Archive for the ‘Investing’ Category
Barron’s posted an excellent article this weekend on why the wall street bailout is a good thing (subscription may be required) for the government and taxpayers. Why? The markets & public have assumed that the mortgage-backed securities the government will purchase are far worse than they actually are. In fact, most are senior “tranches” of loan portfolios (higher quality & lower risk), which means less senior slices will absorb any losses first. Even assuming very high rates of default and low foreclosure recovery rates for these loan portfolios, the government could very possibly enjoy a 7-8% return on their investment!
Further, the bailout will help free up capital in the credit markets, boost prices of mortgage-backed securities to a level reflecting reality, and (most importantly) stop the continued decline in housing prices.
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Much has been made of the disaster surrounding subprime lending and the subsequent government bailouts of large institutions such as AIG. The media has done an adequate job of scaring the masses to death, and many will do (as is human nature) the wrong thing and exit the markets licking their wounds.
However, if you can, stay the course and tune out the media. Why? History has shown that the government has always stepped in to correct large scale financial problems. Don’t believe me? Give this Wall Street Journal article on government bailouts a quick read (may require subscription).
The bottom line: the US continues to be a premier player in the world economy. Markets boom and bust (and will continue to do so) but as a significant world power we are relatively young. Sure, things will be a little tougher for a while - but keep your eyes on the horizon as US stocks are still the place to be in the long run.
Tags: government bailouts, stock market
While it’s no surprise that unemployment continues to plague the US economy - we certainly don’t need more data to confirm the situation. However, in this market even bad news that’s as bad as analysts expect (and not worse) could be good news. That might just be the case with US unemployment data just released this morning.
July nonfarm payrolls fell by 51,000 and the rate of unemployment grew slightly to 5.7% (vs. 5.5% in June). While this is the highest rate in 4 years, at least it wasn’t as bad as the market was expecting - Dow futures are up ahead of the market open. Hey, I’m trying to look on the bright side of things here.
After a two month delinquency in updates we’re back. And, wow - what a market to start writing about again. Since our last post in April, the S&P 500 lost 9% of its value while the Dow surrendered a hefty 11%. In fact, we are knee deep in recession as far as textbooks go - with the Dow crossing the 20% drop mark in early July. So, what now? To steal a line from the late great Douglas Adams - don’t panic. The slow market days of summer are the perfect time to step back and reassess the situation. (more…)
The US Bureau of Labor Statistics released March Consumer Price Index (CPI) data today, showing that inflation continues to be an issue for the US economy. Overall, prices increased 0.3% in March vs. February and 4% over the last twelve months.
Don’t be fooled by the so-called “core” inflation number which shows inflation of 0.2% and 2.4% respectively. The core number excludes food and energy items; two components which have seen the highest price growth and impact consumers the most. Inflation is a killer for economies, as higher prices weigh on corporate earnings and reduce the present value of future real cash flows.
More Housing Pain
Housing data out today also showed more of the same, as housing starts fell about 12% in March vs. February. March housing starts are also 37% lower than they were in March 2007. Good times.
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