Wednesday, August 06, 2008

End of week economic reality check

The DOW had quite a rally this week -- a FED week with very few economic reports due out in the early part. Funny - this PPT routine is becoming quite typical of our new "Free Market Economy". Prior to official Fed Speak, Gold gets crushed, the dollar rebounds and stocks soar on great economic (well, less worse than we thought) news! Then the Fed makes his obligatory worthless statement "We're gonna get tough on inflation soon, we promise - as the world laughs -- knowing these Fed geldings are stuck and WILL NOT RAISE RATES!

Mark my word -- we'll see another cut before a rate hike.

Anyway, I expect the DOW to close lower on Friday than where it is today.




Why Do I think so? Good Question:

With few economic reports due early on and as a show of force for our castrated Fed gods, much of this rally was engineered by the PPT.

Now, with the August game of Fed charades over, and with them now in a better overall position (lower gold/oil, stronger dollar and higher equities markets), it's probably time to drop the crack pipes, take off the clown suits and have an economic reality check.

I expect, as several economic/financial reports come due in the week's latter half, this recent rally to turn into a sell-off as the week progresses.

Due tomorrow:
Initial Unemployment claims, Pending Home Sales and Consumer Credit

Due Friday:
Productivity and Wholesale Inventories

More Importantly:

AIG just took another Major Dump after the closing bell today: Forbes

After the closing bell Wednesday, American International Group turned in a loss of $5.4 billion, or $2.06 per share. AIG has lost more than $18 billion over the last three quarters due to investments tied to subprime mortgages.

Freddy Mac lost another $821 million -- NYT Today

The gloom over the nation’s housing market deepened on Wednesday as Freddie Mac, the big mortgage finance company, reported a gaping quarterly loss and predicted that home prices would fall further than previously projected.

“Basically, things are still bad,” said Steven D. Persky, chief executive at Dalton Investments, a $1 billion fund in Los Angeles. “Freddie Mac is telling us that nobody really knows how much worse they will get.”

Lastly:

RBS is likely to post a Major Loss on Friday -- TimesOnline

and Barclays May Fall Most in a Decade -- Bloomberg

RBS:

The international credit crunch is set to claim its biggest Scottish casualty later this week when the Royal Bank of Scotland unveils a pre-tax loss for the first half of the year that analysts believe could reach £1.7billion.

Such a loss would be the biggest in British banking history and have major consequences not only for the financial sector, but also the Scottish economy.

The results, due to be announced on Friday, will underscore how far-reaching the credit crunch, which began in the United States more than 18 months ago, has been.

Barclays:

Barclays, the U.K.'s third-biggest bank, probably will say tomorrow that net income dropped 42 percent to 1.52 billion pounds in the six months ended June 30, analysts estimate.

Barclays said that it had 4 billion pounds of collateralized debt obligations backed primarily by residential mortgages, 4.2 billion pounds of U.S. subprime loans, 4.5 billion pounds of so-called Alt-A loans, and 12.6 billion pounds of commercial mortgages. Unlike RBS, Barclays hasn't marked down the value of its 7.3 billion pounds in buyout loans. The bank said in May that the loans were ``performing.''

``Many regard Barclays's management as being in denial in terms of writedowns on toxic assets,'' said Gordon of Exane BNP Paribas.


Best regards -- and a sincere thanks to all of you who commented to my Adsense post

Randy

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3 Comments:

At 8/07/2008 7:44 AM, Anonymous Boom2Bust.com said...

"Fed geldings." Classic!

 
At 8/07/2008 4:18 PM, Anonymous Anonymous said...

Any idea how much ammo the PPT could possibly have? It's either infinite, or it seems they should be about out after so many days of firing away. Any chance the Freddie/Fannie blank check could be used by the PPT? The reasoning would be that the PPT's actions are good for Freddie/Fannie. And if it's infinite, the market should be able to sense the injection of brand new capital on all up days, ie. inflation.

 
At 8/07/2008 6:18 PM, Anonymous Anonymous said...

Randy, your blog is getting harder to pull up. I finally clicked on your home page and up popped the End of Week Economic Reality Check.

Life in this little Missouri town is also getting rough. People are moving from the smaller locations without as many resources or are else trying to move away somewhere else all together. The Chinese guests observe at our 3M plant.

Following the close of the chicken processing plant, one little town is practically shut down. Both WalMart and a Chain Store are moving on. WOW Trainee

 

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