Archive for the ‘auto bailout’ Category
And the Market Keeps Rolling Along…..
Posted by Jody Eisenman | Filed under Uncategorized, auto bailout
Sorry I havn’t posted in a while, but I have been really caught up with work related activities. As I stated earlier, market sentiment has changed 180 degrees since March 9. Whereas previously the market would react negatively to almost any news, the new market seemingly shrugs off almost everything.
The banks need lots more capital to survive? No matter, they keep rising.
Credit defaults soaring? American Express is now over 26, a gain of over 150% from its’ low of $9.71.
The REITS (real estate investment trusts) have massive debts that may not be able to be refinanced? Who cares, the stock prices (SPG, VNO, SLG) have doubled.
The casino industry business is falling off a cliff? Their stocks (see MGM, LVS,BYD) have exploded.
Part of the reason for this is in my opinion is that..
1. Stocks simply fell too far too fast
2. The credit markets have gotten much stronger. This is a very positive sign for the economy as well, as investors continue to climb out of their caves and start to put capital to work.
After a 235 point rise today, the DOW now sits at 8504. This is over a 2000 point move off the lows a little over two months ago. I expect this positive sentiment to continue for the immediate future.
England’s Failed Auction: Ominous Sign for the US?
Posted by Jody Eisenman | Filed under Uncategorized, auto bailout
The UK tried to auction off $2.6 billion in 40 year bonds yesterday, but failed to get the requisite number of bids. This was the first failure of non-indexed bonds there since 1995. The government of Prime Minister Gordon Brown is in danger as the English economy continues to contract.
Why am I bringing this up? Because in an effort to stimulate their economy, the Bank of England cut their benchmark lending rate to half a percent. When that didn’t have the desired effect, they decided to buy up long term government bonds. Investors reacted by staying away from the auction. Here in this country, the Fed lowered its’ targeted Fed Funds Rate to essentially zero. When this did not have the desired effect, the Fed announced they would be purchasing long term bond, much like the Brits. As I described earlier this week. If investors refuse to buy long term treasuries, the Fed will almost certainly be forced to raise interest rates at a time they are desperately trying to keep them as low as possible. Should investors continue to stay away, there is a real default risk. UK Credit Default Swaps currently trade at around 111 basis points, substantially higher then other industrial nations such as the US, Japan and Germany. I continue to believe that the Feds’ actions comprise a high risk bet on stimulating the economy.
The Economy and the Auto Bailout
Posted by Jody Eisenman | Filed under auto bailout
Unfortunately, the US economy continues to get demonstratively worse. The number of Americans filing for unemployment hit the highest level in 26 years. Yields on some US treasuries are at their lowest since 1929. As prices continue to decline, US household net worth declined by 4.7% in the third quarter according a Federal Reserve report. Wall Street is pretty much doom and gloom as bonuses get cut and layoffs continue. As the credit markets continue to remain tight, it seems very likely that bankruptcies on Main Street will increase. What this means in terms of an eventual recovery is debatable. However, it would seem that there will a lot less players in the game once the music starts again. If you like to read bearish predictions, please clink the following link from CNN Money: 8 really, really scary predictions
The Auto Bailout is still on the front burner. Although a bill has passed the house, the senate is balking over approval. One telling fact is that in 2007, both GM and Toyota sold almost the same number of cars (roughly 9 million). However, Toyota earned roughly $17 billion, while GM lost money. Therefore, many legislators (as well as a majority of the public) feel that a bailout will only prolong the inevitable unless there are major changes in the business plan. Normally, one could wait until the new congress is seated where the Democrats would have more voting power. However, it seems, at least in GM’s case, that they will not have the luxury of waiting this long.
