Good evening everyone!
What an epic day on Wall St. I must admit that I also find it to be a very sad day based on some news from the Treasury. I think I may have to tweak my thesis on the economy my friends. Watch the following video, and I will explain what scared the daylights out of me today.
Wow me might as well call this guy Nostradamus based on his recommendation to buy gold. I have been in the deflation camp throughout this crisis. I thought the gold bugs had it wrong because I thought the Fed would shrink the money supply, and we would work through this via a Japan like deflationary scenario.
I thought surely the government would understand that trying to hyperinflate out of this would be insane. I say this because they would risk destroying themselves in the process because governments are ALWAYS overthrown when the hyperinflationary route is taken. Go Google Argentina and Germany hyperinflation and see how it worked out for those two governments. (I'll give you a little hint: Germany ended up with Hitler in power).
Now why am I now worried that we might try to inflate out of this? The Treasury announced today its going to turn on the printing press because the Fed is broke:
"Sept. 17 (Bloomberg) -- The Treasury will sell more debt to enable the Federal Reserve to expand its balance sheet, a sign of the strains created by the biggest extension of central-bank credit to financial companies since the Great Depression.
The program starts today with a $40 billion auction of 35- day bills, a day after the government agreed to take over American International Group Inc., the Treasury said in a statement in Washington.
The proceeds will ``provide cash for use'' by the Fed as it seeks to boost liquidity in credit markets struggling from $515 billion in writedowns and losses since the start of last year. The announcement illustrates the potential drain on the government's finances in taking over AIG, Fannie Mae and Freddie Mac, and taking on $29 billion in Bear Stearns Cos. assets.
``It is becoming imperative for the Fed to take actions to enlarge its balance sheet,'' said Tony Crescenzi, chief bond market strategist at Miller Tabak & Co. in New York.
Yesterday the Fed announced an $85 billion loan to AIG, in exchange for a 79.9 percent government stake in the largest U.S. insurer. The Fed also has set up several other emergency lending programs to provide Wall Street firms with ready access to funding.
``The program will consist of a series of Treasury bills, apart from Treasury's current borrowing program'' and ``will provide cash for use in the Fed initiatives,'' the department's statement said."
My Take:
I was speechless after I read this. I have always wondered where the government thought they were going to get the money to pay for all of these stupid bailouts. Now I know: The Printing Press!
Folks, the more dollars you add to the money supply, the less the dollar is worth. If we start printing money, the hyperinflation scenario has to be part of your investment thesis. This is why gold had its biggest one day move in history. Are you guys ready for $30 bread? This is what happens when countries try to print out of financial catastrophes.
That $500,000 nest egg you saved for your retirement all your life becomes almost worthless. Of course after this happens, the citizens revolt and the government gets overthrown. Folks, the government has been overthrown every time this happens. Every time!
Bottom Line:
I gave you examples of foreigners backing away from our debt yesterday. Today the printing press was turned on to make treasuries for sale because the Fed is broke. As we fall into a severe recession and the government keeps spending like a drunken sailor, foreigners are going to start bailing on the great USA and our debt.
Think about it:
What incentive will they have to buy treasuries if we continue to spend spend spend which eventually kill our dollar? Turning on the printing presses will only exacerbate the fall of the dollar which makes treasuries even less attractive.
To make things worse, we are no longer consuming like we used to. This was a big reason why China keeps buying our debt in the first place! They knew we would take the money and buy import billions of dollars worth of Chinese goods.
We are becoming a less attractive place to invest. This will make printing out of this via hyperinflation a much more attractive option for the government.
So what should you do as an investor? Buy some gold. I will be picking some up this week and I will buy more if I see more printing by the government. We need to put a stop to this. Call your Congressman and tell them to stop spending money we don't have. We cannot allow hyperinflation to occur. Its the worst case scenario folks!
Guns and Gold. This is what it is coming to if we don't clean up our act.
Stay Tuned.
Wednesday, September 17, 2008
Batten Down the Hatches
Wow
What a morning. It looks like investors have finally gotten tired of the bailouts. I don't know where to begin today folks. The financial system is hanging by a thread. It seems to me like there is a run on the investment banks.
