The media is full of stories about Bernard Madoff, who allegedly lost somewhere between $17-50 BILLION by cheating his investors with a “Ponzi Scheme.” It is a story so similar to the WexTrust issue locally. While I feel sorry for the individual investors, some of whom were destroyed, they did forget the most basic rule of investing, i.e., ALWAYS have an independent, third party custodian…
Yesterday, the highly-regarded economist of Economy.com, Mark Zandi, testified before the Senate Banking Committee that a bankruptcy of the Big Three car makers would be a catastrophe for the wider economy, as well as the stock market. Upon questioning, he thought the $34 billion in loans being requested would be insufficient in the long run, and that they would return in another year or so…
In the past two weeks, the Bush Administration announced it would not seek the second $350 billion of the $700 billion “bailout” package approved by Congress. Also, Treasury Secretary Hank Paulson said there would be no new initiatives to deal with the credit crisis. So much for that promise to do “whatever necessary” to stem the crisis. Sensing increased uncertainty amid this lack of leadership,…
If the journey of a thousand miles begins with a single step, this weekend was probably a good first one. Albeit reluctantly, the U.S. convened a special meeting of the 20 most economically important nations in D.C. this weekend, which was described as the “Platitude Summit.” The nine-page closing press release contained a pledge of closer cooperation, to meet again, and . . . “never…
Long time veterans of Wall Street believe it is not safe to say the bottom has been reached until the market touches closing price on the worst day a second time and bounces back up. Today, the market did that and ended with a huge 552 bull run. Does that mean the bottom is here and that it is finally safe to invest some of…
If you are a supply-side economist, you believe personal behavior and economic performance can be controlled by tax rates. If you are a Keynesian economist, you believe economic performance can be controlled by fiscal policy, i.e., taxes and spending levels. If you are a monetarist, you are terrified by this chart, because an historic, astronomical increase in money supply like this is certain to create…
The S&P fell 3.9% last week. One of the primary reasons was the latest ISM Report by the Institute of Supply Management. A score of 50 indicates no growth. A score of 40 indicates a serious recession. This week, it was 38.9, which is the lowest since September 1982. Look at this graph. The rapid fall is certainly stunning! But, notice the pattern of quick…
Below the radar, there was a meeting this weekend of 43 European and Asian nations in Beijing to prepare a “comprehensive reform of the international monetary and finance system.” The U.S. was not invited. At the Nov. 15 international financial summit in Washington, D.C., we can expect the rest of the world to present their plan to us. Essentially, our creditors met this weekend, and…
I’ve always been told that “he who has the gold, makes the rules” and hope that is not always true. For decades, the Russians have wanted better refueling operations in the north Atlantic for its Navy. A few weeks ago, Iceland nearly went bankrupt and was very desperate. Immediately, Russia was there with a $3 billion handout. After all, Russia has $556 billion in foreign…
In the movie classic Casablanca, the corrupt local government official, who goes to the casino every night, indignantly admits to being “shocked” there is gambling there. Yesterday’s congressional testimony by Alan Greenspan reminded me of that movie. He said he was shocked that Wall Street would take on excessive risk. In theory, a firm would not and therefore needs no regulation. In practice, however, the…
While we have been through many recessions in the past, there is one thing very different about this one. It is the first one in a truly globalized world. There are reasonable arguments on both sides as to whether globalization will make the recession better or worse. While it is far too early to have a firm opinion, I suspect it will make the first…
The Dow fell 231 points yesterday because of concerns about the global recession and disappointing earnings announcements — but that is great news! Like the dog Sherlock Holmes noticed that didn’t bark, there is no mention of the credit crisis, which has totally dominated the news for the last two months. While it is certainly not over, it is clearly receding, as demonstrated by the…
Are we at the bottom of the economic cycle yet? Absolutely not. There is a lot of pain ahead for us. Are we at the bottom of the financial cycle yet? Just maybe . . . yesterday’s strong bull performance must be confirmed by the bond market, which was closed yesterday. If the bond market loosens up this morning, I’ll be an aggressive buyer this…
It has been a long time since I was a kid in a candy store who wanted everything he sees, but I’m starting to feel that way when I look at the stock market now. There are so many good companies to buy, and they’re 40% off. It may be time to start nibbling again!!
With stock markets crashing around the world, it is important to understand who is selling, besides the routine panic-seller. Two other things are also pushing the markets down strongly. First, the stock markets are the only source of new liquidity right now, as the credit markets are frozen. If you think you’ll need cash to weather the recession, you can only get it out of…
One of the concerns I have about all the recent government efforts to repair the credit crisis is that we’re creating a “Moral Hazard,” which means we’re rewarding bad behavior. Examples would be CEOs getting huge pay packages for poor management or unscrupulous homebuyers getting bailed out. I was discussing this today with another economist, and he told me about his daughter, who bought a…
Yesterday’s headlines obscured the news. The headline was the global coordinated interest rate cut of half a percent, which calmed the markets nicely . . . for about five minutes. But, lower interest rates will not end the current credit crisis, nor will more liquidity. We need to reduce bank leverage. There are two ways to do this: reduce debt, which they cannot do, or…
I recently talked with a senior official of the IMF about the global credit crisis. He thought a global crisis required a global solution, but there is no “decider-in-chief.” The U.S. can no more solve the global credit crisis than Virginia can solve the American credit crisis. Interesting! By coincidence, the G-7 conference is this weekend, and may be the most important one in decades.…
Long-time readers know I have railed about the potential problems from credit derivatives, such as credit default swaps. They must have been designed by financial engineers gone wild! Because they are not regulated nor traded on any exchanges, there is far too little information to evaluate the problem. On Sunday, I talked with the Fed’s top economist on this and was impressed he understood the…
Someday, the United States will have a female President, and her name may be Sheila Bair. Mentored by retired Senate Majority Leader Bob Dole, she has been masterful as Chairman of the FDIC, winning praise for her handling of IndyMac, the largest bank failure in history, as well as deftly protecting the taxpayers in the struggle between Wells Fargo and Citigroup over the late Wachovia.…
Friday’s House passage of the “bailout/rescue bill” was the most badly needed piece of bad legislation in American history. It was bad legislation because it focused on the symptoms of the credit crisis, and it was badly needed because it may have bought us enough time to focus on the cause, which is falling home prices. After all, they are the collateral for all those…
