You know by now I write a lot about the US dollar and its ongoing abuse. I just lost a friendly bet regarding the dollar. It was trading around 73 this summer and I brashly stated it would see 60 before 80. Brashness is seldom a good idea.
As I mentioned on Monday, I and my fellow Fleet Street editors are at a conference. Basically, I’m in a château in France surrounded by financial experts from all around the world. As you can imagine, the debate has been lively! Hearing the different perspectives on the current carnage is fascinating.
Lots of kids jump off of cliffs every day, simply because all the other kids are doing it. We call these cliff-jumpers, “portfolio managers.”Every single trading day, the nation’s portfolio managers leap from the precipice of prudence into the abyss of group-think and “closet indexing.” They leap because everyone else is leaping.
Citing balanced threats from weak economic growth and inflation, the U.S. Federal Reserve yesterday (Tuesday) voted to hold the benchmark Federal Funds rate at 2.0%, reports Money Morning’s Jennifer Yousfi. This was despite a financial market that has been rocked in recent days by the continued fallout of the credit crisis.
Gold and silver prices got walloped yesterday when “the usual not-for-profit seller(s) showed up at the Comex open,” says Ed Steer at Casey Research. Ed says two of the day’s news stories stand out as possibly having a big impact on gold and silver prices.
– Another day another bailout. At 6:30pm yesterday evening on Capitol Hill the government’s plunge protection due Hank Paulson and Ben Bernanke announced to lawmakers a plan to plunge $85 billion of taxpayers’ money into insurer AIG (NYSE:AIG) to prevent it from going under. In return, the government will take a 79.9% stake in the company.
– Interests of taxpayers “protected,” according to Fed statement. “Loan is collateralized by all the assets of AIG.” “Loan is expected to be repaid from the proceeds of the sale of the firm’s assets.”
– “The US government will receive a 79.9 percent equity interest in AIG
Wall Street is in deep, deep hole. Lehman Brothers (NYSE:LEH) is in Chapter 11 and AIG (NSYE:AIG), the biggest insurers in the country, is not far behind. It needs a loan of $75 billion to stay alive. Meanwhile, the country’s biggest savings and loan bank WaMu (NYSE:WM) has a junk credit rating.
You can be sure of one thing: This crisis has a ways to run yet.
Fortunately, there is a way investors can make money out of this crisis. Andrew Snyder in Today’s Financial News says the Vanguard Short-Term Bond Index ETF (AMEX:BSV) high-yield bond fund is a great safe-haven investment right now.
The liquidity crisis that began with the collapse of Bear Stearns and has led to the fall of Lehmen Brothers (NYSE:LEH) is spreading. This has prompted foreign central banks to bolster liquidity in domestic markets, reports Jason Simpkins. Even the Bank of China decided to cut its benchmark lending rate. It is its first rate cut in six years.
Everyone assumed that the government would ride to the rescue of doomed brokerage Lehman Brothers (NYSE:LEH). Everyone was wrong. The financial markets are close to ruin. But there is a bright side, says John Stepek in British financial magazine MoneyWeek. The remaining players now know that not everyone is too big to fail…
Both gold and silver launched vertically the moment that the Globex trading system opened for business in the Far East on Monday morning. It’s obvious by looking at any 24-hour gold and silver chart that the boyz were ready for it…and were on the attack immediately.
