The Economy Guy » Stimulus

TARP Reduced

cuible — Mon, 07 Dec 2009 22:40:23 +0000

Stocks and bonds went sideways today – nothing much to talk about.

The Dollar strengthened slightly today – the bias is important – strengthening.

Gold, oil and gasoline all fell in price today. Oil was significant because it fell below its sideways trading range, so is settling into more recent lows.

In the news today….

Bank of International Settlement (BIS) – warned that the low US interest rates could lure banks into taking risks again, and we could end up in the same position we were in last October. This is a warning from a respected international bank. They are saying that prolonged low interest rates cause banks to take risks that they would not normally take, AND there is nothing changed from the last time it happened.

UK Government – is threatening a tax on banks in the UK. This includes US banks there. They want to tax these banks for the trouble and money they caused the UK government over the past year. And, they are talking about hundreds of billions of pounds in tax. This should be a real fight to watch. As Americans we don’t really understand the influence that UK banks have on the UK Government. We DO understand what influence US banks have on the US government.

Kuwait – came to the rescue of Citibank at the beginning of our economic troubles. They invested $3B into Citibank. They have now sold their position for $4.1B – a nice profit of $1.1B. This is capitalism at work. And, this is no different from the investments that Warren Buffett made in Goldman Sachs, etc.

Goldman Sachs would have failed – without the TARP money injected into them. This according to Secretary Geithner. He is responding to statements by Goldman Sachs that they didn’t need the money, and were forced to take it by Paulson. I consider this a bunch of smoke and mirrors. Geithner is saying that ALL banks would have failed, and Goldman Sachs would have been brought down with them all – if they all failed. I personally doubt they would have all failed. For sure, Lehman Bros and Merrill Lynch would have failed, but in a bankruptcy setting, they would have been snapped up cheaply by another institution. Geithner is fighting for his job, as he has received a lot of criticism lately for being to “cosy” with US banks – especially Goldman Sachs.

Tonight’s Dinner Conversation…….

Geithner has said that his estimate that the US taxpayer would have to pay $341B of the TARP money – in other words, that money would have been lost forever – is now too high. He is reducing that number by $200B. Coincidentally, that $200B is about the same amount of TARP money that the big banks are paying back to the Treasury.

The Administration wants to take that $200B and use it to create jobs. This sounds like another Stimulus Package to me – does it to you?

Here are the questions for you to debate:

Is it legal for the administration to take the $200B paid back TARP and use it to create jobs?
Where is Congress in this debate?
Does that mean the taxpayer will actually pay the entire $341B bill – and this is the government moving money from one pocket to another pocket?
Do you trust the government to create “lasting” jobs – not just state and local government jobs that last a few months, like the Stimulus money did.

Here are the last numbers for today:
Dow Jones 30 Industrial – 10,390 (up 1 points)
10 Year Treasury Bond – 3.45% (down 0.04%)
Euro – $1.4821
Gold – $1159 (down $10)
Oil – $74.00 (down $1.47)
Gasoline – $1.94 (down $0.03)

More Handouts

cuible — Thu, 15 Oct 2009 21:36:24 +0000

Stocks jumped again today, up 47 points. Bonds lost value, and increased interest rates a small amount. The Dollar continues to lose value today against the Euro. Gold fell $14 – I guess nothing can go up continuously forever.

Oil and gasoline are the elephant in the living room. Their massive increase in cost if it continues will stop this economy in its tracks.

In the news today…..

Social Security – announced today that there would be no cost of living increase for seniors next year. That’s because inflation, as measured by CPI, is negative. President Obama, coincidentally on the same day, announced that seniors should get a bonus check for $250 each. There is no source for this $13B worth of handout, so it just adds to the deficit. The deficit is criminal, and if it continues to grow unchecked, it will destroy capitalism in the US as we know it. Our Congress are acting like a bunch of teenagers having fun at a party – very irresponsible.

Here are the last numbers for today:
Dow Jones 30 Industrial – 10064 (up 47 points)
10 Year Treasury Bond – 3.47% (up 0.05%)
Euro – $1.4945
Gold – $1050 (down $14)
Oil – $77.79 (up $2.61)
Gasoline – $1.94 (up $0.09)

Taxes, Clunkers and Benefits

admin — Tue, 04 Aug 2009 00:24:58 +0000

Stocks soared on the news of manufacturing data. (It was down, but stocks went up). Bond interest rates soared too.

The Dollar lost 2 cents – a massive move, and portends inflation.

Oil and gasoline rose significantly – you can now bet that gasoline will be rising at the pump. Go fill up now.

Gold rose slightly.

In the news today…..

New Taxes for Middle Class??? – Treasury Secretary Geithner and Larry Summers cannot rule out a tax increase for the middle class – a discussion they had this last Sunday. What are the ramifications of this announcement?

