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One Good Day Does Not A Trend Make

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OK, so US stocks had their biggest one-day gains in more than five years. Go ahead and celebrate it, for reality will soon return to haunt you. The higher stock index didn't ease the downward pressure on the dollar, and, as Patrick Hosking of The London Times warns, "The crisis is far from over. There will be more financial casualties. There is still a great chill coming to Wall Street and Main Street."

There are those who see this coming. Drew Hasselback of Canada's Financial Post notes that the Wall Street Journal published an open letter from Dallas billionaire Andy Beal to Chairman of the U.S. Federal Reserve Ben Bernanke begging him not to "put garbage in the Federal Reserve."

Now I don't know about you, but if he's really a billionaire, then by the popular definition he's smarter than all of my regular commentators combined. One would then think that he would be someone to listen to.

But if a banker, poker player, rocket booster entrepreneur, and amateur mathematician doesn't inspire you to pay attention, maybe the experience of another billionaire – UK tycoon Joe Lewis – might teach you something. He lost an estimated $800 million in the collapse of the American investment bank Bear Stearns.

Buddy, can you spare him a dime?

You might also dig deep and pull up something besides pocket lint for those poor senior executives of Bear Sterns who will not receive their bonuses. In addition, the Chairman and CEO of Switzerland's UBS – who are taking the blame for the poor performance of their institution – will only be paid their base salaries.

That applause you hear in the background isn't the closing of an episode of Rowan and Martin's Laugh-In, but is instead emanating from working stiff Ryan McGreal of Hamilton, Ontario. Ryan, the editor of Raise the Hammer, who observes that the truth about executive compensation is now out in the open. "So much for executive bonuses being tied to company performance," he exclaims.

Chartered market technician Don Vialoux could see below the lofty pronouncements regarding the better-than-expected performance of Lehman Brothers and Goldman Sachs and the Fed rate cut. Writing in The National Post, he reminds serious investors that the morning's economic news was mixed, with both February housing starts and housing permits down.

ING economist James Knightley is also taking a cautious stance, stating that conditions will have to improve significantly or else the Fed will be back with sharpened rate shears in hand. Unfortunately, that moment will arrive soon as the rate cut is seen by analysts as essentially ineffective in dealing with the real problems facing the world economy because "you can’t handle the global crisis with rate cuts.”

As Kevin Logan, senior market economist at Dresdner Kleinwort in New York, observed, "For all practical purposes we're in a recession."

Dissension against pursuing a clearly popular move by the Federal Reserve is shown by the fact that the vote to cut the interest rate at this time was not unanimous. At least some of the Fed officials are still focused on inflation being a more pressing problem than providing "socialism for the rich."

But, as if inspiration for my commentators, even certain financial experts still want to think the worst is past, and that with the exception of certain British banks, all's well on the fiscal front. They might want to talk with those British homeowners who are about to go through mortgage rate adjustments.

Across the globe, real investors are still wary. Indian investors remained skeptical that an upswing in world markets is underway. The Chinese worry they will be sucked under as The Bushtanic backs up to hit the subprime iceberg one more time. The Australians expect that prospects for growth in the major developed economies "continues to worsen."

In Singapore, investors remain concerned that the US is in recession. U.S. Treasury Secretary Henry Paulson will only admit that the U.S. economy is experiencing a sharp downturn. This decline is fueled by higher oil prices, which increased again despite the higher stock prices after taking a short breather.

Something else that is not being discussed in the American financial media is the understanding that the Federal Reserve is running out of eligible suitors to take over ailing US lenders:

[T]op US banks are either embroiled in big takeovers or wrestling with credit problems of their own. International banks have shown little interest in US acquisitions, and sovereign wealth funds have already been burned. Qatar's prime minister … said he would rather invest in European lenders…

The US government may be increasingly involved in rescuing banks but foreign governments are likely to be reluctant to put more money in US financial institutions, after having already lost big on their investments so far.

Guess who that leaves!

