The Economy Guy

What a great day in the stock market.  The market went up 417 points today on the news of the FED bailing out the investment banks.  Today’s up market was the biggest up day in the past 5 years.

Bonds went along for the ride, and read the FED move as inflationary, so interest rate rose.

The Dollar picked up on the strong FED move with the Yen climbing about 2 cents, but the Euro got knocked back, and came back slowly.

Oil continues to knock on the $110 door.  Gold seems to have finished its sell off and is slowly climbing back up to its highs.

In the news today…

The big and only news today is the TSLF – Term Securities Lending Facility – set up by the FED today to feed $200B into investment banks.  The investment banks will get US Treasury Securities and in exchange they will give all the very poor collateral that it holds to the FED.  This is an international move including Canada, Europe, the UK, and Switzerland central banks.

Sounds good for the investment banks; sounds bad for the taxpayers.

Is the $200B the only money available?  You can bet that this new facility will be used again and again in the future so that these investment banks are truly solvent.  Does that mean they aren’t solvent today????  You can just about take that to the bank – otherwise the FED wouldn’t have to be doing this.

On a more intelligent note, the FED won’t have to lower the Fed Funds Rate as much next week when they meet.  They have come up with this new, clever way to solve the liquidity problem killing off the banks of the US.  It will fix the balance sheets of the banks and investment banks overnight – rather than have them earn money from the spread between low interest rates and higher lending rates over a long, long time.

What are the consequences of this move???  The FED appears to be saying “No recession over my dead body!!”  We’ll see if that’s true or not.  The real consequence will be an increased inflation rate in the US.  It will come sooner and stronger than if the FED hadn’t taken this action.  This $200B is just like printing money – and it causes inflation.

Dinner Conversation Tonight

No laughing too much over this news article.  Today the SEC said it was content with the capital of the 5 biggest US investment banks.

When you put the SEC announcement back to back with the FED action of the TSLF, you can see that the SEC isn’t really in touch with reality.  If the 5 biggest investment banks’ capital was a-okay, the FED wouldn’t have had to take any action at all.

Here are today’s Numbers:
Dow Jones 30 Industrial – 12,145 (Up 417 points)
10 Year Treasury Bond - 3.60% (Up 0.16%)
Euro - $1.5331
Gold - $976 (Up $4)
Oil - $108.75 (Up $0.85) Oil futures hit 109+ today.
Gasoline - $2.73 (Up $0.01)