Wednesday, January 14, 2009

More and More Bad News

Here we go:

1. "Bank of America May Receive More Bailout Money" New York Times.

Bad enough. It shows that Merrill was indeed another Lehman, as was Countrywide. Did BofA buy them due to political pressure or because Mr. Lewis, BofA's CEO, really believed in the deal?
And because he (reportedly) got to write the housing bill that was rushed through Congress last summer?

Continuing its tradition of saying ridiculous things with a straight face (if a newspaper can have a straight face), the Times states as justification for why you and I are going to continue to waste our money of BofA:

"The new lifeline transaction illustrates Mr. Lewis’s negotiating savvy . . ."

NO savvy. Just political pull. These banks own us. And it's bipartisan. The yelling in Congress at the bailout bill it rushed through without significant hearings is pitiful. The cries for restrictions on executive compensation are at best fig leaves. The public is being appeased just as it was appeased by the unnecessary Sarbanes-Oxley bill.

The truth is that the economy and large financial institutions are imploding, but that the implosion is limited to the imprudent ones. Expect General Electric and American Express to be the subjects of increasing rumors. They are obviously in trouble.

The companies, including financial institutions, that were prudent will in general survive. This was the case in the 1930s. What Congress, the Fed, the Bush Administration, and by all accounts the Obama Administration are doing is making things worse.

2. The Fed's Beige Book describes disaster for commercial real estate.

3. Nortel and retailer's Gottschalks and Goody's LLC filed for bankruptcy today.

4. California foreclosures are back near record levels.

The price action of gold goes along with the deflationist view, as do every one of the above reports. In this scenario, which is the Japan scenario or U.S. Great Depression 2 scenario, there is no definable bottom for asset prices and no specific upside ceiling for Treasury prices. Traders and investors should not think too much. The trend is your friend; and, don't fight the Fed.

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