In the end, the US taxpayer was likely to be on the hook for some extra capital for banks and brokers, analysts said.

Personal to George W. Bush and/or his successor: You can ask me for more taxes to pay for this fiasco ONLY after you clean out those New York brokers who took home multi-million-dollar bonuses last year. They made this mess (with your passive assistance), so they can pay to clean it all up.

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About pessimist

  • http://www.republicofdave.com Dave Nalle

    Why Fabulist, you’ve managed to include even more links than usual. Congratulations on finding so many strange and obscure places to pull bizarre speculation from.

    I’m feeling a bit bored, so I thought I’d throw some cold water on you rather than just ignoring your flaming self-immolated form.

    First the title. I refer you to the graph of historic market increases from Yahoo Finance. Please note that if you take out the stock bubble we had in 2007 our current rate of increase is overall almost exactly a continuation of the general gradual upward trend of the market prior to that bubble. You can draw a line from 1960 to today and it goes dead straight at about a 45 degree angle. So in a way you’re right. The huge surge we just had is largely irrelevant just like the 6 month boom we had in early 2007. Both are overwhelmed by the overall steady pattern of growth which shows no sign of abating.

    But if a banker, poker player, rocket booster entrepreneur, and amateur mathematician doesn’t inspire you to pay attention, maybe the experience of another billionaire – UK tycoon Joe Lewis – might teach you something. He lost an estimated $800 million in the collapse of the American investment bank Bear Stearns.

    But if being a billionaire automatically makes Drew Hasselbeck a genius, doesn’t that mean that billionaire Joe Lewis is just as much a genius? He is (or was) just about as rich, so he should be just about as smart. Or maybe billionaires aren’t actually geniuses and Hasselbeck is just as dumb as Lewis but more lucky. And I may just be a moronic non-billionaire commentor, but even I know better than to invest the majority of my fortune in a single stock.

    You might also dig deep and pull up something besides pocket lint for those poor senior executives of Bear Sterns who will not receive their bonuses. In addition, the Chairman and CEO of Switzerland’s UBS – who are taking the blame for the poor performance of their institution – will only be paid their base salaries.

    That applause you hear in the background isn’t the closing of an episode of Rowan and Martin’s Laugh-In, but is instead emanating from working stiff Ryan McGreal of Hamilton, Ontario. Ryan, the editor of Raise the Hammer, who observes that the truth about executive compensation is now out in the open. “So much for executive bonuses being tied to company performance,” he exclaims.

    Contrary to what you assert in your second paragraph and what you link to, as you point out in the first of these two paragraphs, company bonuses clearly ARE tied to performance in at least a gross way if UBS and B-S aren’t paying them this year.

    Chartered market technician Don Vialoux could see below the lofty pronouncements regarding the better-than-expected performance of Lehman Brothers and Goldman Sachs and the Fed rate cut.

    You missed an opportunity here man. Better than expected performance meant that they did slightly over half as well as last year rather than less than that. So their performance was expected to be dismal and was only mediocre and that’s hailed as a good thing.

    Dissension against pursuing a clearly popular move by the Federal Reserve is shown by the fact that the vote to cut the interest rate at this time was not unanimous. At least some of the Fed officials are still focused on inflation being a more pressing problem than providing “socialism for the rich.”

    A rate cut benefits almost everyone, not just the rich. Is the guy struggling to meet payments on his ARM not going to benefit by now being able to refinance at a fixed 6%? Are the 55% of US citizens who own stock not going to benefit from a continued upward trend?

    Personal to George W. Bush and/or his successor: You can ask me for more taxes to pay for this fiasco ONLY after you clean out those New York brokers who took home multi-million-dollar bonuses last year.

    But I thought you said earlier that they were NOT taking home their bonuses.

    They made this mess (with your passive assistance), so they can pay to clean it all up.

    Since they DO actually pay taxes unlike a growing percentage of the US population – Bush having removed so many of the working poor from the tax rolls, I think your dream is already coming true.

