October 10, 2008

Ctrl BG: A Shortcut to Financial News 10/10

Wow, so much has been going on, I don't even know where to start! I guess to begin with, I'd like to thank everyone for sharing your thoughts. It has been truly fascinating to read about your opinions on this issue. It is always good to be able to hear about the other side of the coin, as my posts will reflect my own bias and I obviously do not know everything, I'm just interested.

I'm happy to announce that nothing too dramatic happened last weekend and no banks collapsed this week- at least not any American banks- yet. On the other hand, we experienced a 8 day consecutive drop in the stock market (globally), like the market has never seen since 1933.
The US stock market dropped nearly 18% this week, with the DOW breaking the 9000 mark (and very nearly the 8000 on too today). Asian and European benchmarks posted their worst week as well, while some countries, like Russia, Indonesia and Ukraine were hit so bad that they suspended trading. Basically the stock market dropped and financial journalists are starting to run out of words to describe "down." So how did this happen when the US congress just approved the bailout plan last Friday?

I've pinpointed it down to fear. Fear that this bailout plan will not work or came too late. Fear that the economy is heading for loooong recession (if we're not in one already). Fear that more companies will declare bankruptcy and they will loose all their wealth. And fear is nothing if not a self fulfilling prophecy. As a result, people have been selling off their assets or redeeming their investments in funds, forcing funds to sell off their assets to meet these redemption demands, further driving the market down. Everyone wants to get their hands on solid cash right now- just in case. Emotion is a powerful force. Logically, having just read "The Warren Buffet Way," I believe that as long as you've done your research and you believe that the firm is solid, then the market price of the firm will eventually match with the firm's true value, despite market volatility. In which case, it sounds like there should be a lot of bargains out there right now- not that I'm giving out investment advice. Just musing. Various experts in the field have been debating whether we've hit rock bottom or not and there has not been a general consensus.

So does this mean the bailout plan failed to do its job of stabilizing the economy, since the market actually got worse after it passed? It's far too early to tell (since it has not even been executed yet), but it's comforting to know that something is being done to address the heart of the problem. If you caught a cold and it keeps getting worse, wouldn't you go see a doctor and take some medicine, even though theoretically the body's immune system will naturally fight off the infection, just in case it's something worse than a cold that the body can't fight off by itself?

Though of course, we must bare in mind that the bailout plan is not a cure all (or as Buffet puts it, a "panacea"). To that end, the government has come up with many other 'cures' for the economy:
  • On Tuesday, the government announced that it will lend directly to non-financial companies through the commercial paper markets- which are short term, unsecured loans, firms use to borrow money for operational needs i.e. stocking up inventories. This will help companies finance their operational costs easier, since credit is so hard to get these days
  • The Fed will start paying interest on commercial banks' reserves, which will expand the central bank's resources and more leverage to battle the this credit market
  • On Wednesday, central banks around the world, including US, Britain and China cut their interest rates, which, made together, is supposedly a more powerful move. This is aimed to lower the cost of borrowing and put more liquidity back into the market (and of course there are a host of other effects, but this is the gist). This is one of the most powerful weapon in the US government's arsenal, but at 1.5% (after a 0.5% cut), they don't have much further to go. Any further, and they'll end up like Japan with no more room to adjust their interest rates and a decade long recession. You know the song that goes, "catch a falling star and save it for a rainy day"? I hope there aren't too many even more rainier days ahead, because it looks like we're running out of stars
  • Paulson and Bernanke met up with representatives from the rest of the G7 on Friday, to discuss the global economy and came out with a list of broad common goals. I thought those goals were a given, but I guess not.
  • They also announced on Friday that the US government will be injecting money into financial firms in exchange for equity stakes, in an attempt to recapitalize firms. At least we're getting something back. Maybe this will help Morgan Stanley, which has been under pressure this week with rumors that MUFG might be pulling out/demaind their stakes and what not.
Speaking of banks, Wells Fargo got the clear from the Fed to go ahead with its deal to buy Wachovia after Citi dropped out from the talks on Thursday to split up the deal. As one would expect, the bidder with the biggest wallet won. Still miffed at being upended out of a bargain, Citi will be seeking damage retributions from WF and Wachovia. Good luck with that.