Morgan Stanley is supposedly considering their options in terms of whether or not they want to stand alone according to CNBC. Goldman Sachs is also getting pummeled today. Here is the story on the last men standing:
"Sept. 17 (Bloomberg) -- Goldman Sachs Group Inc. and Morgan Stanley, the two biggest U.S. securities firms, tumbled the most ever in New York after a government rescue plan for American International Group Inc. failed to ease the credit contraction.
Goldman fell as much as 23 percent on the New York Stock Exchange and Morgan Stanley plunged 44 percent, leading financial stocks to the lowest level in five years.
Morgan Stanley Chief Executive Officer John Mack and Goldman's Lloyd Blankfein are trying to navigate declining investor confidence that prompted emergency sales of Merrill Lynch & Co. and Bear Stearns Cos. and the bankruptcy of 158- year-old Lehman Brothers Holdings Inc. The turmoil spurred the U.S. government late yesterday to lend as much as $85 billion to AIG to prevent the insurer's collapse.
Markets are reacting to ``rumor and fear,'' Colm Kelleher, Morgan Stanley's finance chief, said yesterday after the New York-based company reported better-than-estimated earnings for the third quarter.
Morgan Stanley dropped $9.41 to $19.29, the lowest in almost 10 years, in composite trading on the New York Stock Exchange at 11:40 a.m. Goldman slumped $30.06 to $102.95, a three-year low. "
Quick Take:
All of the investment banks are just getting swallowed up by the massive deleveraging that is now hitting Wall St. These firms were so highly leveraged. They lent $30 for every one dollar in capital. That gives you a 30-1 leverage. When housing was going up, these firms made massive amounts of money with such high leverage.
However, leverage works both ways, so your losses are more severe when the game is over. When you are losing money at 30-1 leverage, it doesn't take much to wipe out your capital. I don't know if you will see an investment bank on Wall St. a year from now. That is unbelievable. Almost all of these firms navigated through the Great Depression. Is this a sign that this crisis is worse? Time will tell.
IMF: Worst of crisis lies ahead
Be worried when the IMF is worried:
"JEDDAH (Reuters) - The worst of the financial crisis may still lie ahead and more major financial institutions may face trouble in coming months, IMF director general Dominique Strauss-Kahn said on Wednesday.
"The roots of the crisis are behind us, the roots being the fall in housing prices. The consequences for some financial institutions are still in front of us. We have to expect that there may be in the coming weeks and coming months other financial institutions with some problems," he said.
Still, the world economy was very resilient and should rebound in 2009, Strauss-Kahn said to reporters after a meeting with Gulf Arab finance ministers and central bank governors."
Quick Take:
This is one of the most respected organizations in the world. Take note when they make such predictions.
Bloated Pig For Sale!
Regulators are shopping this pig around before they have to take them over. They have yet to find a buyer. Gee what a shocker. I am sure their balance sheet is in great shape! There is a reason this pig has been sitting at $2 for the last couple weeks. Here is the news:
"NEW YORK (AP) -- The U.S. government has been reaching out to large banks in an effort to organize a buyout of the beleaguered Washington Mutual Inc., according to a person briefed on the talks between regulators and banks
.
The obstacle, however, is that "no one knows what's in their books," the person said, speaking on condition of anonymity because of the sensitivity of the matter. There could be, he said, "a minimum amount of value there."
A New York Post report Wednesday citing unnamed sources said regulators have reached out to Wells Fargo & Co., JPMorgan Chase & Co. and HSBC Holdings PLC, among other institutions. The Post noted that no discussions of a deal between any of those banks and Washington Mutual were under way."
Quick Take:
this is the nations 6th largest bank. If the FDIC is forced to take them over, it will pretty much wipe out all of their capital. Don't worry, the way are government has been spending lately, I am sure they will throw them billions to fill up their coffers.
Money Market Fund Halts Redemption
I posted this in the comments section last night, but I felt it deserved a mentioning on here today:
"Sept. 17 (Bloomberg) -- Reserve Primary Fund, the oldest U.S. money-market fund, became the first in 14 years to expose investors to losses after writing off $785 million of debt issued by bankrupt Lehman Brothers Holdings Inc.
