The Economy Guy

Stocks took off today on the news that the banks were finally being honest and getting the capital they really needed, and coming clean with their write off.  I don’t buy all that hype.  However, enough people did to push the DOW up 391 points.

10 Year Treasury Bonds lost ground and went up 0.11% in interest rates on the same news.

The Dollar strengthened significantly, and is now poised to create a gigantic battle between the bulls and the bears tomorrow.  Should be fun to watch.

The BIG MOVER today was Gold.  It fell $34 to $888, and is presenting a huge buying opportunity for gold believers.

In the news today…..

UBS and Lehman Bros announced large capital injections, and that was the litmus test for the market today.  Here is the real story.

UBS issued new stock and raised $15.1B.  It is also going to write down $19B worth of sub-prime junk.  The Chairman of UBS resigned today.  He is my hero.  His leaving was not a surprise, and he made the hard decisions to put UBS back on a health path, in my opinion.  My wife and I know Switzerland well, and its citizens, and I can assure you that no Swiss citizen wants its banking system blackened by bad rumors.  The Chairman wrote down the debt, and also raised the capital.  This had to be very painful for the bank.  All together UBS has written off $40B of bad debt – and this is a world record for any bank.

Lehman Bros, on the other hand, raised $4B that it didn’t need.  Can you believe an official announcement stating they didn’t need the money, but went for it anyway because people were worried about Lehman Bros????  I don’t buy that announcement for one second.  They are raising the money by issuing preferred stock paying a 7.5% dividend.  That is a hefty price to pay for something you don’t need.

Deutsche Bank will be writing down $4B in the 1st Q 2008, after writing down 3.5B in the 3Q 07, and zero in the 4Q 07.  These are all sub-prime write downs.  Why did Deutsche Bank hesitate in the 4Q 07 when the rest of the world was melting down???

Goldman Sachs said they estimate the total sub-prime write down will be $460B when it all ends.  If they are right, we are only about half way through with the writing down process, and there are a lot of liars out there.

US Banks are predicted to shed about 200,000 jobs over the next 12 to 18 months.  This is the way I think recessions are best defined.

The ISM Index for manufacturing came in at 48.6, and everyone cheered because this was an improvement over the last number.  Anything less than 50 is a contraction in the economy, so I don’t see anything to cheer about.

Here are yesterday’s Numbers:
Dow Jones 30 Industrial – 12,654 (Up 391 points)
10 Year Treasury Bond – 3.55% (Up 0.11%)
Euro – $1.5612
Gold – $888 (Down $34) – This is presenting a major buying opportunity.
Oil – $100.98 (Down $0.60)
Gasoline – $2.64 (Up $0.01)