Banks Of America
Stocks dropped like a rock today. The Dow Jones was down 247 points. Why??? Well, it is because everyone got nervous at the same time about the financial condition of our economy and our financial institutions in particular. Stock players are starting to think about the spillover of the consumer not buying as much in 2008 as he/she did in 2007.
GOLD WENT ABOVE $900 TODAY, and ended up at $898. This is a major move by gold that has occurred early in 2008, and is making a bunch of miners (or just speculators) very happy and rich.
The 10 Year Treasury continued its decline in interest rates. Treasury futures have priced in a Fed Funds rate decline of 0.50% in a couple of weeks. While the Treasury Futures market is not always right when it bets on a specific outcome, it is right more than it’s wrong. My personal guess is that we’ll be getting a 0.25% Fed Funds rate reduction. If I’m wrong, and it’s a 0.50% reduction, that means the
Here is today’s news.
Bank of America is buying Countrywide. That means that those rumors about bankruptcy were really correct. B of A paid $4.1B in stock – and that means they didn’t pay anything as they just printed that stock paper. If you remember, B of A invested $2B in Countrywide as Countrywide started to figure out how bad their mortgage portfolio really was. B of A could have been protecting its $2B investment, but I think otherwise. B of A knew that there were sub-prime storm clouds on the horizon last August, and they also started the process of really understanding Countrywide, so that they could buy it today. No other financial institutions books have been analyzed as much as Countrywide’s books. B of A made a bargain basement purchase.
WaMu and JP Morgan Chase are talking about merging. That means that both of those banks are hurting, and looking for a way of creating a stronger institution that no one would let go bankrupt. Citibank has played chicken with bankruptcy in the 80’s, and again now. Would anyone let it go bankrupt?
Consumer Confidence – the economy’s biggest driver.
Consumer confidence fell to an index value of 56.3 in January, from 65.9 in December. (100 is the baseline index, and anything below 100 is bad, and anything above 100 is good). Last January, the index was 95.3. This is a major drop in a year, and says that consumers are going to be pulling back on their purchases.
Moody’s is threatening the US Government
Moody’s, one of the credit rating companies who rate bonds and commercial paper, has said that the AAA rating that the US Government has might have to be reduced in 10 years if the US continues to have huge deficits (fiscal and trade). Here is my interpretation. Moody’s is one of those great institutions that never downgraded those sub-prime mortgage bundles, and subsequently avoided their responsibility for catastrophe that has hit so many institutions. Now they want to look “professional.”
November Trade Deficit going UP
The November Trade deficit increased 9.3% to $65B. This was mostly caused by the high price of importing oil. Oil prices not only hit your pocket book, it also hits the amount of money the
And the bank plays on….
SunTrust bank is giving $1.4B to its money market funds to protect investors. Does anyone out there have their spare cash in a money market fund? I bet you thought it was VERY safe. Think again. This makes you ask what SunTrust is doing with those spare dollars.
Merrill Lynch announced it was going to write off $15B. The bad news just continues to dribble out.
That’s another $16.4B that just went to money heaven.
Today’s Closing Numbers…
Dow Jones 30 Industrial – 12,606 (Down 247 points) – not a very good sign for the stock market this year.
10 Year Treasury Bond – 3.81% (Down 0.08%) – Definite pointer that there will be a Fed Funds rate decrease
Euro – $1.4774
Gold – $898 (up $4)
Oil – $92.90 (down $1.02)
Gasoline – $2.32 (down $0.04)
