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Economic & Market Highlights 10/20/08

Posted by Larry Doyle on October 20, 2008 10:45 PM |

The markets had a very solid rebound of app. 5% across the board which brings us back to the levels seen literally one week ago. What prompted the rally??

1. Credit continued to loosen. 3mo Libor moved down to 4.05. This rate was in the 4.75% a week to ten days ago.

2. Speculation that the Fed will cut rates at next week’s meeting. The Fed Funds rate is currently at 1.5%. (I also am concerned about this move. I think it increases the chance for real growth in the money supply which becomes a precursor to increased inflation)

3. Speculation that there will be another stimulus package coming from Washington. This package would be in the vicinity of $100-150bln. This package would likely be a mix of extended unemployment benefits, spending on infrastructure, and debates about tax cuts vs spending on liberal programs. (I view this as a shot of morphine to a patient that needs a long term program of more exercise, a balanced diet, and clean living)

4. The index of leading economic indicators actually increased with focus on an increase in money supply and imprroved consumer expectations (that surprises me).

5. Indications that European banks will be allowed to suspend the need for “mark to market” accounting. This move will bring capital relief to these banks and pressure the U.S. banking system to adapt the same procedure. (I think this move is bad. It is the equivalent of allowing a manufacturing company to “mark” their inventory at cost as opposed to market. How many banks would lend to an outfit like that?

6. THIS JUST IN….Obama flying back to Washington D.C. to deal with the crisis of an improving equity market!! In all seriousness, Wall St. always hedges it’s political bets by supporting both candidates. This year Obama is getitng more money from hedge funds because principals in hedge funds are allowed to defer income and then only has to pay capital gains taxes not ordinary income. Whoever is elected should go after that source of revenue because it is merely a big tax avoidance strategy that the hedge fund community has been given by Washington.


Oil rebounded today by about 4% and oil stocks follwoed suit. Be mindful that oil is down 50% from it’s highs while gasoline prices are only down by app 25% at the pump. Consumers gettign screwed once again. (The same goes for food. Price increases for food are amazingly “sticky” and go up a lot quicker than they come down.)

Yahoo announces layoffs.

GM indicates that it is having problems arranging financing and getting investors interested in it’s potential merger with Chrysler. GM Is now the 20th largest automotive company in the world by market cap. How the mighty have fallen!!

ING gets a $13bln capital injection from the Netherlands.

************Where do the next multi-billion dollar losses lie???****************

Synthetic CDOs……read more.

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