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.Powered by Sidelines