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Ike, Gustav, and the Bailout
Tweet Share on Facebook September 24, 2008 Comment (1)The financial meltdown may be getting all the attention this week, but a third of Houston is still without power and the economic costs of hurricanes Ike and Gustav are mounting, adding more pressures on an economy that was muddling along even before the latest storms—real or on paper—slammed the Gulf and Lower Manhattan.
The combined costs of Hurricane Ike and Hurricane Gustav will be second only to Katrina. Damage from this month's storms will reach $42 billion (Katrina cost about $81 billion), according to Action Economics, which writes:
This is still a sizable jolt that will have large effects on the reported economic data over the next few months, even though markets are clearly now much more focused on the Treasury bailout plan.
The fallout could include lower personal income growth, slower retail sales, and slower third-quarter growth in the gross domestic product—all headwinds the markets don't need right now.
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Goldman, Buffett, and Congress
Tweet Share on Facebook September 24, 2008 CommentWarren Buffett's $5 billion investment in Goldman Sachs stock and his nod of approval for the Treasury Department's bailout plan offer one vote of confidence for the markets. The Oracle of Omaha told CNBC he describes the threat as an "economic Pearl Harbor" that makes a government bailout "absolutely necessary."
Goldman raised a total of $10 billion in funding, and Buffett has an option to buy another $5 billion in common stock over the next five years (the first $5 billion is in preferred shares).
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The Crude Fake-Out
Tweet Share on Facebook September 23, 2008 Comment (3)Short sellers may be banned in much of the rest of the world, but it appears they're still playing in the oil patch.
Yesterday's meteoric rise in crude prices cooled right back down this morning. Was the $16-a-barrel jump caused by a short squeeze? Fear of failure of the government's financial bailout plan?
Probably the former, analysts say. It works like this: Short sellers bet the price of oil is going down and agree to sell their contracts at a lower price than the market is offering. If oil prices go up, they can face calls for big capital infusions to insure their bets. If they're still on the wrong side of the trade when monthly contracts expire (as they did on Monday, for delivery of October crude), shorts are forced to unwind their bad bets or take physical delivery of the oil. A frantic scramble to get out of those contracts boosts short-term market prices. By the next morning, markets digest the trades and return to more normal levels.
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Google Takes on the iPhone
Tweet Share on Facebook September 23, 2008 CommentToday's release of the G1 handset marks the start of a major new opportunity for Google, and it's less about selling phones than about expanding Google's mobile platform.
The G1 basics: offered by T-Mobile for $179 with a two-year contract, touch-screen, Amazon.com music store access, full keyboard
Walt Mossberg calls it "the first real competitor to the iPhone."
Ahead of the launch, analysts told Bloomberg that the Dream rollout probably won't match the hype surrounding the iPhone, and most analysts expect fewer than 500,000 of the phones to sell over the next three months.
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Oil Soars: Is the Rally for Real?
Tweet Share on Facebook September 22, 2008 Comment (2)Oil prices skyrocketed today by more than $25 a barrel to $130, the single-largest intraday gain ever, before falling back to close up $16 a barrel— still the biggest one-day gain since oil began trading on the New York Mercantile Exchange in 1984.
The jump is even more striking because it comes on the first trading day following this weekend's move to craft a $700 billion financial sector bailout.
Whether you think this rally will continue says a lot about how you see the current economy.
A few thoughts:
Bailout spurs demand—in theory. If investors believe $700 billion will be enough to keep the economy on track, an increase in the price of crude makes sense. But if you believe the government bailout is just the start of more problems for the economy as Wall Street's woes spread, this rally looks a little less convincing.
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Requiem for Investment Banks
Tweet Share on Facebook September 22, 2008 Comment (1)The market's loss of confidence in the abilities of broker-dealers to stay independent marks a historic moment on Wall Street. The end of independence for its most storied names concluded Sunday night when Goldman Sachs and Morgan Stanley asked to be regulated like other banks (i.e. they'll need deposits to back lending).
Right now, that is for the best. The I-banks will look more credible; their worst excesses contained by government oversight and hammered share prices. Still, in the years to come, we may miss them (even Bear Stearns and independent Merrill Lynch, and, yes, Lehman Bros.)
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Short Selling Ban Backlash
Tweet Share on Facebook September 19, 2008 Comment (4)As you've heard, the SEC is banning short selling in nearly 800 financial stocks to help "restore equilibrium to markets."
That's code for market manipulation, but if it can stop bank shares from free-falling, the trade-off seems worthwhile—at least for regulators.
Later, I'll bet we'll worry that the government picked one of the most reckless bits of the market and decided to protect it from traders trying to reconcile banking sector abuses with reality. Nobody likes shorts, and there will undoubtedly be some signs of manipulation among bank shares, but blaming shorts for this week's stock market mania is beside the point. The punishment doled out to banks this week is extreme, but so were their inflated risk appetites that spawned reckless lending behavior for the better part of a decade.
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Paulson Determined to Keep Credit Flowing
Tweet Share on Facebook September 19, 2008 Comment (1)The government's new agency to buy up illiquid mortgage debt will need to be "sufficiently large" to have the "maximum impact" on frozen credit and lending markets.
That's the latest from Treasury Secretary Henry Paulson, who said more details will come next week.
"We're talking hundreds of billions of dollars," he said.
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Stocks Rebound on Word of Government Fix
Tweet Share on Facebook September 18, 2008 CommentIt can't be a good long-term sign that the government is creating a new agency to dig the country out of its bad debts, but Sen. Charles Schumer's proposal to do just that has bank stocks rallying hard this afternoon.
The Dow is soaring now, up more than 400 points in late trade, further boosted by a proposed curb on short-selling in the United States and Great Britain.
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McCain to Cox: You're Fired!
Tweet Share on Facebook September 18, 2008 Comment (3)I was carping about SEC Chairman Chris Cox earlier today along with a whole lot of other people. Now, the WSJ is reporting that John McCain would toss him.
"The chairman of the SEC serves at the appointment of the president and has betrayed the public's trust. If I were president today, I would fire him," McCain says, according to excerpts for a speech on reforming the ailing U.S. financial markets he will deliver today in Cedar Rapids, Iowa.