Shareholders pulled more than 60 percent of the fund's $64.8 billion in assets in the two days since Lehman folded. Losses on the securities firm's debt forced the fund to break the buck, meaning its net asset value fell below the $1 a share price paid by investors, New York-based Reserve Management Corp., its closely held owner, said yesterday in a statement. Redemptions were suspended for as long as seven days."
Update:
A second money market fund just broke the buck.
Quick Take:
I advised everyone last night to get into treasuries and CD's. If you like money market funds, Vanguard is the safest one out there. We are in a crisis folks and you really need to pay attention to your investments. Please be careful!
Gold Soars
When there is blood in the streets gold always reacts. I discussed a move in gold about a week ago but I didn't expect the biggest jump in 8 years! Then again I also didn't think we would lose almost all of our investment banks this week either! Here is the news on gold:
"Sept. 17 (Bloomberg) -- Gold surged the most in eight years as investors sought the safety of precious metals on concern that the credit crisis will deepen, leading more financial institutions to fail. Silver jumped more than 8 percent.
The U.S. government took control of American International Group Inc. in an $85 billion bailout to prevent the biggest financial collapse ever. The cost of borrowing dollars for three months jumped the most since 1999 as banks hoarded cash. In March, gold reached a record after the Federal Reserve backed JPMorgan Chase & Co.'s purchase of Bear Stearns Cos.
``Gold is going to be the beneficiary of a global move toward a safe haven,'' said John Licata, the chief investment strategist at Blue Phoenix Inc. in New York. ``There's a gigantic fear factor. Most people are concerned another bank is going to fail.''
AIG
Everyone knows about this by today but here is the story in case you missed it. This was the trigger to the selloff this morning.
Final Take:
I wanted to make this news oriented today because there is so much going on, and I realize people want to know why this is happening. IMO we are witnessing total contagion.
Our financial markets are extremely intertwined,and we are now seeing the fallout of three major events. In the past week we have seen our housing system nationalized, Lehman go Bankrupt, and our largest insurance company get taken over by the government.
Each of these events set off triggers all around the world. To say these are unprecedented times would be an understatement!
Stock are down almost 300 points. I am hearing reports companies failing to make payroll. Here is an example of one. I have a friend who just had the same problem.
Treasuries are now at their lowest levels in 54 years:
"Sept. 17 (Bloomberg) -- U.S. Treasury three-month bill rates dropped to the lowest since at least 1954 as a loss of confidence in credit markets worldwide prompted investors to abandon higher-yielding assets for the safety of the shortest- term government securities.
Investors pushed the rate to 0.0304 percent on concern that credit market losses will widen after the bankruptcy of Lehman Brothers Holdings Inc. and the federal takeover of American International Group Inc. In a sign of banks' reluctance to lend, the rates charged for short-term loans relative to Treasury bill rates rose to the highest at least since the stock market crash of 1987.
``It's scary,'' said E. Craig Coats Jr., who co-heads fixed income at Keefe, Bruyette & Woods Inc. in New York and started trading bonds in 1969. ``This is the worst it's ever been since I've been in the business. Nobody knows what's really going on. Systemic risk is here and there and everywhere.''
Bottom Line:
Batten down the hatches. We are in the middle of a systemic crisis. Things are real bad folks. My biggest fear is the Government might try to print out of this in a panic. I hear that the Fed is about out of money and needs to sell more treasuries in order to shore up its balance sheet. I need more hard info on this before I talk about it.
This is why you saw a moonshot in gold today. If we hyperinflate out of this, we risk losing everything including our government.
Stay tuned.
What a morning. It looks like investors have finally gotten tired of the bailouts. I don't know where to begin today folks. The financial system is hanging by a thread. It seems to me like there is a run on the investment banks.
Morgan Stanley is supposedly considering their options in terms of whether or not they want to stand alone according to CNBC. Goldman Sachs is also getting pummeled today. Here is the story on the last men standing:
"Sept. 17 (Bloomberg) -- Goldman Sachs Group Inc. and Morgan Stanley, the two biggest U.S. securities firms, tumbled the most ever in New York after a government rescue plan for American International Group Inc. failed to ease the credit contraction.
