Government To The Rescue?
Stocks were scared about the bad earnings and financial meltdown continuing – worry about the government bailout working or not working. Shares ended down 177 points today. Bonds went sideways today.
The Dollar strengthened, and gold fell.
Oil and gasoline fell to new recent lows, and this means cheaper gasoline coming down the pike to us all.
In the news today…..
AMEX is now a commercial bank – no longer just a credit card company. AMEX did this so it could take deposits and government loans. This is a very bad sign for AMEX. Their credit card risk must be hitting home right now as the economy tanks and people can’t pay their AMEX bills. This is also a bad sign for the implosion of the credit card bubble. We really don’t have a measure on how bad this bubble really is, but it could take down the major credit card companies – providing the government doesn’t bail them out too.
The Post Office has plans to lay off 40,000 employees. This will be the first layoff in the post office EVER. I wonder if this is politically correct and whether or not they will be allowed to lay people off under the new administration.
Oil hit a new low today – lower than $60 per barrel. This means lower gasoline prices for you – Hurrah!!!!! More importantly, it means that Russia is now producing oil for a greater price (over $60/barrel) than it sells it for. If this brings economic hardship to Russia, that’s just not good for world stability. Watch for greater turmoil within Russia.
The Housing Market – the Government to the Rescue????
The Government is coming out with a plan to save the housing market. Since the government now owns Fannie and Freddie, and those institutions control over 50% of the mortgages in the US, the US is now setting up guidelines for re-negotiating some bad mortgages, and keeping the home owners in their house. Here are some details:
• The home owner must be 3 months behind in his/her payments
• The home owner’s mortgage must be greater than 90% of today’s home value.
• The interest rate can be reduced so the monthly payment is 38% of the household income.
• Or, the mortgage can be extended from 30 years to 40 years.
• Or, some principal amount can be “deferred.” (I wonder what deferred means.)
4 million mortgages, or 9% of all borrowers, are are behind in their payments or in foreclosure. 2 million of these mortgages are controlled by Fannie/Freddie.
There is no bottom in sight for housing prices as of today.
Tonight’s Dinner Conversation……
Will the government’s plan to save the housing market work? And why?
Here are Yesterday’s numbers:
Dow Jones 30 Industrial – 8694 (down 177 points)
10 Year Treasury Bond – 3.76% (down 0.01%)
Euro – $1.2529
Gold – $733 (down $13)
Oil – $59.33 (down $3.08)
Gasoline – $1.31 (down $0.06)
There was an interesting article in yesterday’s USA Today about the problems with the credit card market and the debt that was packaged up and sold just like the sub-prime mortgages were sold.
I would recommend it to you for reading.
I have a different opinion regarding lower oil prices. I think they may help stabilize the world from the perspective of putting less wealth into the hands of unstable regions in the world. Additionally, as long as the US dollar is implicitly backed by oil, it helps the US remain in control. That said, maybe it is time we had less control and imposed our will less frequently in foreign lands.
In the longer term, there seems to be more demand for energy worldwide than there is a supply of cheap oil. Thus, once we go through global deflation, it seems quite logical that we’ll see energy prices rise as more countries industrialize and modernize. Thinking back to our last period of global deflation (Great Depression), the end result was world war. Let’s hope that isn’t what we’ll see this time around.
Hi David,
I agree with your opinion that lower oil prices will give the US more control in the financial world. However, this is a transitionary period, and as soon as we get out of the recession – oil prices will go up, as you said. So, the question is “how long” will oil prices stay down? One other consideration is the manipulation of the oil futures market to unrealistic (high or low) prices.
Tom