Sense on Cents

Growing up as one of eight kids, seven boys, dinnertime was always interesting. More often than not, milk was spilled, vegetables were hidden, and you better not be late because the food went quickly. Every week to ten days, get ready for leftovers.

In a similar vein, today’s market activity, economic news, and financial stories felt like one of those “leftover” dinners. There is still plenty of juice in the meat, but we have already seen some of these items. Let me put some ketchup, A-1, black pepper, and worcestershire out here to spice things up.

The stock market on Thursday totally reversed Wednesday’s upward move. Does that mean investors are discounting the concept of Bank Transition that we discussed the other day? Not at all. In fact, I still have “reason for optimism” because an entity like Bank Transition is critically important to rebuilding the financial foundation of our country. If anybody wants to reread that piece, though, don’t overlook the fact that I said we will still experience serious economic pain for an extended period. That said, if we want to come out on the other side of this, sooner rather than later and in better shape, we need Bank Transition. Hopefully, readers can understand the context of my writing. I am not a day trader. I still think we will likely see the lows seen on November 20th. The mere fact that Bank Transition will likely be launched gives me reason for optimism. I hope that clarifies things. If not, please don’t be bashful.

The best performing sectors of the market on Thursday were focused on renewable energy and gold. The worst performing sectors were in recreational products and real estate services.

The longer maturities within the government bond market continued to sell off hard. The 10-year government bond is now back to near 2.9%, while the 30-year government bond is near 3.6%. Each of these rates is up approximately 1% in the last 3 weeks. Why?? Massive deficit spending and the resulting enormous government demand for money, both here and around the world. This demand will likely drive these rates even higher and “crowd out” private borrowers thus keeping corporate, consumer, and municipal rates at elevated levels, as well.

A loyal reader shared a piece with us yesterday on the consternation within the Chinese investment community over the financial issues within our country and the resulting underperformance of Chinese investments in our markets. This consternation caused the Chinese to sell a fair amount of assets and move into lower yielding Treasury securities. The Chinese economic minister speaking at the World Economic Forum in Davos, Switzerland was not overly enthused about our new Treasury Secretary taking them to task about the value of the Chinese yuan. This “dilemma” continues to evolve. We’ll be watching and we thank our reader for sharing that article.

Mr. Soros commented that the Euro may not survive without a global plan for dealing with toxic debt. This is the same financier who has made massive bets across a wide array of markets over the course of his career and then proceeded to talk his position. Not that many financiers do not do the exact same thing, but prior to any news source asking him his opinion, they should ask him his “financial position” so that his opinion can be taken with the pound of salt it deserves.

President Obama called Wall Street bonuses recently paid out “shameful.” Congressman Christopher Dodd indicated that he is looking for every legal means to reclaim bankers’ bonuses. I will grant you that the manner in which certain firms and certain executives have handled bonus payments is shameful. However, for both President Obama and Congressman Dodd to issue blanket statements like that is the height of pandering.

Senator Chris Dodd and former Countrywide CEO Angelo Mozilo

Let me remind both of them that certain firms did not want government money but were compelled to take it. Let me also remind them that they were the two single greatest recipients of money from Freddie and Fannie. Yes, the same Freddie and Fannie that have come back for more and more money as their mortgage portfolios sink deeper into oblivion because their colleague Barney Frank wanted to “roll the dice.” Let me also remind Mr. Dodd that he STILL owes the American public an answer about the VIP mortgage he received from Countrywide under the “friends of Angelo” program. Please keep the pandering to a minimum and be honest with the American public on those issues. In doing so, perhaps some greater credibility may be gained.

As President Obama said in his inaugural speech, those who handle the public’s money “will be held to account.”

~ LD

This entry was posted on Thursday, January 29th, 2009 at 8:53 PM and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.