October 14, 2008
Global Market Comments for October 14, 2008
1) There is no doubt now that we hit the bottom in the stock market on Friday at 7,700. The question now is how long we will bounce along the bottom between 8,000 and 10,000 while the air bubble works its way through the economy. Many smaller banks are still going under despite government aid because they are beyond redemption. A lot of bodies are going to float to the surface after this one. The data releases, like non farm payroll and jobless claims, are for the next few months going to be nothing less than horrific, and could give us our double bottom in the stock market. Unemployment will jump from 6.1% now to at least 8% next year.
2) The Treasury is forcing 25 key banks, including GS, MS, C, JPM, BAC and WFC, to sell to the government preferred equity stakes yielding a 5% dividend for three years. The CEO's are now subject to compensation caps. Global leverage peaked at 30:1 18 months ago and is 15:1 now. Asset sales will continue until it is 10:1, the normal leverage of a conservatively run bank. The banking business is now a low risk, low return public utility.
3) The latest poll of the Electoral College shows Obama winning 264 to 163. Checkmate. He is even ahead in Virginia where democrats have not won in 40 years. Jefferson Davis must be rolling over in his grave. We have our Depression now. The big question is, can Obama become a Franklin Delano Roosevelt? Will Depression II give us the New Deal II?
4) A friend bought gas over the weekend in Michigan at $2.59/gallon! She was so thrilled she took a picture of the sign. Some oil insiders are now predicting a drop in crude to $50. OPEC is now talking about production cutbacks to maintain prices. Oh well, I can't qualify for the loan for that Prius anyway.
5) Mitsubishi Motors brought out its all electric 'i Miev' car in Japan for $55,000. The lithium-ion battery hatchback, similar in its technology to Silicon Valley?s Tesla, can drive 100 mph for 100 miles and then recharge in minutes with a quick charge device. The gasoline powered version of the car costs only $13,000. Being green is expensive. If history is any guide GM won't bring out its competitor for two more years, and it will cost more, be slower with a shorter range, and will start to fall apart after the first 10,000 miles. That?s if they don?t go bust first.
QUOTE OF THE DAY
'We have had a dark chapter in American history. I will never be forgiven for being right too early. '?'?.I'm a pussycat in real life. But give me 800 words and I start slashing:' Nobel economics prize winner Paul Krugman.