Here and there 12/05

1.      Moody’s view on Fed’s “Adverse Case” – Yes, EVEN MOODY. (See Chart 1)

In this particular case, Moody's focuses on credit-card charge offs; however the same principle can easily be applied to any other axis in the Supervisory Capital Assessment Program. As Moody's says:

SCAP loss rates for credit card assets range from 12%-17% in the Baseline scenario, and 18%-20% in the More Adverse one. We currently expect industry charge-offs to peak at 12% in the second quarter of 2010, which translates, roughly, to 22% on a two-year cumulative basis [TD: their base case]

Therefore, the Fed’s More Adverse charge-off rate assumptions for issuers’ managed credit card portfolios are consistent with our expected range of charge-off rates for related credit card trusts. Our current assumptions are predicated on the observance of surging delinquency trends and also the expectation that the unemployment rate will peak at about 10% in early 2010. Changes in the trajectory of unemployment will have the greatest influence on the actual magnitude and timing of peak charge-off rates.

2.      An interesting Chart from SentimentTrader.com (See Chart 2)

As for the definition of dumb money, well as the saying goes, if you're gonna ask who is the weakest hand on the poker table…

3.    CMBS (See Chart 3)

Not aimed to talk down the market, and am incapable of doing that neither. Just wanna point out 1 thing while we are all cheering.

4.    And one more, God bless US tax payers...

To end, an interesting read.

President Obama's troubling mantra: In debt, we trust

BYRICHARD HENRY LEE

Saturday, May 2nd 2009, 4:00 AM

It is no surprise thatPresident Obamasupports unprecedented spending and borrowing in the federal budget since he has never suffered any consequences from the excessive spending and borrowing in his private life.

And I'm not just talking about the First Lady's $540 sneakers.

A close examination of their finances shows that the Obamas were living off lines of credit along with other income for several years until 2005, when Obama's book royalties came through and Michelle received her 260% pay raise at theUniversity of Chicago. This was also the year Obama started serving in theU.S. Senate.

During the presidential primary campaign,Michelle Obamacomplained how tough it was to make ends meet. During a stop inOhio, she said, "I know we're spending - I added it up for the first time - we spend between the two kids, on extracurriculars outside the classroom, we're spending about $10,000 a year on piano and dance and sports supplements and so on and so forth."

Let's examine how tough things were for this couple using various public records.

In April 1999, they purchased aChicagocondo and obtained a mortgage for $159,250. In May 1999, they took out a line of credit for $20,750. Then, in 2002, they refinanced the condo with a $210,000 mortgage, which means they took out about $50,000 in equity. Finally, in 2004, they took out another line of credit for $100,000 on top of the mortgage.

Tax returns for 2004 reveal $14,395 in mortgage deductions. If we assume an effective interest rate of 6%, then they owed about $240,000 on a home they purchased for about $159,250.

This means they spent perhaps $80,000 beyond their income from 1999 to 2004.

The Obamas' adjusted gross income averaged $257,000 from 2000 to 2004. This is above the threshold of $250,000 which Obama initially used as the definition of being "rich" for taxation purposes during last year's election campaign.

The Obama family apparently had little or no savings during this period since there was virtually no taxable interest shown on their tax returns.

In 2003, they reported almost $24,000 in child care expenses and, in 2004, about $23,000. They also paid about $3,400 in household employment taxes each year. And as Michelle stated, they spent $10,000 a year on "extracurriculars" for the children.

These numbers clearly show the Obamas were living beyond their means and they might have suffered financially during the decline in housing prices had they relied on taking ever larger amounts of equity from their home to pay the bills.

But in 2005, Obama's book sales soared and the royalties poured in. Michelle explained, "It was like Jack and his magic beans."

Without those magic beans, the Obama family would have eventually suffered the consequences of too much debt.

Obama's penchant for borrowing in his private life carries over to his public life.

He gave the Congress virtually free rein in writing the huge stimulus bill. He had no reservations whatsoever about the country assuming so much debt. Other Presidents have tried to work out compromises on spending measures since it is ultimately the President who takes responsibility for the consequences.

Obama did make a feeble attempt to control spending when he announced that his cabinet had found ways to reduce federal spending by $100 million. But this is laughable. Compared to an estimated $3.6 trillion federal budget, it is a minuscule 0.0028%.

To put this into the context of the Obamas' income for 2004 of $207,647, this savings works out to $5.77, or about the price of an arugula salad.

President Obama has never faced consequences in his private life when it comes to managing money. He always had enough money simply by borrowing more and more. And just when things got tight, those magic beans came along to save the day.

But as a nation, we cannot base our future on the hope that some day Jack and those magic beans will also save the rest of us.