The Economy Guy

Isn’t it amazing how the market just bounds upward on the hope of a rate cut.  Well, this time the market is probably right in its hope.  I must apologize for not having a report yesterday.  I was on an airplane all day, and didn’t arrive at my destination until very late at night.  Well, yesterday was kind of boring with the market going down slightly.  It made up for it today.  Oil dropped Monday, and rebounded back above $80 today.  Gold fell yesterday, and came jumping up again today.  That is just plain boring market gyrations.

Where is it going, and when does it stop.  Well first of all, is just doesn’t stop.  The folks on Wall St would all be out of jobs if it stopped, and we couldn’t live with that, could we?

The stock market is heading up.  I’ve touched on it in earlier messages.  I’ve heard predictions that the Dow could go as high at 17,000 by year end.

The global credit squeeze is a “serious crisis” that is not over yet and will have an impact on governments’ budgets, the IMF’s outgoing head Rodrigo Rato said in an interview published Monday.
Speaking to the Financial Times from Washington, IMF Managing Director Rato said: “Policymakers should not think that the problems will stay at the desk of the bankers.”  ”Problems are going to come to the real sector, come to the budgets — that is something we keep telling people.”  Rato said that it would be “a few months, probably into next year” before the availability of funds returned to normal levels in the markets, which was “going to have an impact on growth”.

“The US is going to slow down … Growth in Europe looks less strong than before, and in Japan too — though Japan will probably stay (at about) potential,” said Rato, who will be succeeded as IMF chief by former French finance minister Dominique Strauss-Kahn at the end of the month.  Emerging markets will also likely have some impact, Rato said, adding that while those countries were growing rapidly, “to what extent they will keep that momentum will depend on how long the slowdown is in the US and Europe.”

There you have it from the head of the IMF himself.  This liquidity problem “ain’t over yet.”  It will slow down our economies – the whole world’s economies.  Wow, isn’t it amazing that the US credit market could cause such a disruption in the world.  Well, when you manipulate risk as unprofessionally as our financial institutions did this past few years, you get this type result.   How much has this fiasco cost our financial institutions?  Read on.

JPMorgan Chase and Bank of America (NYSE:BAC) are expected to reveal losses of about $3bn on holdings of mortgage securities and leveraged loans when they report third-quarter results this month.  This would take to more than $20bn the total writedowns announced by the world’s leading banks as a result of the credit market turmoil over the summer. JPMorgan is likely to unveil mark-to-market losses on leveraged loans of about $1.4bn. He estimates it will suffer a further $700m of write downs on mortgages and mortgage-backed securities, for a total of $2.1bn.  For Bank of America, he estimates leveraged loan losses will be $700m and the mortgage writedowns $300m. Merrill Lynch last week said it had suffered $5bn losses. UBS said it had $3.7bn of writedowns, Deutsche Bank $3.1bn and Citigroup $2.7bn.  Other banks with smaller capital markets operations such as Wachovia are likely to report writedown. Last week, Washington Mutual said it would take a hit of $410m on mortgages held for sale, holdings of mortgage-backed securities and losses in its trading business.

Here are Today’s closing details:
DJ30 – 14,165 (Up 121 points)

 

10 year US Treasury Bond – 4.65%  (Up 0.01%) I don’t like seeing this interest rate going up, as it has a direct bearing on the future cost of money for everyone reading this article.

US Dollar – $1.4103/Euro.

Gold closed at $743 per ounce. (Up $4)

Oil Closed at $80.26 (Up 1.24)

Gasoline is $2.02 (Up 0.02)