Good evening everyone!
What a day. The DC drama continues tonight as Senator Richard Shelby went on TV at 5:00PM and announced that a bailout agreement has not been reached. I think this debate might end up going into the weekend. Kudos to anyone who called or e-mailed Congress and spoke out against the bailout. Its making a difference! I still think some form of the bailout will be passed, but I expect it to be much tougher on Wall St. because Americans rose up and demanded to be heard!
I want to get away from this story tonight and focus on the economic fundamentals. We can't allow ourselves to get blinded by the bailout news. The bounce we saw today is only temporary. Folks, the economy is falling apart. Lets look at some data today.
One of the reasons the Republicans are backing away from this bailout is because some economists and analysts are sending research reports to Congress. The following report will make you realize why the government is in a total panic.
Sit down before you read this because it will send chills down your spine:
"1. Disregard data based on the list of troubled banks maintained by the Federal Deposit Insurance Corporation (FDIC). The FDIC’s list currently has 117 institutions with $78 billion in assets. However, based on a broader analysis of recent FDIC call report data, we find that institutions at risk of failure include 1,479 FDIC member banks and 158 thrifts with total assets of $3.6 trillion, or 36 times the assets of banks on the FDIC’s list.
2. Think twice before providing a broad bailout for U.S. debts given the wide diversity of mortgage holders and the great magnitude of the total debts outstanding in the United States. Just-released Federal Reserve Flow of Funds data show that, beyond mortgages, there are another $20.4 trillion in private sector consumer and corporate debts, plus $2.7 trillion in municipal securities outstanding.
3. Recognize that, among banks and thrifts with $5 billion or more in assets, there are 61 banks and 25 thrifts that are heavily exposed to nonperforming mortgages"
I really don't know what to say folks. I'm speechless. Read every word in that report. It will take your breath away. There is a list of the most troubled banks at the end of the report. If your money is in one of these institutions I would suggest that you move it tomorrow.
We have gotten to a point where this whole economy could collapse at any moment. Get prepared. Make sure you have some cash on hand. After reading this report, I have come to the conclusion that its too late for this economy to be saved. Its only a matter of time before this all blows up. The report suggests that there are 1500 banks that will potentially fail with assets of over $3.5 trillion.
We should be focising on bailing out the FDIC which protects the savings of Main St. versus bailing out the debts on Wall Street. Protect our savings instead of Wall St.'s greed! It looks like the $700 billion dollar bailout is a drop in the bucket versus the amount of bad debts in the banking system alone!
This bailout is insane and its not enough. The word is the Treasury will only get $250 billion if the bailout passes. What in the hell is $250 billion going to do given the enormity of this problem? Its like trying to shoot an elephant with a BB gun. It doesn't work!
We spent $300 billion on the last housing bill in an attempt to prevent foreclosures. How did that workout? Last I saw, homeowners were still continuing to fold like tents. If we can't stop foreclosures with $300 billion, then how in the hell can we save the financial system with $250 billion?
If this wasn't so tragic I would think that this was a comedy act.
Economic Data update
The focus on the bailout kept a lot of economic data out of the headlines today. Lets start with the jobless claims. The data was terrible:
"Sept. 25 (Bloomberg) -- The number of Americans filing first-time claims for unemployment benefits rose last week to the highest since September 2001 as hurricanes kept residents of Texas and Louisiana out of work.
Initial jobless claims increased by 32,000 to 493,000 in the week that ended Sept. 20, from a revised 461,000 the prior week, the Labor Department said today in Washington. Economists in a Bloomberg survey had forecast a drop. Hurricanes Ike and Gustav added 50,000 claims, the department said."
Anything over 400,000 is considered to be a bad number and very recessionary. Take away the hurricane claims and its still a terrible print.
New Home Sales in August hit a 17 year low
"Sept. 25 (Bloomberg) -- Sales of new homes in the U.S. fell in August to a 17-year low, signaling the housing market suffered another setback even before the latest turmoil in financial markets.
Sales dropped 11.5 percent, more than forecast, to an annual rate of 460,000, the fewest since January 1991, the Commerce Department said today in Washington. The median sales price dropped to a four-year low.
A financial meltdown that prompted the government this week to ask Congress for $700 billion in emergency funding to buy up troubled bank assets may continue to clog the flow of credit to homebuyers and businesses. Shrinking credit availability threatens to extend the three-year housing slump and deepen the economic downturn.
``The market is looking particularly depressing,'' said Guy Lebas, chief economist at Janney Montgomery Scott LLC in Philadelphia, whose sales forecast was the closest. ``Construction activity has to fall further than it has, as do prices,'' to reduce a glut of unsold homes.
The median price of a new home dropped 6.2 percent from a year earlier to $221,900, the lowest level since September 2004.
While builders cut back, they weren't able to keep pace with the slump in sales. The number of homes for sale fell to a four-year low of 408,000, down 4.4 percent from the prior month. The decline was the biggest since 1963. Still, the supply of homes at the current sales rate rose to 10.9 months' worth from 10.3 months."
Note much to talk about here. Prices have dropped to 2004 levels. I have predicted we return back to 1998 prices. Lets see where we end up. We are getting closer!
Jeez..How would you like to be a home builder right now? Sales are anemic, prices are dropping, and inventories are rising. Can it get any worse? Oh wait, yes it can! I forgot to include the fact that we are also having a financial meltdown! Better hurry buyers. The summer selling season is almost over. "Now is the time to buy!" NOT!
That's enough bad news for one day. I don't want anyone jumping off a bridge after reading this!
Things are bad folks and getting worse by the minute. There were a dozen other stories that I could have highlighted today. Demand for treasuries continued to plummet. The 10-year rose sharply again today. This is going to start moving interest rates much higher.
I don't know how much more our economy can take before it blows up. Paulson looked like he had seen a ghost today. I have never seen such fear in Congress. The last time I looked at the TV, they were all scrambling around the White House like a pack of squirrels.
Lets all hope we find a way out of this mess.
I plan on doing some things to prepare for a global meltdown. I am going to buy a safe and keep some cash at home. I also plan on making sure I stock up on some food. I am also going to fill up my gas tank. I really don't know what to expect if this all blows up. I do know that I need money, food, and the ability to travel. Keep in mind that I am not calling for the end of the world here folks! However if a meltdown occurs, a "timeout" of about a week is a distinct possability in my mind in an attempt by the government to keep the masses calm.
Be prepared for a few days of chaos just in case things get out of hand. If Congress walks away from the bailout bill tomorrow, you could see a black Friday in the stock market. Our way of life could well possibly change forever.
It didn't have to come to this. Sadly, all of our fears are slowly becoming a reality.