Archive for February, 2010
Consumer Confidence Plunges
Posted by Jody Eisenman | Filed under Uncategorized
In a surprising blow to the apparent economic recovery, the Conference Board announced today that the Consumer Confidence Index fell almost 11 points from 56.5 to 46. This number was expected to be around 55, and it ended three straight up months. Generally, increased consumer confidence indicates economic growth. These numbers are tabulated by polling 5000 households each month as to current business conditions, anticipated business conditions, current and anticipated employment, and total family income. The number is then based as an index, with 100 being “normal” or at equilibrium. This number was arbitrarily set in 1985. The index hit its’ lowest level since last April. The average number has been 95.6 since the tracking began in 1967.
In addition, Sheila Bair announced that thanks to the massive number of bank failures, the FDIC is now over $20 billion in debt. In order to make up the deficit, the FDIC is going to require that member banks pre pay thirteen quarters in advance. After a total of 28 banks failed over the 2007-2008 period, 140 failed last year. Thus far this year, 20 have been shuttered, which is a pace slightly above last year. Not good.
As such, the stock market is giving back ground. As of 3 PM, the DJIA is down about 80 points. I will try to write about the debt situation in our country shortly.
The Fed Begins to Raise Rates
Posted by Jody Eisenman | Filed under Uncategorized
Although Bernanke alluded to this recently, the Federal Reserve raised the discount rate by 25 basis points after the market closed yesterday. The discount rate is the rate that the Fed charges banks for temporary loans. With three month treasuries yielding 0.17%, it has been very easy for large banks to simply borrow money from the Fed at very cheap rates, and lend it out for huge profits. Look at it this way: If banks take in money from depositors at money market rates which average around one per cent, and then give mortgages for six percent, they make an enormous spread on their money. They make lots more from credit cards, where balances can be charged rates from the upper teens to over twenty per cent. Essentially, the Fed is signaling that the banks no longer need this assistance as their balance sheets have improved since the crisis of 2008-9.
As a practical matter, this may mean the beginning of the end to historically low rates. This will help depositors, but could signal a negative to the stock markets, which tend to thrive on low rates. As such, the market is looking a bit weaker. Over the next few days, I will discuss the effect of the US debt situation vis a vis interest rates.
The Obama Banking Plan
Posted by Jody Eisenman | Filed under Uncategorized
For a good video explanation of Glass-Steagall and the proposed Obama banking plan, please see the video on the Financial Times website:
http://www.ft.com/cms/s/0/8c6665d2-11a6-11df-bceb-00144feab49a.html
Meanwhile, the markets continue to churn around the Dow 10,000 mark. Thus far this year, the DJIA has traded between a range based on closing prices of between 9908 and 10,725. This is a range of about 8 pct. During the same period last year, the range was between 9034 and 7888, a range of 13 pct. Of course, last year the selling really accelerated until the second week in March. Many traders remain focused overseas, where the 2 main issues are Greece and China. The European Union appears to be ready to bail out Greece, which led to a 100 point gain yesterday. Today, China announced that they are raising the bank reserve rate for the second time in a month in order to slow growth. The reason this is done is that China fears a boom and bust economy. However, many economists fear that this could hurt the global economic recovery. Eventually, traders here will turn toward to Washington, to see if the Federal Reserve will begin to raise rates. Chairman Bernanke has indicated that this could happen later this year.