Goldman fell as much as 23 percent on the New York Stock Exchange and Morgan Stanley plunged 44 percent, leading financial stocks to the lowest level in five years.
Morgan Stanley Chief Executive Officer John Mack and Goldman's Lloyd Blankfein are trying to navigate declining investor confidence that prompted emergency sales of Merrill Lynch & Co. and Bear Stearns Cos. and the bankruptcy of 158- year-old Lehman Brothers Holdings Inc. The turmoil spurred the U.S. government late yesterday to lend as much as $85 billion to AIG to prevent the insurer's collapse.
Markets are reacting to ``rumor and fear,'' Colm Kelleher, Morgan Stanley's finance chief, said yesterday after the New York-based company reported better-than-estimated earnings for the third quarter.
Morgan Stanley dropped $9.41 to $19.29, the lowest in almost 10 years, in composite trading on the New York Stock Exchange at 11:40 a.m. Goldman slumped $30.06 to $102.95, a three-year low. "
Quick Take:
All of the investment banks are just getting swallowed up by the massive deleveraging that is now hitting Wall St. These firms were so highly leveraged. They lent $30 for every one dollar in capital. That gives you a 30-1 leverage. When housing was going up, these firms made massive amounts of money with such high leverage.
However, leverage works both ways, so your losses are more severe when the game is over. When you are losing money at 30-1 leverage, it doesn't take much to wipe out your capital. I don't know if you will see an investment bank on Wall St. a year from now. That is unbelievable. Almost all of these firms navigated through the Great Depression. Is this a sign that this crisis is worse? Time will tell.
IMF: Worst of crisis lies ahead
Be worried when the IMF is worried:
"JEDDAH (Reuters) - The worst of the financial crisis may still lie ahead and more major financial institutions may face trouble in coming months, IMF director general Dominique Strauss-Kahn said on Wednesday.
"The roots of the crisis are behind us, the roots being the fall in housing prices. The consequences for some financial institutions are still in front of us. We have to expect that there may be in the coming weeks and coming months other financial institutions with some problems," he said.
Still, the world economy was very resilient and should rebound in 2009, Strauss-Kahn said to reporters after a meeting with Gulf Arab finance ministers and central bank governors."
Quick Take:
This is one of the most respected organizations in the world. Take note when they make such predictions.
Bloated Pig For Sale!
Regulators are shopping this pig around before they have to take them over. They have yet to find a buyer. Gee what a shocker. I am sure their balance sheet is in great shape! There is a reason this pig has been sitting at $2 for the last couple weeks. Here is the news:
"NEW YORK (AP) -- The U.S. government has been reaching out to large banks in an effort to organize a buyout of the beleaguered Washington Mutual Inc., according to a person briefed on the talks between regulators and banks
.
The obstacle, however, is that "no one knows what's in their books," the person said, speaking on condition of anonymity because of the sensitivity of the matter. There could be, he said, "a minimum amount of value there."
A New York Post report Wednesday citing unnamed sources said regulators have reached out to Wells Fargo & Co., JPMorgan Chase & Co. and HSBC Holdings PLC, among other institutions. The Post noted that no discussions of a deal between any of those banks and Washington Mutual were under way."
Quick Take:
this is the nations 6th largest bank. If the FDIC is forced to take them over, it will pretty much wipe out all of their capital. Don't worry, the way are government has been spending lately, I am sure they will throw them billions to fill up their coffers.
Money Market Fund Halts Redemption
I posted this in the comments section last night, but I felt it deserved a mentioning on here today:
"Sept. 17 (Bloomberg) -- Reserve Primary Fund, the oldest U.S. money-market fund, became the first in 14 years to expose investors to losses after writing off $785 million of debt issued by bankrupt Lehman Brothers Holdings Inc.
Shareholders pulled more than 60 percent of the fund's $64.8 billion in assets in the two days since Lehman folded. Losses on the securities firm's debt forced the fund to break the buck, meaning its net asset value fell below the $1 a share price paid by investors, New York-based Reserve Management Corp., its closely held owner, said yesterday in a statement. Redemptions were suspended for as long as seven days."
