Thursday, October 02, 2008

Here we go again...

I think we all need a moment to catch our breath. Clearly the markets are still in flux as evidenced by the 4% drops across the US markets today (for a real eye opener look at some of the commodity plays like POT or MOS). There is still substantial concern that the bailout bill is in trouble in the House although I think there's a 80%+ chance of passage tomorrow.

The great concern today should be two issues:

1) The US and Global economic backdrop is weak and deteriorating. The driver of growth in our economy for the past 10 years has been government spending, housing, commercial construction and service industry expansion. Government spending is still surprisingly strong, but housing, commercial construction, financial services and manufacturing are all exceedingly weak. The old economic models of the US economy were premised on a normal ebb and flow of manufacturing expansion and contraction. Those models are outdated in the face of today's global economy.

By 8:30am we will get the latest read on unemployment data and I do not expect it to be pretty. HOWEVER, this data often contains a number statistical anomalies that shift the headline number. Thus, you might watch the knuckleheads on CNBC get all worked up tomorrow if the number is "BETTER THAN EXPECTED". Give the real analysts about 15 minutes to dig through the data and I bet we'll find a surprisingly strong birth/death adjustment (they call that a teaser in the biz - more on the birth/death adjustment tomorrow - plan on wearing your tinfoil hat).

2) Fed lending is EXPLODING - This is extremely disconcerting chain of events.

Commercial banks and bond dealers borrowed $348.2 billion from the Federal Reserve as of yesterday, an increase of 60 percent from the prior week amid a worsening credit freeze.

Loans to commercial banks through the traditional discount window rose about $10 billion to $49.5 billion as of yesterday, the Fed said in a weekly report today. The total surpassed the previous record after the 2001 terrorist attacks.
Borrowing by securities firms totaled $146.6 billion, up from $105.7 billion. Under a new emergency program announced Sept. 19, banks borrowed $152.1 billion as of yesterday to buy commercial paper from money-market mutual funds, more than double a week ago.

In essence, the banks are in such trouble that any bailout bill may not be enough (even if a bill passes, look for the banks to be back asking for more soon). As I've said, we have a couple of choices here, endure a sharp and very painful period where we revalue our entire economy and let many, many banks fail. Or delay the pain and suffer a century's worth of pain as we fade into the global economic backdrop as the UK did in the last century.

Our country's economy has cancer - do you want chemo and radiation or do you want to take 2 echinacea and hope for the best?

On a lighter note - I WANT ONE OF THESE THINGS......

"Inventor Casey Jones says the £350 gadget uses ultrasound technology to recreate the effects of decades of ageing by colliding alcohol molecules inside the bottle.

The Ultrasonic Wine Ager, which looks like an ordinary ice bucket, takes 30 minutes to work and has already been given the thumbs up by an English winemaker.

Mr Jones, 53, said: "This machine can take your run-of-the-mill £3.99 bottle of plonk and turn it into a finest bottle of vintage tasting like it costs hundreds.

"It works on any alcohol that tastes better aged, even a bottle of paintstripper whisky can taste like an 8-year-aged single malt." Yummmm.

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