Over at the other side of the world on a small island of 300,000 people called Iceland, the government nationalized (or rescued) their three biggest banks and closed the stock market, while their currency plummeted (the last I checked it was by a 1/3). Having out grown its Iceland's economy, the banks were struggling to stay afloat in this market with their heavy debts. Some citizens have even lost their life savings becase of this. The government is now currently waiting on a $5.4 billion loan from Russia, the only country who responded to their pleas, having been reluctant to accept anything from the IMF. Not that Russia is doing too well themselves...... I wonder if it's possible for a country to go bankrupt. What happens then? On the otherhand, if anyone is interested in visiting Iceland any time soon (I heard the nature stuff is very pretty over there), Icelandair is offering a "Winter Madness" package for 3 nights staying at the Hilton, for only $549!

21 Comments:

Anonymous Anonymous said...

BG - certainly you're entitled to post whatever you want, but I agree with other commenters from before who suggested that fashion was much more your forte!

You're essentially summarizing what the top economists at major news outlets are concluding, especially in your bit about the primary issue being fear. Everyone has heard by now that the bailout is supposed to be more of a reassuring salve than any definitive practical measure. After all, 700 billion is somewhat arbitrary.

Moreover, in addition to your commentary being highly derivative (and thus ineffectual), I think your text should be edited a bit.

-Viv

10/11/2008 1:30 PM  
Anonymous Anonymous said...

Actually, there were two US bank closed this week (Michigan's Main Street Bank and Illinois's Meridian Bank).

http://www.bloomberg.com/apps/news?pid=20601103&sid=aXyvUEIjWy_o&refer=news

10/11/2008 2:34 PM  
Anonymous Anonymous said...

That trip to Iceland sounds like a pretty good deal, but I'd hate to get stuck there! Check out Anthropologie's new catalog, set in Iceland! Who says fashion and economics aren't compatible! Actually, they're almost synonymous.

I wish these know-it-alls that post would fix the problem so I won't have to worry about it. It's easy to think you know it all when you don't know that much I guess.

10/11/2008 11:09 PM  
Anonymous Anonymous said...

OMG quit it with the financial commentary already. We get enough of it in the news but nobody needs it in an escapist fashion blog. IamFashion used to be a daily must read and now it's a once-weekly bore.

10/12/2008 12:28 AM  
Anonymous Anonymous said...

agree

10/12/2008 10:07 AM  
Anonymous Anonymous said...

If one is really that bored, I'm sure another blog could be found that discusses nothing but Blake's and Leighton's latest frocks. No one is being charged to read this blog so why complain? Be off with you to a blog very heavy on the color pink and all things Gossip Girls. Besides, I'm sure all you complainers have some Elementary Algebra homework that is due tomorrow. Are you up to fractions yet?

10/12/2008 11:03 AM  
Anonymous Anonymous said...

Agreed. It's good to know what happened exactly during the financial crisis. Fashion is important, but so are other things too.

10/12/2008 11:48 AM  
Anonymous Cat said...

If you feel that she shouldn't be writing this or you feel that this blog is becoming a "once weekly bore", then please, spare us your negative comments and move on.

Most of us here are mature enough to understand that a blog is meant to be a place of personal reflection and not a place to please ungrateful people such as yourself.

10/13/2008 5:28 AM  
Blogger danielle said...

I have been reading this blog for a long time and have yet to comment, but I would just like to say that lately I have come to look forward to these financial news updates. I think there's an obvious parallel between fashion and the economy, as the economy affects EVERYTHING. And as the saying goes, the only thing to fear is fear itself. In my opinion the only thing we can do is wait it out.

10/13/2008 5:49 AM  
Blogger FutureClaw Magazine said...