Update:
A second money market fund just broke the buck.
Quick Take:
I advised everyone last night to get into treasuries and CD's. If you like money market funds, Vanguard is the safest one out there. We are in a crisis folks and you really need to pay attention to your investments. Please be careful!
Gold Soars
When there is blood in the streets gold always reacts. I discussed a move in gold about a week ago but I didn't expect the biggest jump in 8 years! Then again I also didn't think we would lose almost all of our investment banks this week either! Here is the news on gold:
"Sept. 17 (Bloomberg) -- Gold surged the most in eight years as investors sought the safety of precious metals on concern that the credit crisis will deepen, leading more financial institutions to fail. Silver jumped more than 8 percent.
The U.S. government took control of American International Group Inc. in an $85 billion bailout to prevent the biggest financial collapse ever. The cost of borrowing dollars for three months jumped the most since 1999 as banks hoarded cash. In March, gold reached a record after the Federal Reserve backed JPMorgan Chase & Co.'s purchase of Bear Stearns Cos.
``Gold is going to be the beneficiary of a global move toward a safe haven,'' said John Licata, the chief investment strategist at Blue Phoenix Inc. in New York. ``There's a gigantic fear factor. Most people are concerned another bank is going to fail.''
AIG
Everyone knows about this by today but here is the story in case you missed it. This was the trigger to the selloff this morning.
Final Take:
I wanted to make this news oriented today because there is so much going on, and I realize people want to know why this is happening. IMO we are witnessing total contagion.
Our financial markets are extremely intertwined,and we are now seeing the fallout of three major events. In the past week we have seen our housing system nationalized, Lehman go Bankrupt, and our largest insurance company get taken over by the government.
Each of these events set off triggers all around the world. To say these are unprecedented times would be an understatement!
Stock are down almost 300 points. I am hearing reports companies failing to make payroll. Here is an example of one. I have a friend who just had the same problem.
Treasuries are now at their lowest levels in 54 years:
"Sept. 17 (Bloomberg) -- U.S. Treasury three-month bill rates dropped to the lowest since at least 1954 as a loss of confidence in credit markets worldwide prompted investors to abandon higher-yielding assets for the safety of the shortest- term government securities.
Investors pushed the rate to 0.0304 percent on concern that credit market losses will widen after the bankruptcy of Lehman Brothers Holdings Inc. and the federal takeover of American International Group Inc. In a sign of banks' reluctance to lend, the rates charged for short-term loans relative to Treasury bill rates rose to the highest at least since the stock market crash of 1987.
``It's scary,'' said E. Craig Coats Jr., who co-heads fixed income at Keefe, Bruyette & Woods Inc. in New York and started trading bonds in 1969. ``This is the worst it's ever been since I've been in the business. Nobody knows what's really going on. Systemic risk is here and there and everywhere.''
Bottom Line:
Batten down the hatches. We are in the middle of a systemic crisis. Things are real bad folks. My biggest fear is the Government might try to print out of this in a panic. I hear that the Fed is about out of money and needs to sell more treasuries in order to shore up its balance sheet. I need more hard info on this before I talk about it.
This is why you saw a moonshot in gold today. If we hyperinflate out of this, we risk losing everything including our government.
Stay tuned.
Tuesday, September 16, 2008
AIG Bailout: The Financial System Hangs in the Balance
Good Afternoon Everyone!
Its been quite a day in the markets. All eyes are now focused on AIG. It looks like the Fed might blink and bailout AIG:
"Sept. 16 (Bloomberg) -- The Federal Reserve is considering extending a ``loan package'' to American International Group Inc., the insurer facing a cash shortage, according to a person familiar with the negotiations.
The stance by federal regulators is a reversal from a position they held as late as last night, and people with knowledge of the talks are ``cautiously optimistic,'' said the person, who declined to be identified because negotiations are confidential.
The person gave no timetable for reaching an agreement or estimate on how much money New York-based AIG would need. New York Fed spokesman Andrew Williams declined to comment."
