Never Too Big To Fail
Markets were all over the place today with stocks ending up 82 points. Bonds continued their lowered interest rates.
Gold hit a near term high at $942. The Dollar continued to decline a little.
Oil came back with a vengeance, jumping up $5.60. Looks like the long traders pulled out a ‘bull trap’ the beginning of this week. Gasoline followed in the wake of oil.
In the news today…..
Retail Sales were up in June from those Rebate Checks. But, this slight rise will go away next month as those checks will have been spent by them. People are spending their money in lower priced stores like WalMart and Costco which have seen a large pickup in sales. Other shops are suffering a lot.
Unemployment Claims were at 346,000 for the week, and this was not as bad as expected. But the trend is still very clear. The US Economy is losing jobs.
Foreclosures were up 53% from a year ago June. 252,000 homes were foreclosed last month. 71,000 homes were repossessed. What happened to the other foreclosed houses? They were sold, of course, but at a deeply discounted price.
Bernanke and Paulson were testifying to Congress today, and made one very quotable comment. “No bank is too big to fail.” That sent shutters through the stock market. Lehman Bros is the bank with the worst financials today, and its price fell 19% on the news of this quote. EconomyGuy Warning: If any of the readers are currently using Lehman Bros, you should either move your account to another company, or, at the very least, investigate to guarantee that all you money is covered by the $100,000 FDIC rules.
Interesting Tidbit…..
The FED came out against Ethanol today in a report from one of the FED banks (St. Louis, I think.) They basically said it is being hyped for the wrong reasons, and CAN’T solve the gasoline problem even if ALL the Corn in the US is used. And, by the way, it is damaging the US Economy by increasing food costs.
Iranian News today…..
Remember yesterday’s Iranian multi-missile launch yesterday? Well, a French newspaper showed that some of the “official” Iranian photos of the launch were “doctored”. Apparently they had a problem with at least one of the launches.
Today, they launch a lot more missiles, but US intelligence said it was all a FRAUD, as they radars (and other spy means) didn’t pick up any of the launches.
Apparently, the Iranian government is telling fibs to its citizens – nothing hard to refute there, as our government shades the truth to us from time to time also.
Here are today’s numbers:
Dow Jones 30 Industrial – 11229 (up 82 points)
10 Year Treasury Bond – 3.81% (down 0.02%)
Euro – $1.5788
Gold – $942 (up $13)
Oil – $141.65 (up $5.60) – back with a vengeance.
Gasoline – $3.51 (up $0.13)
Tom,
I can’t help but wonder if these reports of the discounters showing increased sales is because they are actually selling more products (I don’t think they are) or if it is just the fact that general price inflation is making their sales look higher. Commodities have increased so much it’s hard to believe that major food distributors/retailers are not showing year-to-year gains.
Cyrus
Cyrus,
Yes, some of the gains are caused by price inflation, but so far price inflation is more or less contained to food (and gasoline of course). My sense is that the price of non-food stuffs hasn’t been hit with inflationary pressures yet. I do think that inflationary pressure will be coming through to all things as the energy price increases filter through to the consumer.
Tom
You quoted Bernanke and Paulson testifying to Congress yesterday, saying. ”No bank is too big to fail.” Even when these things are true, it doesn’t seem smart to say it when the press is there. Of course we don’t know the total context, but it still makes me worry about their street smarts, thus their decision making processes.
Christine Harvey
Co-Founder
WomenForWealth.com
Hi Christine,
I think their statement was more of a political statement than an economic statement. They were talking to Congress, and Congress is giving them a lot of heat for taking on the private sector risk (think Bear Stearns). They were basically saying that the FED won’t always bail out the big guys, but would let them fail, and here is the rub, “when the big guy’s failure won’t bring down the US economic system.” That was the case with Bear Stearns. The FED feared that allowing Bear Stearns to go bankrupt would cause a waterfall effect of a lot of other financial institutions to go bankrupt – those other financial institutions who were tied to Bear Stearns via joint investments, cross-collatoralisation, and other promises.
My guess is that the FED would bail out the next big guy too. Nothing has changed since Bear Stearns.