I’ve taken some time today and read most of the financial blogs and financial websites I generally use, and have decided that tomorrow ought to be an interesting day, to put it mildly.
1. It appears that Lehman Brothers has found itself at the end of the road, as no suitors have come forward to save the beleaguered firm. This is the fourth largest investment in the US and the implications for the potential implosion of the firm has far reaching consequences. Most articles are stating the negotiations are ongoing, so there may be some new developments later in the day to calm the markets, but as of this minutes it appears Lehman Brothers is going the way of the Titanic.
2. Crude oil may spike some as the damage for Hurricane Ike is assessed and it’s implication on refining are revealed.
3. Washington Mutual appears to be in desperate straights, too. The implications for this bank failure are absolutely enormous. I can’t imagine the effects it may have on the market.
It is my opinion that all the meddling the government has engaged in to prop up the beleaguered banking industry are actually putting of the inevitable, which is a dramatic correction in the markets. We need to find a market bottom somewhere in this mess and though it would be a painful measure, we might actually be able to sort out just where we are. As it stands, the Fed and others are plugging holes in the financial dike to stave off this correction. In doing this, I believe that many financial institutions have hidden much of their suspect Alt-A and sub-prime exposure….which really isn’t doing anything but buying time, for the time being.
Of course, some economist believe we could “inflate” our way out of this mess, that is, get interest rates to rise and, in effect, stave off market worries by increasing prices and values in several troubled banking areas. Needless to say, this approach would be less than desirable for the average consumer as inflation is a hardship for the middle class. And there is much more inflation out there than our government would have you believe. There is an excellent discussion on how the government currently calculates inflation number they disseminate, as oppose to the way they used to, and the way other countries calculate inflation number. You can find excellent discussions on the topic in past posts on the Calculated Risk and Financial Armageddon blogs, which are listed on the sidebar of this blog.
As a trader, I am not affected by wild swings in the market. To the contrary, volatility is an important factor in how we trade. But as a consumer, many of the implications of the Feds policy of late are far from consumer friendly.
