The Economy Guy

Stocks went up today, desperately seeking good news.   Stock market players found that good news in the earnings announcement from IBM – not a very solid reason in my mind.

Gold hit an inter-day HIGH of $912 today, ending at $903.

The Euro and all other currencies are now challenging the highs they recently made.  Watch this spot.

Here is what really happened today…

Citibank might write off $24B in earnings this quarter.  Now we are talking, at last!!!!!  This is real money.  Not just the meager 1, 5 or 10 billion dollars, but a whole 24 billion dollars.  Also Citibank is going to ask its friends (??) to help by injecting some real cash into the bank.  So, Saudi Prince Alwaleed bin Talal will probably come through with $15B, and the Chinese have been asked to help too.  (Do you remember that Abu Dhabi put in $7.5B already a few months ago.)  This is what this really means — Citibank is on the brink of bankruptcy.  Scary??  Yes!!!!!!!  More importantly, this is such a significant event that the stock market should have collapsed on the news.

Why didn’t the market collapse??  Because Citibank is the “tip of the iceberg.”  All the financial institutions in New York are scared.  It is in their best interest to bolster stocks, rather than create a run on the market.

What else happened today?

Merrill Lynch asked Kuwait for a $4B cash injection.  Looks like the big players are really hurting.

Sovereign Bancorp of Philadelphia is writing off $1.6B due to bad home loans and consumer debt. I’ve never heard of this bank before, so how many others are going to come out of the woods soon?

How much money are we talking about?

We’re talking about $100’s of Billions being written off by the banks and financial institutions here and around the world.  That’s not chump change.  How bad can it get??  The Central Banks of the world are printing money as fast as their little hands can turn the crank.  This will turn into inflation.

Is the US financial system at risk??

It depends (as a good CPA might answer any question.)  As long as there isn’t a run on the dollar by all our “friendly” foreign Treasury Bond holders and holders of other dollar instruments, we should be able to weather the storm by printing money.  So, why is there a recession coming???  Well, if it comes, it will be coming because our financial institutions don’t have enough money to keep the wheels of US commerce greased.

Oh, by the way, what happens if someone challenges the legality of all those mortgage backed instruments that everyone bought?  Well, the only way it can be challenged in court is if there was “fraud” in their creation.  As the current Treasury Secretary was the head of Goldman Sachs when this all went down, he could easily answer that question.  By fraud, I mean that the creators of those instruments KNEW that they would become worthless when they created them.  The real bad news is that a successful court challenge would bring the US economy down, down, down, down …..

This sounds too much like doom and gloom.  I don’t mean to be so pessimistic, but I do want all the readers to be able to watch ANY news article that might talk about a court challenge.  Then, protect yourself.

Today’s Closing Numbers…
Dow Jones 30 Industrial – 12,778 (Up 172 points)
10 Year Treasury Bond – 3.79% (Down 0.02%)
Euro – $1.4869
Gold – $903 (up $6) – and it hit a high of $912 during the day.
Oil – $94.20 (up $1.51)
Gasoline – $2.37 (up $0.05)