The Economy Guy

Issue: 10/1/07 Monday

Wow, that market just keeps powering ahead. The big mover today was the stock market, up 192 points. Oil settled back $1.42 so it’s back in its “normal” range of about $80 a barrel. Do you remember when oil’s “normal” range was $60 a barrel. The stock market is being powered by the optimism that the FED will reduce the Fed Funds rate again on October 30th. However, another great reason is that those “shorts” from Hedge Funds are still being unwound – driving up the market as they must “buy” to “cover” those shorts.

Addressing business leaders this weekend, Alan Greenspan said: “Is this … credit crisis about to be over? Possibly.” The former Fed chief pointed to the re-emergence of trading in risky bonds in the United States as a sign that the global credit squeeze was easing. Greenspan told business leaders: “If it had not been triggered by the large loss suffered on American securitized sub-prime mortgages, it would have eventually surfaced as a rupture of some other financial product in the market.”

I hope that makes you feel uncomfortable. Greenspan was saying that the financial market had created such a mess that it would have caused the liquidity crisis one way or another. That should make you ask – What other problems are lurking out there???

The nation’s manufacturing sector expanded at a slower-than-expected rate in September, suggesting there’s room for the Federal Reserve to consider another rate cut later this month. The Institute for Supply Management said Monday that its manufacturing index registered 52.0 in September, down from 52.9 in August. It was the lowest reading since the gauge was at 50.9 last March. Analysts had expected a reading of at least 52.5. A reading of 50 or more indicates expansion, while below 50 indicates contraction.

Dutch bank ABN Amro, in the midst of a titanic takeover battle, said on Monday that it had finalized the sale of its US subsidiary LaSalle to Bank of America for 21 billion dollars. ABN Amro is at the centre of the biggest takeover battle in the European banking industry after a three-bank consortium led by Royal Bank of Scotland sought to outgun an offer from British group Barclays earlier this year. The sale of LaSalle was a key plank of the sale to Barclays, which was initially backed by the ABN Amro management. Through the acquisition of LaSalle, Bank of America, the United States‘ second-biggest bank, will strengthen its position, particularly in the Chicago region. The US Federal Reserve Bank gave the green light to the deal on September 14.

So this is a wonderful event. An American bank is being bought back by another American bank (B of A), so those large US assets are coming home. This is kind of counter to the flow of US assets being purchased by foreigners.

Here are Today’s closing details:
DJ30 – 14,087 (Up 192 points, or 1.38%)

10 year US Treasury Bond – 4.56% (Down 0.02%)

US Dollar - $1.4231/Euro. The Euro is taking a breather.Gold closed at $754 per ounce. (Up $4)

Oil Closed at $80.24 (Down 1.42)

Gasoline is $1.98 (Down 0.06)