January 15th, 2008
Hey, that’s got a double-meaning today.? First, the markets are, in fact, making a rundown.? The DOW posted a 277 point loss for the day to end at 12,501.? Back in October it was pushing 14,000.
Treasuries gained in price, which means the yields went down.? The price moves inversely from the rates.? The 2Y ended at 2.48%, the 5Y is at 2.95%, and the 10-year is at 3.67%.? And don’t forget the 30-year bond that the gov’t brought back.? It is at 4.27%.? At least treasuries have an almost normal curve going for them.? The 3-month and 6-month ruin it a little bit.
Fed funds stand at 4.25%.? At this point most people expect the fed to cut rates at least 50 Basis Points or 0.5% to 3.75%.? Even if they do, the fed funds will still be above all of the rates except for the 30-year bond.? This means that more cuts are also likely.? CNBC keeps giving rumors of an early cut, but I think that is just them trying to push the Fed along.
In other news, Merrill Lynch got a cash infusion from?the?mid east?to the tune of $6.6 Billion dollars.? They are paying 9% for those funds.? Citigroup received about $14 Billion dollars.? I’m not sure what that is costing them.? First question, with the treasury yields being what they are, why such a hugh premium for the money?? I wonder how much confidence their new outside investors really have in them.? Second, question, didn’t people learn the first time around?? The big banks, big firms, etc. are posting huge losses because of their over exhuberance for the pre-2007 housing market.? I don’t really think they have shown any evidence of learning their lesson.? So the big, BIG, BIG question is what is going on?
Honestly, I don’t know.? I tend to have faith in the power of American to overcome and make it through tough times, but I believe that can only happen if as individuals we learn the proper lessons.? You can’t keep spending more than you make.? You can’t buy a house that is bigger than you need for a price that you can’t afford, just becuase you can get a 2% loan for a year.? We need to get back to the fundamentals or this is going to get much uglier than it already is.
-- By +Chris Duncan