My Take:
This is the ultimate game of chicken between the Fed and the private banks. The banks are holding out on offering a loan to AIG to see how the Fed reacts. Now that the Fed has blinked, the banks have come out with a more hawkish tone in terms of lending money to AIG.
When its all said and done, I expect the Fed to give in and extend some type of hand to AIG. I think the Fed is afraid too see what the ramifications of an AIG failure would be given the lack of confidence that now grips the markets.. Lets see how this all plays out. If AIG fails, all hell is going to break loose in the financial markets.
Fed: No rate cut!
Kudos to the Fed. Maybe they are finally starting to get it. Here is the news on the Fed holding Rates:
"Sept. 16 (Bloomberg) -- The Federal Reserve left its main interest rate at 2 percent, rebuffing calls by some investors for a cut after Lehman Brothers Holdings Inc.'s bankruptcy shook markets worldwide.
``Downside risks to growth and the upside risk to inflation are both of significant concern,'' the Federal Open Market Committee said in a statement in Washington. ``The committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.''
Chairman Ben S. Bernanke and his colleagues signaled they will continue to address market turmoil with emergency lending and aim monetary policy at a longer-term economic forecast that may still show the economy skirting a recession. Stocks fell after the decision, while the dollar gained and Treasuries remained higher."
My Take:
I think the Fed decided they needed to save some bullets for the next blowup. The obsession on AIG gave them the opportunity to take a breather without taking too much heat. This was the right call and it was a unanimous decision.
This deleveraging is going to destroy many financial firms. The Fed knows there are many more battles down the road. I think they also are sending the message to Wall St. that there is a line of moral hazard that they refuse to cross.
Here is another reason why the Fed may have decided to hold rates at 2%. Well take a look at the TIC report(Treasury International Capitol) for July:
"Treasury International Capital (TIC) data for July 2008 are released today and posted on the U.S. Treasury website (www.treas.gov/tic). The next release, which will report on data for August, is scheduled for October 16, 2008.
Net foreign purchases of long-term securities were $6.1 billion.
Net foreign purchases of long-term U.S. securities were negative $25.6 billion. Of this, net purchases by private foreign investors were negative $20.7 billion, and net purchases by foreign official institutions were negative $4.9 billion.
U.S. residents sold a net $31.7 billion of long-term foreign securities.
Net foreign acquisition of long-term securities, taking into account adjustments, is estimated to have been negative $8.2 billion.
Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and other custody liabilities decreased $8.4 billion. Foreign holdings of Treasury bills decreased $4.4 billion.
Banks’ own net dollar-denominated liabilities to foreign residents declined $58.1 billion.
Monthly net TIC flows were negative $74.8 billion. Of this, net foreign private flows were negative $92.9 billion, and net foreign official flows were $18.2 billion."
Final Take:
The Boys on Wall St. all want a cut because it helps bailout the financials. What the Fed is focusing on is the larger picture IMO. This data had to scare the hell out of the Fed.
WE CANNOT afford to lose our foreign buyers of treasuries. Foreigners are getting increasingly tired of all of the lies, fraud, and manipulation on Wall St. As you can see by this Fed report, they are starting to walk away! The game is over if this continues folks.
Bottom Line:
The fact the DOW is up today is ridiculous. Stocks are soaring based on a potential AIG bailout. The huge bounce in the last few minutes leads me to believe that the deal is probably already done.
If Wall St. had a brain, they would get away from there minute by minute trading and start focusing on the fact that foreigners are starting backing away from our debt. The TIC report blew me away folks. This is a frightening development.
The "bubble boys" just want to cheer on the bailout. This is just more simpleton thinking by a bunch of pump monkeys. Party on boys because you have very few days left.
This "black hole" of debt that's about to suck away our economy will soon turn those cheers into jeers. I will be back on with any AIG news.
Its been quite a day in the markets. All eyes are now focused on AIG. It looks like the Fed might blink and bailout AIG:
"Sept. 16 (Bloomberg) -- The Federal Reserve is considering extending a ``loan package'' to American International Group Inc., the insurer facing a cash shortage, according to a person familiar with the negotiations.