    Dave

  • http://www.marksaleski.com Mark Saleski

    you know dave, if you have such trouble with what a writer presents, especially if contains factual errors and/or contradictions…why not work with writer on those issues prior to publication?

    i mean, you’re the politics editor, so how about some editing?

    i know you’d have less fresh fish in the barrel to shoot at but maybe the level or writing on the site would improve.

  • http://www.elitebloggers.com Dave Nalle

    Mark, Realist’s writing is really quite good. It requires almost no editing. I think that of all his articles I’ve had to send one back for revision.

    The problem is not with his writing, it’s with his intentions, and I can’t very well send his article back to him and say to rewrite it so it no longer serves the specific purpose for which he wrote it, now can I?

    In the Politics section we do have a policy of remaining politically neutral. I can’t reject his article because I disagree with it. So I edit it as needed and publish it and then I comment on it just as anyone else can. It’s the fair way to handle it.

    Dave

  • bliffle

    Hazard and risk are becoming more prominent in the economy because the slack is being systematically removed from all aspects of the financial system. Retained earnings are given out as bonuses, savings are discounted, almost all forms of business and personal finance are being discounted or cashed in. they represented assets which could be turned over for personal income in the form of high exec salaries, fees and bonuses.

    Traditional capitalists and their employees are suffering under this scheme because the sloshing around of large amounts of money generally benefit arbitrageurs and various fee collectors. Real capitalists see less and less of the rewards of their ventures as money disappears into various fees. A friend complained that he seems to have paid a guy big fees to go out and find more people he would have to pay fees to.

    The result is that those guys have a vested interest in wild swings of the economy. And they’re in charge (Bush, Cheney, Rumsfeld, you name them, they were all fee collectors, never built anything, never invested their own money).

    So this is what we have to look forward to. More erratic economics. The hazards and risks will all accrue to the worst off people in the system who have no control, no options, and no surpluses. Any assets they have will be scooped up by subprime type scams.

  • http://www.elitebloggers.com Dave Nalle

    Every investor has control over what he invests in. If you don’t invest in banks or real estate you are relatively immune to any subprime issues. But the most important form of control is SELF control. You need to look not at the daily up and down, but at the average over longer periods of time.

    Sure, the dow was up a lot yesterday and down a lot today, but if you look at it over a year, it’s about even. Over 2 years it’s up about 11% and over 5 years it’s up about 50%.

    Most small investors are long term investors (or else they’re likely already broke), and a daily fluctuation in the market means very little over the long term.

    Dave

  • Pablo

    And how much has your house gone down in value for the last two years Davey boy? Nothing like loving a thief who robs you blind. Those cororate masters certainly have a hold on ya.

  • Pablo

    Oh and Davey boy?

    You might like this article in the Wall Street Journal. Morgan Eats Bear, Now
    Has $77 Trillion In Derivatives

    Oh and Baronius? Yes it is linked through rense.com, but as I suspect that the Wall Street Journal is probably your publication of choice on un-biased reporting here it is for your enjoyment.

    Yeah Dave JP Morgan the founders of your favorite think tank the CFR havent done too bad for themselves now have they? Hell if I had 77 trillion bucks I could get off welfare! Just a cute lil think tank bubba.

  • http://ruvysroost.blogspot.com Ruvy in Jerusalem

    I should note that the Google ad immediately above this comment box as I type this is in Hebrew, “trade in foreign currency now!”

    Now to the meat of what I have to say.

    For the most part I find the Realist a reasonable realist, and generally agree with the views found in his pieces.

    That said, this piece was entirely unnecessary. If the market does not sustain a rally, it does not require a writer to point this out. This will be evident from the numbers over the next few days.

    So, the market went up. If indeed the market is meant to go down, it does not need cheerleading to accomplish the task, and it appears from this particular article that the writer has donned pom-poms and is jumping up and down braying, “Down market! Down market!!”

    It may well be that there is downward pressure on the dollar that will drive it lower – and yet the market will soar. Let’s just wait and see, eh?