Politically – President Obama is stuck with trying to not look like a liar from his declarations about no new taxes. I think this will become a political hot potato in the near future.
Economically – the statement makes complete sense. The deficit spending must be paid for somehow – and the choices are first increased taxes, and second inflation.
Internationally – the Chinese have put the heat on the Administration to keep the Dollar strong, and interest rates low – and Geithner’s statement certainly makes the Chinese happy.

Cash for Clunkers – used up its $1B budget sometime last week, or over the weekend. The program is a wild success as people scramble to turn in their clunkers to get the “free money.” How much money was committed to these buyers?? Who knows??? No one, apparently, as the government just can’t add up the numbers – what complete incompetency. The House voted to add $2B more to the program. Before more money can be added to the program, the Senate must approve the funds, and then the bill would go to the President. There is no doubt the President would sign this bill – and take complete credit for the giant success the program has in providing “stimulus” to the car companies. However, the Senate has not passed the bill, as some Senators have reservations about spending more money while we are creating world shattering deficits. And, the Senate problem can’t be blamed on the Republicans, as the Democrats control the Senate. This is a giant fiasco in the making. If the government can’t run this program, do you want that same government to run your health care, or “cap and trade” for energy? If the Senate passes the bill, the President’s ratings will soar. If the senate doesn’t pass the bill, the President’s ratings will tumble further. Fun, fun, fun.

Unemployment Benefits – as many as 1.5 milliion people receiving unemployment benefits will be coming to the end of those benefits. If this happens, these people will add to those who won’t be able to pay for them homes, and pay their other bills. The government is looking at providing some additional support to these people. Whether more benefits are provided or not, the fallout is negative for the economy. More benefits = more deficits. No more benefits = housing and credit impact on economy.

Manufacturing – did fall as fast as prior months. So, this is why stocks shot up today. Get this straight – manufacturing is still declining, just not as fast. The organization who takes these measure predicts that manufacturing will grow next month. It is very possible that manufacturing will increase next month – but the real question is “Will there be new jobs coming out of this increase?” No one can answer that question, and my prediction is ‘no’.

Here are the last numbers for today:
Dow Jones 30 Industrial – 9287 (up 115 points)
10 Year Treasury Bond – 3.64% (up 0.14%)
Euro – $1.4416
Gold – $959 (up $3)
Oil – $71.58 (up $2.15)
Gasoline $2.07 (up $0.06)

Mortgage Relief Plan

admin — Wed, 18 Feb 2009 22:58:07 +0000

Stocks moved sideways today – not a ringing endorsement of the President’s Mortgage Rescue plan. Bonds gave up value (increased in interest rates again.)

The Dollar strengthened again on Euro weakness.

Oil and gasoline both gave up ground again today. Great for us as consumers. Let’s hope it continues in a downward direction – but this would mean the recession will get worse, and that’s not great news – so it’s hard to cheer oil prices down.

Gold gained again today, and closed above the magic $975, but only at $978. I still think there will be a pullback (probably tomorrow) and this will then go through this level once more for good.

In the news today….

The FED came out with your updated 2009 forecast today. Here are the highlights:

Unemployment is expected to reach 8.5% to 8.8%, rather than the 7.1% to 7.6% previously forecast.
High unemployment is expected to continue until the end of 2011.
The total 2009 GDP is expected to fall 0.5% to 1.3%, rather than the 0.2% to 1.1% previously forecast.

And my comments are:

I still think unemployment will reach 10% this year, and I’m concerned it will be higher given the increase in the FED estimate which is always conservative on the low side.
High unemployment until 2011 is a RED FLAG!!!!!!! This truly concerns me. It says things are not expected to get better any time within the NEXT 3 YEARS. I don’t hear any politicians saying this – do you????? More lying by our representatives???
I will predict that GDP will fall by 2.5% this year – as the FED is conservative on the low side normally.

President Obama’s Mortgage Relief Plan…..

President Obama announced his Mortgage Relief Plan today, and here are the Pros and Cons
PROS:

The hope is that this will stabilize house prices – and everyone will benefit, as everyone else’s house value will stop declining. (If house prices stabilize, it will help everyone; but, I don’t think they will stabilize, but will continue downward.)
The relief measure will help about 20% of mortgage holders in the US. And that’s only if they actually want to use this help. We must wait to see how many of the 9,000,000 people who “qualify” actually want it and are allowed to use it.

