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Showing posts from September, 2008

"The Recession Train Has Already Left The Station"

Professor Nouriel Roubini spoke to Bloomberg this morning. He provides his take on the failed bailout bill as well as discussing the current state of the economic crisis and alternative measures that may help to begin to heal the banking system and the wider economy (click on video above and listen carefully).

I know stocks surged today as investors grew optimistic that some sort of a rescue plan will come through by week's end:
The Dow Jones Index put on 485 points or 4.7 per cent to end at 10,851. The tech-heavy Nasdaq gained almost 5 per cent.The Standard and Poor's 500 rose slightly more. Investors were optimistic that the bailout plan would eventually be passed as US President, George W Bush, again appealed for legislators to give it the go ahead. Meanwhile, the White House has strongly urged the media not to describe the rescue effort as a bailout. White House spokesman, Tony Fratto, says that is a loaded term used by critics to defeat the plan.Don't you just love this…

Three Hail Marys and Hit the Panic Button

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Do you believe in God? Forgive my religious undertones but as I battle a stomach virus, no doubt exacerbated by the excrement coming out of Washington, I am starting to reacquaint myself with God Almighty.

Tomorrow Jews around the world will celebrate Rosh Hashana and when markets open, many participants of all religions (and some atheists too) will pray that the stock and credit markets stabilize. Thus far their prayers have gone unanswered and I fear the worst is yet to come.

It was another disastrous Monday as fear gripped global markets following the failure of US lawmakers to gather enough votes to pass the Emergency Economic Stabilization Act - the $700bn Treasury-funded facility for purchasing and managing toxic assets held by the US banking system.

The Dow Jones plunged 778 points today, the biggest point drop in history (but nowhere near the biggest percentage loss which happened in the crash of 1987).
Canadian stocks also crumbled today. The Standard & Poor's/TSX Composi…

Will They Avert Catastrophe?

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President Bush scrambled to revive troubled bailout talks this morning, stating that "if money isn't loosened up, this sucker could go down."

The problem right now is that this president has cried wolf so many times before that he has lost all credibility.

What is surprising is how the stock market is holding up despite increasing doubts about the bailout:
Policymakers are rightfully focused on the credit markets. If banks are unwilling to lend to each other -- as surging LIBOR rates suggest -- they sure aren't going to lend to consumers or businesses, which has profound implications for the economy (which grew slower in the second quarter than originally reported, by the way.) In the short term, companies like Goodyear Tire can't access their cash because of stress in the money market and overnight lending operations. Most businesses need this capital to fund day-to-day operations. In the longer- to intermediate-term, a slowing economy means more earnings disappoin…

Buy the Rumor, Sell the News

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And back in the real economy, the news coming out of the United States keeps getting worse:
Weekly jobless claims surged to the highest level in seven years, durable goods orders took a bigger-than-expected tumble and new home sales plunged to the slowest pace in 17 years, according to government data released Thursday.

The latest trifecta of bad news about the economy raised new worries about a possible recession and underscored the concerns that are driving Congress and the White House to reach agreement on an historic bailout of the financial system.Meanwhile, Standard & Poor's reported that the default rate among high-yield, high-risk, non-financial borrowers may rise to 23.2 percent by 2010, the highest level since 1981:
The "worst-case scenario'' estimate suggests that 353 junk- rated borrowers outside the financial sector may default in the next two years, with more than 200 defaults occurring in the second half of 2009 and in 2010, analysts led by Diane Vazza…

Bailout or Bust?

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More drama on Capitol Hill tonight as President Bush will address the nation to pitch the bailout and Senator McCain temporarily suspends his campaign, postponing the first debate, to come back to Washington to deal with the crisis.

Meanwhile, Treasury Secretary Henry Paulson had agreed to demands from lawmakers in both parties to limit the pay of executives whose companies benefit from the bailout:
"The American people are angry about executive compensation, and rightfully so," Paulson told the House Financial Services Committee. "Many of you cite this as a serious problem, and I agree. We must find a way to address this in legislation without undermining the effectiveness of the program."Earlier today, the Federal Reserve chairman, Ben Bernanke, urged Congress to take quick action on the proposed $700 billion economic recovery plan, uttering this dire warning. "Despite the efforts of the Federal Reserve, the Treasury and other agencies, global financial mark…

Krugman on the Arrogance of Henry Paulson

Economist Paul Krugman sat down with Keith Olbermann this past Sunday to discuss the bailout plan (click on video above to watch). Read Krugman's related New York Times op-ed piece, Cash for Trash.

(For a different view of Paulson and this rescue package, read the Wall Street Greek's latest comment).

Another interview worth watching is Charlie Rose's discussion about the economy and the 700 billion dollar bailout of Wall Street with Rep. Barney Frank (D-MA) Chair, House Financial Services Committee.

According to Rep. Frank, the sticking point right now is the golden parachutes that these Wall Street execs still cling to:

Barney Frank (D-Mass.), chairman of the House banking committee, made his way into the House media gallery to face 75 reporters yesterday afternoon. The hard-hearted chairman hitched up his trousers, took his seat, and showed no remorse toward the CEOs who stood to lose so much. "The Endangered Species Act apparently does not apply to financial insti…

"Tell Them They Are Already On The Hook"

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Stocks dropped again today as doubts over the rescue plan mount and uncertainty continues to reign over markets. The Dow Jones industrials ended 161 points lower, or 1.5 percent.

I spent most of the day watching the "Comrades" get grilled on the $700 billion rescue plan by the Senate Banking Committee:

Investors were also taking a wait-and-see attitude to the package. After a steep slide on Monday, European markets closed down again Tuesday, while afternoon trading was moderately lower on Wall Street. Oil and gold prices also retreated. (Page 20) In Washington, Dodd called the crisis "entirely foreseeable and preventable, not an act of God," and said that it angered him to think about "the authors of this calamity" walking away with the proverbial golden parachutes while taxpayers bore the cost."There is no second act on this," Dodd said, acknowledging that speed was important. But it is more important, he said, "to get it right."Paulson…

Casino Royale: Time for Better Regulation

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As we brace for more volatility this week, some politicians are fed up with high stakes finance and are openly calling for tougher new regulations.

But first a little recap of today's action. Stocks plunged again, taking the Dow Jones industrials down more than 370 points amid uncertainty over the impact of its biggest restructuring since the Great Depression.

It didn't help that crude oil climbed more than $25 a barrel, the biggest gain ever, as traders scrambled to unwind positions on the October contract's last day of trading:
"This looks like a squeeze play,'' said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. "All of the contracts are up, but nothing like October. This is the last day of trading and someone is scrambling to guarantee supply.'' Crude oil for October delivery rose $16.37, or 17 percent, to settle at $120.92 a barrel at 2:46 p.m. on the New York Mercantile Exchange. It was the highest settlement price since Aug.…

Reflections on the Wild West

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After a week as crazy as this one, I decided to unwind last night and enjoy a movie with some friends. We ended up going to see Woody Allen's Vicky Cristina Barcelona. It was the first movie I caught on the big screen in a very long time and I am glad because it was excellent.

Today I decided to reflect on what exactly happened over the past five days. How can we have come so close to the brink of collapse? We were that close to what John Mauldin calls "Financial Armageddon" (a must read article).

It's simply crazy to think that the Mother of all Ponzi schemes almost brought down the global financial system.

And now we are awaiting details on the Mother of all bailouts.

President Bush will ask Congress for $700 billion to buy bad mortgages as part of his economic bailout plan:
The plan would give the government broad power to buy the bad debt of any United States financial institutions for the next two years.Speaking at the White House Saturday morning, the president…