The Economy Guy

After yesterday’s amazing stock market and money market action, today was important in the way the Central Bankers continued to pour money in. The European Central Bank (ECB) after injecting $130B yesterday, added another $84B today.

The US FED after adding $24B yesterday, added another $38B today. And Fed Chairman Bernanke said that he would pump as much money as it takes to solve the illiquidity problem.

Now that’s what I call more inflation.

The more important fact was that yesterday, FOR THE FIRST TIME EVER, the ECB and FED and Japanese Central Bank worked TOGETHER to add liquidity. This has never happened before. Adding funds has been done on a single national basis, but not a global basis. Several other Central Banks joined in yesterday with this Big 3 Triumvirate too. This was a truly global action.

By the way, do you remember that one French bank started all this yesterday? That bank closed 3 funds totaling $3.8B, but the ECB added $130B liquidity. Kind of an overkill?? Well, no. It turns out that there are lots of European banks holding sub-prime mortgage portfolios, and their exposure is MUCH greater than that one French bank. Other European banks have also stopped trading on the sub-prime mortgage funds.

US banks started calling loans in from companies and hedge funds dealing in sub-prime mortgages a few days ago. Banks don’t want to be left holding the bag when this market implodes. These bank demands are what is causing the illiquidity in the market.

Oh, and by the way again, the SEC is auditing the big US banks and financial companies to see (1) how much sub-prime mortgage market exposure each one has, and (2) how each one values its portfolio. Logic 101 says that this means that the SEC DOESN’T KNOW what is going on in this huge sub-prime mortgage market. Hope that makes you feel uncomfortable – because it sure makes me feel uncomfortable.

The US stock market went down and up today, but that’s what markets do. Kind of boring.

The US Bond market jumped again today. The 10 year bond interest rate fell .01%, thereby strengthening the bond rally.

The currency market was dull today. Basically, no change.

Here’s the closing details:
DJ30 – 13,240 (down 31 or 0.23%)

10 year US Treasury Bond – 4.78%

This is signally that the market wants a lower Fed Funds Rate. Only the Fed disagrees.

US Dollar – $1.3691/Euro. Hardly any change.
Gold closed at $681 per ounce. Lots of people are saying Gold will break out of $700 and create some dramatic new highs in the next 2 months.

Oil Closed at $71.46, and was close to $70 interday. Did anyone notice it coming down from its high a couple of weeks ago?

Gasoline is $1.95 (as a Sept. commodity priced at the refinery). That kind of says that distribution, taxes and local gas station profit adds up to about $0.70 – $1.00/gallon.