Great Doubt For Benefits Of Stimiulus Package

Posted: August 19 2009

FDIC Follies,more banks closing, other markets affect the market, ownership society comes to an end, housing programs were social engineering, readers digest chapter 11, Goldman Sachs execs acting like paraihs in public

We had a bank go on Thursday and now we have a continuation of the Friday Night FDIC Financial Follies.

Federal and state regulators closed two small Arizona banks Friday evening, but depositors won't feel any pain.

Phoenix-based Community Bank of Arizona and Union Bank in Gilbert were shuttered, with deposits of both institutions purchased by Oklahoma-based MidFirst Bank.

Regulators also closed three other banks elsewhere around the country on Friday, raising the year-to-date total to 77.

Much to their dismay, Americans learned last year that they ‘owned’ Fannie Mae and Freddie Mac. Well, meet their cousin, Ginnie Mae or the Government National Mortgage Association, which will soon join them as a trillion-dollar packager of subprime mortgages. Taxpayers own Ginnie too. Only last week, Ginnie announced that it issued a monthly record of $43 billion in mortgage-backed securities in June. Ginnie Mae President Joseph Murin sounded almost giddy as he cheered this ‘phenomenal growth.’ Ginnie Mae’s mortgage exposure is expected to top $1 trillion by the end of next year—or far more than double the dollar amount of 2007. Ginnie’s mission is to bundle, guarantee and then sell mortgages insured by the Federal Housing Administration, which is Uncle Sam’s home mortgage shop. Ginnie’s growth is a by-product of the FHA’s spectacular growth. The FHA now insures $560 billion of mortgages—quadruple the amount in 2006. Among the FHA, Ginnie, Fannie and Freddie, nearly nine of every 10 new mortgages in America now carry a federal taxpayer guarantee.

This past week the Dow fell 0.5%, S&P 0.6%, the Russell 200 fell 1.5% and the Nasdaq 100 fell 0.4%. Banks rose 0.8%, as broker/dealers fell 2%. Cyclicals fell 1.6%; transports 1.2%; consumers 0.2%, as utilities gained 0.2%. High tech fell 0.4%; semis 1.3%; Internet 0.6% and biotechs 0.2%. Gold bullion lost $6.50 and the HUI gold index fell 2.4%.

Two year T-bill yields fell 24 bps to 0.96% and the 10’s fell 29 bps to 3.57%, as German bunds fell 19 bps to 3.31%.

Fed credit expanded $11.4 billion. Fed foreign holdings of Treasury and Agency debt rose $5.5 billion to a record $2.816 trillion. Custody holdings for central banks rose at a 19.3% rate ytd and yoy up 17.6%.

M2 narrow money supply fell $42 billion to $8.324 trillion, having expanded at a 2.6% rate ytd and 17.6% yoy.

Total money fund assets declined $12.8 billion to $3.594 trillion. The dollar fell 0.2% last week to 78.79.

Many things affect markets. Other markets, superfluous liquidity, fiscal and monetary policy, and public perception. Professionals are the first to react to changing conditions. We must not, of course, leave out the negatives, such as staggering climbing unemployment, foreclosures, bankruptcies and a general malaise, which temporarily is being offset by greatly loosened monetary conditions.

We are in a five month bear market rally that has carried the Dow from 6600 to 8500, where we believed it would end, and on to almost 9400. This constitutes a 50% move in the Dow from mid-March and a 6.2% move for the year, while the economy experiences the worst economic and financial debacle since the “Great Depression.â€