The Economy Guy

Bonds reacted very reactively – down 0.25% for the 10 Year Treasury Bond – a dramatic fall in interest rates.

The Dollar reacted with strength in the morning, but lost ground as the day ground on.  The Dollar fell against the Euro, the Pound, the Yen, etc.

Oil and gasoline fell as a result of the scare that the loss of Lehman Bros will make the economic recession worse.  Gasoline fell to $95/barrel.  Wow.  But, have you seen your gasoline bill lessening?  Maybe a little, but I can assure you that those gasoline companies are keeping as much of your hard earned money in their own pocket and NOT passing on the reduce oil price to you.

Gold ran “contrary” to the conventional wisdom of the day.  It rose $23.  Gold is still a steal at $787.  The rise in gold today is a very loud voice saying “I’m worried about the US printing a bunch of money and creating a massive inflation in the future!!!”

What does the bankruptcy of Lehman Bros mean to the rest of the financial sector?  No one knows today.  It will be revealed over the week as the impact of selling all the Lehman assets hit the markets.  One major banker predicted that 1000 banks will go bankrupt before the end of this year – and this will be triggered by the Lehman Bros fall.  Watch out below!!!

Bank of America purchased Merrill Lynch (goodbye Merrill), and had a lot of good reasons.  Here are the best ones I can find:
1. Opportunity to pay premium price for unknown liabilities
2. Great chance to acquire a management team known for spectacular failures
3. Need a dose of OTTI (other than temporarily impaired assets)
4. Looking for team of “creative” accountants
5. Add to complacent board of directors
6. Avoid low-cost, build from within strategy
7. Take on high priced real estate leases from last year’s market
8. Don’t want to watch hated competitor twist in the wind
9. Thought “wasting assets” had something to do with successful weight loss franchise
10. Didn’t have enough troubles of your own

Remember that I warned that Bank of America was betting its future on the purchase of Merrill.  Their future is in the hands of the housing market.  Also remember that Bank of America is purchasing Countrywide – so that only makes these 10 reasons more real.

There is an 80% chance built into the bond market that the FED will be LOWERING the Fed Funds Rate by 0.25% tomorrow.  If that happens, it will tell you the seriousness of what just happened with Lehman Bros and Merrill.  AIG is waiting in the wings to fail – as I have reported in previous issues.  AIG is the biggest insurance company in the world.  Ugh.