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DynamicTrends.com
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DynamicTrends.com
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Investors in the stock market woke up and finally realized that there must be something amiss in the financial markets, as the Dow Jones lost over 550 points for the week, while the S&P pared 55.95 from it’s lofty highs. The NASDAQ led the markets down for the week losing more than 182 points. Technicals broke through support levels for both the Dow Jones and S&P on Wednesday and for the NASDAQ on Thursday. The spate of bad news on Wall Street, along with the bearish technicals, signals a turnaround on the stock market after a 5 ½-year bull market. Treasury Secretary Henry Paulson is still insisting that a huge rescue fund supposedly being put together by three major banks, Citigroup Inc., JPMorgan Chase & Co and Bank of America Corp., will help resolve problems in the credit crisis. According to Paulson, “market forces are working.“ Paulson is either naïve or pandering to Wall Street, Bankers and the Fed. The three banks involved, even though well capitalized, are themselves at risk of heavy losses as a result of the subprime mortgage disaster. Daily headlines and their own financial reports (or lack of), bear that out. Do not count on FNMA either! Fannie Mae guarantees about $2.3 Trillion of the nation's $11.5 trillion residential mortgage market and reported third-quarter losses of $1.39 billion due to increased mortgage defaults and delinquencies.The root cause of the credit crisis is that struggling homeowners do not have the equity to refinance their mortgages as prices plummet, and buyers are rare, as they wait for prices to fall even further or do not qualify for new mortgages under the newly toughened lending standards. 70 percent of the homeowners, who are at least three months late on their mortgage payments, are current on their credit cards. However, as equity falls and personal wealth evaporates, banks that are carrying this “unsecured“ debt are at risk of an added meltdown along with the growing number of defaults on second mortgages. The survival of the banking industry is dubious at best. Ask Ben Bernanke, who thinks “the final cost of the mortgage market meltdown might ultimately reach the level of losses from the savings and loan debacle of the late 1980s“. Add to that the fact that devaluing the US Dollar has wreaked havoc on the Yen and Gold Carry Trades, as most international currencies, gold and other commodities have risen in value substantially. The Federal Reserves answer to the collapse of the real estate market and the ensuing credit crisis, as always, is to lower the Fed Rate. Lowering the Fed Rate reduces the value of the dollar and is ultimately inflationary. Whenever the US Dollar declines in value, the entire economy feels the pinch. Besides the obvious effect of rising prices on imports, a whole raft of inflationary events occurs. Domestic prices begin to increase, taxes go up, stock markets go down and the real estate market seizes up. Another example of how a weak US Dollar proves to be inflationary is a recent report showing that import prices surged 9.6 percent from November 2006 thru October 2007. Congressman Ron Paul, a presidential candidate, asked the Fed Chairman Ben Bernanke, “How in the world can we expect to solve the problems of inflation, that is, the increase in the supply of money, with more inflation?“ $100 a barrel Crude Oil is a threat to our national security, as it contributes to the financial coffers of rogue nations such as Iran, and Venezuela, who are using petrodollars to finance terrorist activity against the U.S. and as of late even Russia who has been flexing their muscles. By Michael Scoglietti
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