Good news people! It seems that the market may be in the process of a rebound, the Dow gained over 900 points today, it's largest one-day gain in a long time. The rebound comes after news that European countries have pledged over 2 trillion in combined capital to rescue their own banking systems. It's good to see meaningful news mixed in with the entertainment talk, thats exactly what we like over at futureclaw, check us out at futureclaw.com!

10/14/2008 6:32 AM  
Blogger poeta fit, non nascitur said...

Economics over fashion? This is new. Harhar.

Well, yes, ultimately, crises like these all boil down to speculation.

But then people have the right to be wary this time. And their fears I think are unfounded. The world has been fooled for so long about these mishandled subprime loans without much transparency from banks and financial institutions.

Although you have to give credit to Buffet and the bailout plan. They really want to reinstate confidence.

10/16/2008 4:17 PM  
Anonymous Lo said...

INTRESTED WHERE ARE FASHION TRENDS GOING WITH THE ECONOMIC CRISIS?? http://www.theluxuryspot.com

10/17/2008 5:01 AM  
Blogger belhana said...

Thank you for the wonderful effort

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هذى معـالم خرس كـل واحـدة * منهن قامت خطيبـا فاغرا فـاه

الله يعلم ما قلبت سـيرتهم يومـا * وأخطـأ دمـع الـعين مـجراه

يا من يرى عمـراتكسوه بردته * الزيت أدمٌ لـه والكـوخ مـأواه

يهتز كسـرى على كرسيه فرقـا * من خوفه ، وملوك الروم تخشـاه

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7/05/2009 7:17 PM  
Blogger belhana said...

Thank you for the wonderful effort

إني تذكـرت والذكرى مؤرقـة *مجـداً تلـيدا بأيـدينا أضعـناه

أنَّى اتجهتَ للإسـلام في بـلـدٍ * تجْده كالطيرِ مقصـوصًا جناحـاه

كـم صرفتنا يـدٌ كنـا نـصرفها * وبات يـملكنا شعب مـلكناه

بالله سل خلف بحر الروم عن عرب * بالأمس كانوا هنا واليوم قد تاهوا

وانزل دمشق وسائل صخر مسجدها * عمن بناه لعل الـصخر ينعـاه

هذى معـالم خرس كـل واحـدة * منهن قامت خطيبـا فاغرا فـاه

الله يعلم ما قلبت سـيرتهم يومـا * وأخطـأ دمـع الـعين مـجراه

يا من يرى عمـراتكسوه بردته * الزيت أدمٌ لـه والكـوخ مـأواه

يهتز كسـرى على كرسيه فرقـا * من خوفه ، وملوك الروم تخشـاه

يا رب فابعث لنا من مثلهم نفـرا * يشـيدون لـنا مـجدا أضعنـاه

7/05/2009 7:38 PM  
Blogger belhana said...

Thank you for the wonderful effort

إني تذكـرت والذكرى مؤرقـة *مجـداً تلـيدا بأيـدينا أضعـناه

أنَّى اتجهتَ للإسـلام في بـلـدٍ * تجْده كالطيرِ مقصـوصًا جناحـاه

كـم صرفتنا يـدٌ كنـا نـصرفها * وبات يـملكنا شعب مـلكناه

بالله سل خلف بحر الروم عن عرب * بالأمس كانوا هنا واليوم قد تاهوا

وانزل دمشق وسائل صخر مسجدها * عمن بناه لعل الـصخر ينعـاه

هذى معـالم خرس كـل واحـدة * منهن قامت خطيبـا فاغرا فـاه

الله يعلم ما قلبت سـيرتهم يومـا * وأخطـأ دمـع الـعين مـجراه

يا من يرى عمـراتكسوه بردته * الزيت أدمٌ لـه والكـوخ مـأواه

يهتز كسـرى على كرسيه فرقـا * من خوفه ، وملوك الروم تخشـاه

يا رب فابعث لنا من مثلهم نفـرا * يشـيدون لـنا مـجدا أضعنـاه

7/05/2009 7:42 PM  
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9/25/2009 8:29 PM  
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