, but will help to limit defaults and foreclosures when married to earlier moves to lower short-term interest rates by the Fed.
- Treasury Secretary Paulson has also hinted at additional legislation on the housing front-largely targeting lenders, encouraging a reduction in dividends and an increase in their capital positions to boost lending.
- Other policy initiatives are targeted more directly at limiting future mortgage foreclosures. The Hope Alliance Now initiative claims to have rescued some one million homeowners from foreclosure since its inception late last year, mostly in California and Florida.
"The flight to safety and related jump in commodity prices is particularly disturbing—investors seem to have lost all sense of the underlying market fundamentals," says Swonk. "Indeed, it is times like these that make legends (and billionaires) out of the Warren Buffet's of the world. They take the time to look at underlying market fundamentals, invest where others are too afraid to place their bets, and wait for the market to rally."
The March issue of Themes on the Economy as well as archived issues can be found at www.mesirowfinancial.com.
Mesirow Financial is a diversified financial services firm headquartered in Chicago. Founded in 1937, it is an independent, employee-owned firm with $31.4 billion in assets under management and more than 1,100 employees in 30 locations across the country and in London. With expertise in Investment Management, Investment Services, Insurance Services, Investment Banking, Consulting and Real Estate, Mesirow Financial strives to meet the financial needs of institutions, public sector entities, corporations and individuals and was named one of Chicago's Best Places to Work by Crain's Chicago Business in 2008. For the fiscal year ended March 31, 2007, the firm posted $451 million in revenue, with more than $238 million in capital. For more information about Mesirow Financial, visit its Web site at www.mesirowfinancial.com.
The Mesirow Financial name and logo are registered service marks of Mesirow Financial Holdings, Inc., © 2007, Mesirow Financial Holdings, Inc. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. Any opinions expressed are subject to change without notice. It should not be assumed that any recommendations incorporated herein will be profitable or will equal past performance. Nothing contained herein constitutes an offer to sell or a solicitation of an offer to buy an interest in any Mesirow Financial investment vehicle(s).
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