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Friday, June 26, 2009

"The Second Derivative is Bad"

John Hempton is "feeling just that little bit less certain" that the rate of deterioration in the economy has slowed:

The second derivative is bad, Bronte Capital: I have been firmly in the “second derivative is good” camp for some time. Green shoots were few and far between – but the economy no longer appeared to be in free-fall. ...

The data I considered most persuasive was the delinquency data at Fannie and Freddie. It gets worse every month, but until the last data point it was getting worse at a decreasing rate (especially if you adjusted for the foreclosure moratoriums they implemented).  

Today I am more worried. My favorite data point (rate of increase of Freddie Mac delinquency) has deteriorated – especially in their insured portfolio. Its not sharp deterioration – and it is possible – even likely – that Freddie Mac will have end credit losses considerably lower than the bears anticipate. But as a second derivative bull I am feeling just that little bit less certain.

    Posted by on Friday, June 26, 2009 at 02:43 PM in Economics | Permalink  TrackBack (0)  Comments (5)


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