  • http://www.elitebloggers.com Dave Nalle

    And how much has your house gone down in value for the last two years Davey boy? Nothing like loving a thief who robs you blind. Those cororate masters certainly have a hold on ya.

    Pablo, I live in Austin which is in Texas. There is no recession in Texas. Not even a hint of one. Real Estate values are still going up, we have no unemployment (in fact 1/3 of all new jobs in the US are here), and our economy is still booming.

    As for my house, based on other local home sales it looks like it increased in value by about $30K since the beginning of 2007.

    Dave

  • Pablo

    Dave,

    In that case how about a loan?

  • Clavos

    My house, the mortgage of which I paid off 6 years ago, is located on Boca Ciega Bay in a St. Petersburg beach suburb. It has declined about 30% in value since the slump began, but, because it’s waterfront, is still worth more than 5 times what I paid for it, so it’s only a paper loss.

    I don’t live in it; I live in Miami, in a rental apartment. My tenants in St. Pete pay the taxes and insurance on that house, and the IRS allows me to depreciate it off my income tax.

    I’m not worried. Even if I were to move to back to St. Pete, I would keep that house rented and rent an apartment for myself; that house is worth a lot more to me as a rental than living in it.

  • Bennett

    Is Beal’s poker playing or prestidigitation any better than his rocket booster company?

    It went out of business in 2000.

  • http://drdreadful.blogspot.com Dr Dreadful

    I refer you to the graph of historic market increases from Yahoo Finance. Please note that if you take out the stock bubble we had in 2007 our current rate of increase is overall almost exactly a continuation of the general gradual upward trend of the market prior to that bubble. You can draw a line from 1960 to today and it goes dead straight at about a 45 degree angle. So in a way you’re right. The huge surge we just had is largely irrelevant just like the 6 month boom we had in early 2007. Both are overwhelmed by the overall steady pattern of growth which shows no sign of abating.

    Two things strike me about that graph. The first is that the value scale is skewed, or rather, drastically compressed once you get above 5,000 points. So if you adjust for scale, your constant 45-degree angle turns, after about 1995, into something of a parabola.

    The second is that if you draw a straight line between 2000 and now, it’s nowhere near 45 degrees. After the boom years of 1995-2000, there doesn’t seem to be much life in the economy lately.

    Boom and bust? Not exactly, but it does look to me to be flatlining.

  • http://www.elitebloggers.com Dave Nalle

    In that case how about a loan?

    You want me to loan you some land? My deed doesn’t allow me to sell of an acre here and there and give you the money. Plus anyone who believes aliens attacked the WTC or whatever is a fundamentally bad credit risk.

    Dave

  • Pablo

    Your cute as usual Dave.

  • http://ruvysroost.blogspot.com Ruvy in Jerusalem

    As I said originally, this article was unnecessary in its entirety. One day, the market went up, and the next – it was down!

    And from the looks of things, it does not need anybody to cheer-lead its fall…. Though yesterday, it rose.

    And the Hebrew ad above this comment space where I’m typing still says “trade in foreign currency now!”

    YAWWWWWNNNNNN!!!

    Hey, it’s Purim! Stop arguing and go get yourselves drunk!

  • http://cqpinion.blogspot.com Krutic A

    Two days in a row of 200+ point gains on the Dow Jones after that huge 400+ point gain, falling gas prices and increase in home buys in February that was the highest in 7 months.
    I assume you’ll still call that ‘one good day’.
    Or can we expect an end to your alarmist, Bush/Wall Street bashing propaganda now?

  • bliffle

    So the Bear Stearns holdup of the US Treasury while holding the US economy as hostage has succeeded. A short term increase in stock prices has rewarded Stock Speculators with some wins.

    Meanwhile, no relief for people who lost their homes to this churning machine.

    But it does prove that the main concern of the Fed and the Bush administration is Wall Street, not Main Street.

  • Barbara Ann

    I’m in awe of the amount of self-delusion it takes to remain blind to reality. My hat’s off to you Dave, good luck with that.