CONS:

The Relief cost is now $75B, rather than $50B. (I bet this total goes UP, and we will be asked to provide more money in the future. As you know, the President’s office started talking about a Second Stimulus Bill yesterday.)
There is no clawback of this cost to taxpayers – as other TARP money expenditures have in them. The money will be going to select mortgage holders, and banks. This is a direct tax on all Americans.
Mortgages were previously given to people who were “unqualified” to have a mortgage under normal conditions – and now these same people will be bailed out. Who’s to say how long they will continue to pay their “new” mortgage?? When they don’t, the same consequences will occur – i.e. Foreclosure. If this happens to enough of these folks, the “recession” will only be prolonged – just like in the Great Depression. You’ve got to love it. That means these folks (the ones who default in the future) will be given money, and this money will have no other benefit than to allow them to continue living in their house without paying as much, or anything. I hope all of you agree with this philosophy because it’s the “change” that was promised.

Here are the last numbers:
Dow Jones 30 Industrial – 7556 (up 3 points)
10 Year Treasury Bond – 2.73% (up 0.07%)
Euro – $1.2536
Gold – $978 (up $11)
Oil – $34.62 (down $0.31)
Gasoline – $1.07 (down $0.05)

Bad Banks And Stimulus Predictions

admin — Thu, 05 Feb 2009 23:11:27 +0000

Stocks rose today, but in reality stocks are in a sideways trading range. Bonds went sideways too.

The Euro fell as the inflationary future of Europe is worried about.

Oil and gasoline went up slightly.

Gold regained a little more of its recent loss.

Stock Market Prediction….

At the end of last year I predicted that stocks would go down at the beginning of the year, and then recover somewhat as the stimulus package (or packages) work their way into the economy at the end of the first Q 09 and the second Q 09. I went on to predict that when the stimulus is done working its way on the economy, the market will continue its downward movement through the 3rd and 4th Q 09.

So far, the prediction is coming true. January was a very bad month for stocks. The government is working on a stimulus package, but it’s taking longer to be approved than the President likes.

Look for a modified stimulus package approval sometime in February. The real question is “What will be in this stimulus package?” It could be a 100% stimulus package aimed at putting people to work over time, including significate tax savings. That would be the best we could hope for. It also could be what the House passed – a payoff to all the groups who got Democrats elected in November. This will have very little stimulative power, and will evaporate much more quickly than a 100% stimulus package.

I expect that the actual package will be something between these two definitions – a typical Washington compromise. If so, I still think my prediction of a mild stock rally followed by declining stock values throughout 2009 will transpire.

In the news today…..

The Jobless Rate his 626,000 last week. This is biggest that I’ve ever seen, and it is a great indication that people are losing their jobs at an ever increasing rate. Remember that 400,000 is a high number indicating a downward economy. If this jobless rate continues, the unemployment rate will be greater than the 10% that I predicted for the end of 2009.

Factory Orders were down 3.9% in December. Just another indicator of our downward economy.

The 30 Year Mortgage Rate is now 5.70% and the 15 Year Mortgage Rate is 5.31%. That is a huge 3/4% increase in 6 weeks, as the 10 Year Treasury has also moved about the same amount. This makes it much more difficult for people to purchase houses, and threatens any bottom in the housing market.

International interest rates: The ECB rate is 2%, and the Bank of England rate is 1% (just reduced by 0.5%). These are compared to the FED Funds Rate of zero to 0.25% range.

Tonight’s Dinner Conversation…..

The Obama Administration looks like it is going to announce a “Bad Bank” construct this coming week. The idea of the Bad Bank is for it to purchase “toxic assets” from the existing banks – thereby allowing those banks to have a much healthier Balance Sheet.

Okay so far. So what’s the big deal?? The big deal is “How do you value the assets?” Here are some things for you to ponder and to discuss tonight:

The banks are currently valuing these toxic assets at about 85% of the face value. In other words, a mortgage security is considered to have only a 15% depreciation of its value due to people not being able to repay their mortgages.
The existing (and almost non-existent) market for anyone wanting to buy these asset is about 30% of face value. Consider this as a fire sale – in other words, the asset MUST be sold at any price. By definition, a fire sale is a bargain for the purchaser. Do you think 30% on the Dollar is a steal?
What will the “bad bank” pay for these assets??? It been indicated by the Obama Administration that the bad bank will pay something less than the bank’s valuation, but greater than a fire sale valuation.

In other words, no one can really value this junk. What happens if the bad bank gets it wrong? YOU get to pay for their mistake in valuation. This isn’t really comforting to me personally because we are in such a new world environment that no one has the experience to value anything accurately. Another problem is that as time goes on, and more people are unable to pay their mortgage – an inevitable situation with declining housing prices and ongoing job losses – the value of these toxic packages is going to go DOWN. In other words, valuing this junk is like aiming at a moving target – you must aim where the target will be in the future, not where it is right now. How good are you at predicting the bottom of the housing market?

Here are the last numbers:
Dow Jones 30 Industrial – 8063 (up 107 points)
10 Year Treasury Bond – 1.90% (down 0.02%)
Euro – $1.2803
Gold – $914 (up $12)
Oil – $41.17 (up $0.85)
Gasoline – $1.27 (up $0.06)