The Economy Guy

Stocks zoomed up today in jubilation.  Bond interest rates rose significantly.  Oil prices and gasoline prices rose.  Gold rose.  The Dollar sand, as the Euro rose.

What does this all mean?  You can’t tell from the markets, that’s for sure.  You can expect higher gasoline prices coming your way again.  And, mortgage interest rates are now set to rise.

In today’s news…..

Spain – admitted today that its banks are struggling, but insists that they don’t have to ask the EU for help.  What a bunch of hooey.

China – has purchased more US Treasuries.   But why?  Don’t they think the Dollar is dangerous, and could fall in value?  Yes, they do.  However, they are getting more Dollars into their nation through their balance of trade, so what are they going to do with all that money?  Buy Euros?  I doubt it.  Buy Gold – YES, and they are doing that.  China owns $900B of US Treasuries.  Japan is second and owns $700B of them.  There is about $4 TRILLION of US Treasuries owned by foreigners.

New York State – is doing some thing that is just CRAZY.  I bet you won’t believe this, but it is true.  The state owes money to the state Pension Fund.  It has decided that it will borrow $6B and pay that money into the State Pension Fund.  Guess where it is borrowing the money from?  From the State Pension Fund.  Can you believe that????  Is this the NEW new math??

The US Stock Market – I have been warning that the US Stock market is in a cyclical bear market, and is about to go way down again.  Here is a different way of looking at what has happened to US Stocks since the financial crisis.  As you can see, the stock market came back strongly right in line with the “quantitative easyng”  that the FED has been doing by giving out $2 TRILLION .  So, the lesson for today is “What happens when the FED really stops QE as it has stated it has already done?

Tonight’s Dinner Conversation…….

Fannie/Freddie/FHA – these are very interesting topics for tonight’s conversation.

Have you ever wondered why Congress encouraged all 3 of these entities to give cheap, unqualified home loans out?  Have you every wondered what all 3 of these entities are doing today that is different than before the big crisis?  Do you know how many bad loans all of these entities are holding right now?  Have you ever wondered why these behemoths are not addressed in the “so important” financial reform bill being discussed (and passed?) right now?

I hope you have been wondering about these things.

If we look at Fannie and Freddie by themselves, it has been estimated that an additional taxpayer bailout of $160B to $1 TRILLION will be required – based on what happens on the future values of homes and the people who pay their mortgages.  Now we are talking about some real money.  Did you get that WIDE spread on these estimates?  Do you think it will come in at the low end, or the high end of this spread?  Governments are generally just plain “unlucky” when it comes to answering these questions, so I think it will be bigger than anyone expects.  The CBO estimated that they would need $389B (so that $160B guess was very, very low indeed.)  Barclays Capital said that if housing prices continue to decline the number will be more like $500B.  (Now we are getting a little higher!!!)

The former Chief Credit Officer of Fannie said “This is the mother of all bailouts.”

So far, Fannie/Freddie have drawn $145B from the Treasury.  And the new numbers are on top of this already “lost” money.  Let’s put this bailout into perspective.  The Fannie/Freddie/FHA bailout could easily end up BIGGER than all the previous bailouts (AIG, GM, lots of banks, etc.) PUT TOGETHER.

And now, I come to the big WHY???  Why did Congress allow this to happen?  Was Congress so stupid that it didn’t know that those toxic mortgages were going to implode?  Of course, they knew!!!!  So, why did they do it?  I think I have come up with the answer to this conundrum.  Congress didn’t care.  They knew that the taxpayer would have to come to the rescue of Fannie/Freddie/FHA.  They wanted to get the VOTES of the people who got those cheap loans and obtained the pride of home ownership.  And, here is the ultimate gotcha.    When the taxpayers bailout the people who made these impossible loans – this becomes the ultimate transfer of wealth from the haves to the have nots.   In other words, the political background was a socialist program to bilk the rich, and do it in such a way that the rich had to pay.  Oh, by the way, I am defining the rich as anyone who pays federal taxes.

What’s that big sucking sound?  It is the sound of your money leaving your wallet.

Oh, by the way, there are still many toxic mortgages being written today, and they are going to Fannie/Freddie/FHA.  So, the answer to “what is different?” is VERY  LITTLE.

Remember to vote all the scumbags out!!!!!!!!  And, I mean ALL of them irrespective of their party or politics or beliefs.  They are guilty by having just been there.  What did any of them do to prevent this happening?  Well, I certainly don’t remember anyone raising the flag and loudly shouting that our house was on fire.  And, that’s the least anyone could have done.

Here are the last numbers for today:
Dow Jones 30 Industrial – 10,405 (up 214)
10 Year Treasury Bond – 3.31% (up 0.09%)
Euro – $1.2346
Gold – $1233 (up $10)
Oil – $76.94 (up $1.82)
Gasoline – $2.12  (up $0.05)