Guest Blogger today is Larry Levin. Larry is very passionate about the the government actions during this bear market. I look forward to Larry's newsletter everyday and you can sign up for it here
Larry Levin's NewsletterThe market rallied Tuesday - big time. On average, all three of the major indices posted +10% gains. What was the good news you wonder? Well, ummm, there was the - no. Umm, it was - no wait, I can't remember. Oh yeah, it was actually the good news of, umm, nothing actually. Today was a lack-of-selling-rally. The market could not break the recent lows for days on end, and as soon as some of the sellers covered - BOOM - short covering rally. Today's pop was accompanied by anemic volume so I wouldn't trust it longer than a few days. Will turnaround Tuesday be followed by turnaround Wednesday or Thursday?
The answer could come via the FOMC tomorrow. Wall Street (what's left of it) has demanded another interest rate cut so you can bet it's a done deal. Although nothing the Fed has done has "worked," the Street still wants a quick fix.
Will cutting rates right by 50-basis points do anything? I have my doubts since the effective federal funds rate has already fallen to 1% due to a new Fed policy to pay banks interest on the excess reserves they deposit at the Fed. The very point of paying that interest was to reduce the effective rate, so a cut tomorrow is just for show.
Have you seen ANY trickle down of lower rates yet? I sure haven't. Not long ago the Fed Funds rate was 5.75%, and tomorrow it will surely be 1%. The regular Joe sees little benefit from lower rates. Banks just are not passing along the lower rates to consumers in the form of lower interest rates on loans or credit cards. Banks are like roach motels. The nearly free money from the FOMC goes in, but doesn't come out! The savers and responsible people of this country are being fleeced to support all of the deadbeat banks and tapped out borrowers. After inflation (which is still out there - just not as bad as before), savers get a negative rate of return. It seems like there is no place left to flee in this world responsibility matters.
Perhaps tomorrow's cut is the next step in following the Bank of Japan (BOJ)? When Japan suffered its deflationary spiral after its housing bubble, the BOJ cut rates to ?-of-1%. A few months ago it raised rates to ?-of 1%, and is now considering cutting rates to ?-of-1% soon. Maybe, just maybe, if Helicopter-Ben cuts rates to ?-of-1% your credit card interest rate will be cut to 20% or so. In fact, an ex-Fed Governor is recommending ZERO Fed Funds rate for 2009!
Wake up folks, the Fed doesn't give a damn about you, if you get a lower rate on anything; it only cares if their banking buddies are solvent.
Moreover, Fed chairman Bernanke has shown he doesn't care if he follows the Constitution or not. He just declares exigent circumstances, which is his get-out-of-jail-free card. In the I Can Do Whatever I Want file in Bernanke's cabinet we see he is now backstopping foreign governments. Yeah, you read that right: YOUR TAXDOLLARS ARE DIRECTLY BAILING OUT FOREIGN BANKS! Oct. 28 (Bloomberg) -- State-run Korea Development Bank received Federal Reserve approval to sell as much as $830 million of commercial paper to the U.S. central bank, becoming the first Korean bank to tap the new funding facility. Kookmin Bank, South Korea's largest, was also deemed eligible to sell commercial paper to the Fed.
Now we're buying foreign commercial paper issued by a foreign bank controlled by a sovereign nation. Great. Amazing. WTF! Did you get to vote on this? Are you pissed off YET? If not, what is it going to take? Is this constitutional? Ah, who cares says Bernanke - exigent circumstances! But for whom I wonder? The Koreans? Since when is that our business?
Excuse me, but isn't this Congresses territory? I seem to recall that when the US hands out aid it must be voted on by those who have been elected. Furthermore, Congress decides how the money can be spent. Now Bernanke of the Fed is taking over - exigent circumstances he says.
I think Bernanke should be shackled and thrown in jail. Under what charge, he asks? Exigent circumstances comes the reply!
Mr. Bernanke was never granted this power, but as I have mentioned he doesn't care. It's a form of lying, lying by omission. The $700-billion TARP handout to Wall Street banks was supposed to be lent out to the average guy, at a low rate to boot. After all, the Fed keeps cutting rates - right? However, no money is being lent out. Wall Street banks are using YOUR TAXDOLLARS to pay an estimated $70-billion in bonuses this year. WHAT!??? Bonuses? For what - bankrupting the world economy? They are using YOUR TAXDOLLARS to pay dividends to shareholders. Why cut the dividend when the government is handing out money? They are also using YOUR TAXDOLLARS to acquire other banks. Whatever is left over is being hoarded.
It was another lie folks. You were bamboozled again. Hank Paulson NEVER said this was part of the deal! Hank Paulson, who is now literally being called King Paulson on Wall Street and in D.C., said the $700-billion would be used to buy bad assets? Puhhhlleeaaaseeeee!!! SUCKER!!! I begged you to call your Congressman to stop this. The only thing that is left is to vote against everyone who approved this steaming pile of dung on Nov. 4th.
Are there any more lies out there you wonder? Hmm, let's look under this rock. Ah yes, here's another lie from the government to expose. Congress recently approved a handout of $25-billion for the Big 3 automakers, which are to help speed the availability of fuel-saving technologies - period. But who cares anymore? Apparently nobody.
The White House is working to release $5-billion of that $25-billion immediately for the purpose of GM merging with a private company, Chrysler. According to the Wall Street journal, however, this is only half of what will be needed. The combined entity would need about $10 billion in new equity to cover the cost of laying off workers, closing plants and integrating the two companies, say people involved in the talks.
So I guess that means the merger money, that you were never told you had to pay, is only half way there. You were lied to AGAIN!
Automakers gained on the news of the taxpayer's fleecing. At today's closing price you can get a lunch at your favorite fast food restaurant for one share of GM. It might take two or three shares of Ford for one of those meals. The answer, however, all depends on your McFatty McFat level of consumption. Super size what - my lunch or the deficit? And yes, I'll take a side of deflation, why not.
In today's only economic news, the Conference Board reported its consumer confidence index fell to a record low in October. In fact, it was the largest one-month decline in the index - EVER! As bad as consumers think the economy is now, they are convinced it'll get worse. Consumers say their job prospects are weak, their incomes aren't likely to grow, and the prices they pay are likely to soar.
Unfortunately the story ends there. I was hoping to read WHERE and WHEN the masses would assemble to march on DC, with pitchforks and torches in hand of course, because I'll lead the march. I've had it up to here with all of the Fed's, Treasury's, White House's, and Congresses bu!!sh*t.
Trade well and follow the trend, not the so-called experts.
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