Stress Test Results
Stocks went up today on the good news coming out of the Stress Tests – see article below. Bonds went down (inversely to stocks) and added interest rate to 3% for the 10 Year Treasury.
Everything else went sideways with slight increase in the Euro and Gold.
In the news today…..
Stress Test Results – are in now. The results? Most of the 19 banks tested have sufficient capital to continue as good banks. The tests were “forward looking” tests designed to look at various potential economic scenarios. Banks were asked to project their credit losses and revenue out two years.
What does this mean? It means that some of the banks are undercapitalized according to the stress test. In addition, we must remember that the banks themselves are creating the data being fed into the Stress Tests. There is no visibility of those inputs, so we should take the results with a big grain of salt. Also, politics is playing a heavy hand in these tests, and you can never account for politics.
Student Loans Program – President Obama proposed today to eliminate private lending of student loans, and have loans directly with the US Government. He claims the change would save $48B.
There is no doubt that having private lenders costs more money in the loan program – as those lenders make a profit on their loans. The real question in my mind is whether of not the inefficiency of a new Government program would save money, or cost more money. The Government would have to hire many new employees to manage the program, and government inefficiency is well documented – even in new programs.
Durable Goods – orders fell 0.8% in March. This was actually considered good news by analysts because the concensus thought the drop was going to be much bigger. Any drop in orders is bad news, and should be considered so.
New Home Sales – fell 0.6% in March. A reduction in new home sales just lengthens the time it will take to work off the inventory of new homes to be sold; thereby, prolonging the recession we are in.
Tonight’s Dinner Conversation…..
What’s the next big bailout coming? Consider the situation of the states – lead in their poor financial performance by California and Michigan. Michigan is in deep trouble with its top 4 companies – GM, Ford, Chrysler and DOW – being hit extremely hard by the recession. In Michigan it means that AMWAY will be their biggest company this coming year.
Where are the states going to get their ability to pay their bills? The main increase in state expenditure is coming from unemployment benefits. Taxes is where states raise money of course. But, can states raise their sale, income, property taxes enough to pay their way? Some can, but some definitely can’t.
Is there any way that the people of those states will accept their states going into bankruptcy? Or, will they demand that the federal government bail them out, like they bailed out the banks and the car industry?
Here are the last numbers for today:
Dow Jones 30 Industrial – 8076 (up 119 points)
10 Year Treasury Bond – 3.00% (up 0.07%)
Euro – $1.3244
Gold – $914 (up $8)
Oil – $48.85 (up $0.30)
Gasoline – $1.39 (down $0.02)