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Economic Alert #3b
Everything’s OK, or is it?
Everything’s OK, or is it?
Jedi Mind Tricks?
Last Tuesday, July 22, at the same time that Wachovia Bank was posting a $9.8 billion loss for the quarter, the day after this same bank had pulled out of the wholesale mortgage business, Treasury Secretary Henry Paulson declared that the banking system was safe, and everything is going to be OK. By doing a google search, you can probably find a video of him saying this, so if you want to believe, then play the video and say it with him and nod approvingly.
Yes, everything is OK. Food prices are skyrocketing, jobs are down, a million people are in foreclosure (or maybe some of them will get bailed out by the new housing bill), and the banks haven’t accounted for all their “toxic paper” (bad loans) yet. The economy is still “slowing,” house and condo prices are dropping with no end in sight. But the CEO of Wachovia said essentially the same thing as Paulson, as he was announcing the $9.8 billion loss. Everything is OK, even though 14% of Wachovia’s mortgage customers now have zero or negative equity in their homes (that is, they owe as much as or more than the value of the home), and securities regulators are investigating Wachovia Securities for “questionable practices.”.
These folks have apparently learned the Jedi Mind Trick (from Star Wars). If you say something forcefully and emphatically as if you believe it, then everyone (or most everyone) who hears and sees you will believe it too. Sure enough, Wachovia stock rose 27%. The same thing happened for Washington Mutual, which posted a $3.3 billion loss. Its stock rose 6.2%. The whole world was watching Mr. Paulson. The dollar rose a few cents against the Euro.
Apparently the investors must be watching reality TV and Mr. Paulson rather than reading the real analysts, even some in the mainstream media like the New York Times. If they had read the latter, they would have seen notes about increasing loan delinquencies on credit cards and auto loans, even for people with good credit.
But is everything OK? Should we worry? Congress just passed a housing bill that will bail out Fannie Mae, Freddie Mac, and 325,000 borrowers who can’t pay their mortgages. After all, they can print as much money as they want, can't they?
Want some advice? Banks may not be a great investment at this time. Gold is down because oil prices dropped a bit. The Euro is down a few cents, too. It’s probably a good time to buy gold and, for short-term, move funds into a Euro account. I don’t think we’re out of the woods yet. And if Israel or the US attacks Iran, holding dollars may be an unpleasant experience.
Regards
Jonathan
Jonathan
References:
Eric Dash, Wachovia, WaMu post huge losses; shares rise
Bad news from banks no deterrent to investors,
New York Times News Service
July 23, 2008 posted on SignOnSanDiego.com
Bad news from banks no deterrent to investors,
New York Times News Service
July 23, 2008 posted on SignOnSanDiego.com
Matt Padilla, Wachovia posts $8.9 billion loss, slashes jobs and dividend
July 22nd, 2008, Orange County Register
July 22nd, 2008, Orange County Register
Elizabeth Harrow, Worst 10-year performers: Wachovia Corporation ranks 17th
Jul 27th 2008 5:30PM, BloggingStocks.com
Jul 27th 2008 5:30PM, BloggingStocks.com
Jeanne Sahadi, Senate passes landmark housing bill
Controversial measure aims to help borrowers, bolster the housing market and provide a fail-safe for Fannie and Freddie. Bush is likely to sign it soon.
CNNMoney.com July 26, 2008
Controversial measure aims to help borrowers, bolster the housing market and provide a fail-safe for Fannie and Freddie. Bush is likely to sign it soon.
CNNMoney.com July 26, 2008
Standard Disclaimer: The information above, Bad Moon Rising Alerts, and the Bad Moon Rising Reports do not constitute financial advice, but are condensations and distillations of the work of others and a few words of what I believe to be common sense. Please seek out an independent licensed accountant or financial advisor to review the information and references I have provided as well as their own expert knowledge, in order to tailor a financial plan to your circumstances. I cannot be held responsible for the consequences of decisions made based on the information I provide. If I suggest that you stop playing the lottery to save money and your number comes up, don't blame me.
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