The Economy Guy

The Bear Sterns announcement today knocked the stuffing out of the stock market and it fell 195 points.  See news story below.

Bonds became the “flight to safety” point for all that money, and the 10 year treasury fell 0.11%, a mighty fall.

As promised yesterday, currencies were poised to make new highs, and the Bear Sterns news gave them the excuse they needed.  The Euro, Yen, Swiss Franc hit new highs.

Gold closed above $1000 for the first time, and hit $1007 during the day – a new high.

In the news today….

Bear Sterns, that mighty giant of an investment bank, basically is illiquid (or bankrupt if you think about it that way).  They had to be bailed out to keep from closing their doors for good.  The FED and JP Morgan came to the rescue.  JP Morgan will probably purchase Bear Sterns as part of this bail out.  How low the mighty have fallen.

How did Bear Sterns become so illiquid – when the FED had just announced its $200B bailout of investment banks???  They had way too many securitized mortgages; couldn’t value them; couldn’t sell them; couldn’t borrow from anyone; and ran out of money (this is the true meaning of illiquidity).  The FED’s $200B bail out plan was just TOO LATE.  (Now there’s a comment on the FED.)

The question for you today is “How many other financial institutions are on the brink of closing their doors????”

How did the FED conjure up saving Bear Sterns.  The FED had to resort to tactics not used since THE GREAT DEPRESSION of the 1930s.  Using statues from that time stating the FED can inject funds into a non-depository institution (Bear Sterns is a non-depository institution) in “unusual and exigent circumstances.”  WELCOME to UNUSUAL and EXIGENT CIRCUMSTANCES.  The FED funding will flow thru JP Morgan into Bear Sterns.

Let this be a big lesson that the FED is here to save the big financial institutions of the US (and abroad?).  In my 2nd Dinner Discussion from yesterday, I bemoaned the fact that the economic situation of the US and the world is truly grave, and the FED doesn’t have many tools left to act.  Today, the very next day, the bottom fell out of one of the US’s big investment banks, and the FED had to reach into its bag of tricks to save that bank.

More news today….

When the FED meets next week, how much will they lower the Fed Funds Rate?  The bond market today is pricing in a 50/50 chance of a full percentage point drop – from 3% to 2%.  The market is betting the minimum reduction will be 0.75%.

How about that CPI (consumer price index)?  It didn’t change in February!!!!!!!  Okay, let’s get real.  The official US statistical situation is the inflation did NOT move last month.  Did anyone other than me see inflation actually move last month????  The CPI is a joke, and continues to swindle the average US citizen, or at least it totally misleads the average US citizen.

Dinner Conversation for Tonight

In the international economic community the US is perceived at devaluing its way to prosperity.  That’s the statement for you to debate with your friends, strangers and lovers.

My Two Cents is that this is a great (and possibly only) tactic left to the US to work its way out of the hole it has dug for itself.  A massively devalued Dollar would encourage massive exports – and might even balance the trade deficit, or heaven forbid, pay the deficit back.  A massively devalued Dollar implies a massively inflated Dollar – so hold onto your wallets as the FED and government sticks their hand into it (stealthily – that’s the way of inflation.)

Here are today’s Numbers:
Dow Jones 30 Industrial – 11,951 (Down 195 points)
10 Year Treasury Bond - 3.42% (Down 0.11%)
Euro - $1.5676 - a NEW HIGH – The Yen hit 98.9/$, and the SFr is now worth more than $1.  ALL NEW HIGHS
Gold - $1000 (Up $6) - Gold reach a NEW HIGH OF $1007 interday today.
Oil - $110.21 (Down $0.12)
Gasoline - $2.69 (Up $0.01)