The Economy Guy

 Stocks moved sideways today, and bonds continued their huge move upward (lower interest rates).  The 10 Year Treasury is close to testing the 2.5% level.

Oil and gasoline fell on fears that OPEC can’t get its act together to cut production.

Gold continued its climb upward, and looks good right now.

The Dollar got hammed today and is either continuing its long term loss in value, or is just giving up some its recent (6 month) gains – either way, the Dollar is moving so fast that traders must not want to show up for work in case they take a break to go to the bathroom, and lose millions of dollars.

In the news today…..

Over this last weekend a big news story broke.  Bernie Madoff, an ex-Chairman of the NASDAQ, and a highly regarded stock market personality who ran his own hedge fund – admitted to creating a Ponzi Scheme on the scale never seen by the world before.  He lost about $50B – that’s billion dollars.  Some of the smartest people, some of the richest people, some of the best hedge funds, some of the best banks – gave money to Bernie to invest in his scheme.   They may have lost all of their money – only time will tell.  Here is my spin on what happened:

1. None of the investors were smart enough to ask how Bernie was making his returns (10 to 12% per year).
2. The SEC fell down on the job again – what a worthless organization.
3. Everyone seemed to just “trust” Bernie as he was a well known person on Wall St.
4. Bernie’s Auditors verified his books each year – they are clearly implicated in this fraud.
5. Greed ruled – common sense didn’t.
6. Where did the lost money go?  Some people who got out of Bernie scheme may have to give all their money back – as his distributions were illegal.  So, if you were one of them, and you got your money back, and you feel safe right now – don’t.
7. Will there be other shoes to drop from Bernie’s folly?  Was there any insurance on his investments that must now be paid?  Did any brokerages get caught holding the bag – Bernie’s last investments?
8. If you did lose money in Bernie’s scheme, and you invested your money through a third party – like a bank or investment house, etc. – sue the third party right now.  They didn’t do their due diligence of Bernie – obviously.
9. Last, but now least, where have all the morals gone???  We all knew Wall St was greedy, but do we really have such competent and upright people perpetrating fraud????  Obviously yes – but, here is the key question – “Are there any more of them out there?”
   

Tonight’s Dinner Conversation….

The Treasury has handed out the first tranche ($350B) of the $700B TARP money to Wall St Investment Houses, and big banks?  Every action has intended and UNINTENDED consequences.  The intended consequences appear to be working – lower interest rates like LIBOR, commercial paper market now working, etc.  However, some major problems still exist – like the housing meltdown, and non-Treasury bonds, and the US economy.

But, what about the UNINTENDED consequences?  Think about this for a second.  Big banks are getting a wad of money to make their balance sheet look whole again.  Part of this chameleon change is to have big investment banks become big commercial banks – with all the rights and privileges that come with it.  That means they can now float notes that are FDIC insured.

Doesn’t this give the big guys an unfair advantage over the smaller commercial banks – those thousands of commercial banks all over the US who are whole and sound today?  Yes it does.  Can you think of any other unintended consequences?

All government actions have unintended consequences that interfere with the working of a free market.  Some can be quite dramatic – like FDR’s laws he passed in 1933 – some of which stay with us today, but most of which have been removed by subsequent Congresses.  One final point to peak your emotions hopefully – FDR did NOT pull us out of the Great Depression because of his masterful ideas – nor did World War II pull us out of the Great Depression (it just interfered enormously with free markets as it must).   Do you know what did pull us out of the Great Depression?

Here are Today’s numbers:
Dow Jones 30 Industrial – 8565 (down 65 points)
10 Year Treasury Bond – 2.53% (down 0.06%)
Euro – $1.3699 – lost over 3 cents in one day – a massive move.
Gold – $837 (up $16)
Oil – $44.51 (down $1.77)
Gasoline – $1.04 (down $0.04)