The stance by federal regulators is a reversal from a position they held as late as last night, and people with knowledge of the talks are ``cautiously optimistic,'' said the person, who declined to be identified because negotiations are confidential.
The person gave no timetable for reaching an agreement or estimate on how much money New York-based AIG would need. New York Fed spokesman Andrew Williams declined to comment."
My Take:
This is the ultimate game of chicken between the Fed and the private banks. The banks are holding out on offering a loan to AIG to see how the Fed reacts. Now that the Fed has blinked, the banks have come out with a more hawkish tone in terms of lending money to AIG.
When its all said and done, I expect the Fed to give in and extend some type of hand to AIG. I think the Fed is afraid too see what the ramifications of an AIG failure would be given the lack of confidence that now grips the markets.. Lets see how this all plays out. If AIG fails, all hell is going to break loose in the financial markets.
Fed: No rate cut!
Kudos to the Fed. Maybe they are finally starting to get it. Here is the news on the Fed holding Rates:
"Sept. 16 (Bloomberg) -- The Federal Reserve left its main interest rate at 2 percent, rebuffing calls by some investors for a cut after Lehman Brothers Holdings Inc.'s bankruptcy shook markets worldwide.
``Downside risks to growth and the upside risk to inflation are both of significant concern,'' the Federal Open Market Committee said in a statement in Washington. ``The committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.''
Chairman Ben S. Bernanke and his colleagues signaled they will continue to address market turmoil with emergency lending and aim monetary policy at a longer-term economic forecast that may still show the economy skirting a recession. Stocks fell after the decision, while the dollar gained and Treasuries remained higher."
My Take:
I think the Fed decided they needed to save some bullets for the next blowup. The obsession on AIG gave them the opportunity to take a breather without taking too much heat. This was the right call and it was a unanimous decision.
This deleveraging is going to destroy many financial firms. The Fed knows there are many more battles down the road. I think they also are sending the message to Wall St. that there is a line of moral hazard that they refuse to cross.
Here is another reason why the Fed may have decided to hold rates at 2%. Well take a look at the TIC report(Treasury International Capitol) for July:
"Treasury International Capital (TIC) data for July 2008 are released today and posted on the U.S. Treasury website (www.treas.gov/tic). The next release, which will report on data for August, is scheduled for October 16, 2008.
Net foreign purchases of long-term securities were $6.1 billion.
Net foreign purchases of long-term U.S. securities were negative $25.6 billion. Of this, net purchases by private foreign investors were negative $20.7 billion, and net purchases by foreign official institutions were negative $4.9 billion.
U.S. residents sold a net $31.7 billion of long-term foreign securities.
Net foreign acquisition of long-term securities, taking into account adjustments, is estimated to have been negative $8.2 billion.
Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and other custody liabilities decreased $8.4 billion. Foreign holdings of Treasury bills decreased $4.4 billion.
Banks’ own net dollar-denominated liabilities to foreign residents declined $58.1 billion.
Monthly net TIC flows were negative $74.8 billion. Of this, net foreign private flows were negative $92.9 billion, and net foreign official flows were $18.2 billion."
Final Take:
The Boys on Wall St. all want a cut because it helps bailout the financials. What the Fed is focusing on is the larger picture IMO. This data had to scare the hell out of the Fed.
WE CANNOT afford to lose our foreign buyers of treasuries. Foreigners are getting increasingly tired of all of the lies, fraud, and manipulation on Wall St. As you can see by this Fed report, they are starting to walk away! The game is over if this continues folks.
Bottom Line:
The fact the DOW is up today is ridiculous. Stocks are soaring based on a potential AIG bailout. The huge bounce in the last few minutes leads me to believe that the deal is probably already done.
If Wall St. had a brain, they would get away from there minute by minute trading and start focusing on the fact that foreigners are starting backing away from our debt. The TIC report blew me away folks. This is a frightening development.
The "bubble boys" just want to cheer on the bailout. This is just more simpleton thinking by a bunch of pump monkeys. Party on boys because you have very few days left.
This "black hole" of debt that's about to suck away our economy will soon turn those cheers into jeers. I will be back on with any AIG news.
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