Forbes reports that US Treasury Secretary Henry Paulson said there’s no simple answer to the housing crisis.

“By preventing avoidable foreclosures, we will safeguard neighborhoods and communities and fulfill our responsibility of protecting the broader U.S. economy,” Paulson said in excerpts of his speech released by Treasury. “However, let me be clear: there is no single or simple solution that will undo the excesses of the last few years.”

On top of that, there’s some talk at CNN that Wall Street is calling for the Fed to lower interest rates again.

The government reported December employment figures on Friday. Only 18,000 jobs were added to the nation’s payrolls while economists were predicting job growth of 70,000. What’s more, the unemployment rate was expected to come in at 4.8 percent, up from 4.7 percent in November.

As a result of these gloomy numbers, expectations for a half-point rate cut grew Friday morning. According to futures listed on the Chicago Board of Trade, investors are pricing in a 84 percent chance that the Fed will lower the federal funds rates by 50 basis points, to 3.75 percent, at the conclusion of its two-day meeting on January 30.

It seems there’s no simple answer to any of the issues our economy is facing. In other news, Marketwatch is reporting that Anheuser Busch shipments to wholesalers are up 2%. With all the turmoil in the stock market and housing market, are people drinking their worries away? That’s a simple (although temporary) solution!

Interest Rates, Financial Market, Kool-Aid, Economy, Stock Market | 1 Comment »

Apologies to our regular readers who came here and didn’t see any new material in almost a week. The KoolAidMan was on another mini-vacation, hitting the slopes in Utah for an adventurous weekend, returning with a minor cold that required some additional recovery time.

One observation the KoolAidMan made, just by looking and listening, was that the housing bubble we’ve grown to love is much bigger than most people imagine. Stay tuned later in the week for the exact details.

Today is one of those days where there’s some mainstream news that makes this post’s title worthy of sharing the name of this site: DRINKING IS BELIEVING! CNN is reporting that Wall Street analysts are living in a fantasy land (and drinking the fruity red liquid).

Maybe Wall Street analysts are more honest and less compromised than they were pre-SarbOx, but recent events show that they’re still awful at their most important job: predicting bad news. They haven’t lost their habit of falling in love with the companies they cover and refusing to face unpleasant realities until everyone else has already done so. Now, eight years after they were inflating the bubble, we again have to question whether analysts do retail investors any good.

The latest evidence: Analysts have only just discovered that corporate profits in the fourth quarter aren’t going to be nearly as strong as they had supposed a month or two ago.

Drink, and ye shall believe! In other news, Morgan Stanley is writing off more losses and reporting a first quarterly loss ever.

Morgan Stanley posted its first quarterly loss ever Wednesday and stunned the rest of Wall Street by taking additional $5.7 billion mortgage-related writedown, while announcing a $5 billion cash injection from a Chinese state-run investment fund.

If you’re interested in setting up a site to track the mortgage and real estate loss writedowns by the big banks, email me and I’ll be glad to help you get it up and running!

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There have been many things going on in the financial markets here in the United States; the terms “Credit Crunch” and “Subprime Crisis” seems to be dominating the headlines. But what’s going on in the rest of the world? We’ve all been aware of a booming market in China with a growing middle class and increasing wages transforming the population and moving them up on the ladder of social status. Marketwatch is reporting that the IPO boom might be over, with investors losing the desire to get in on Chinese IPOs.

“Institutions seem to have gotten a bit cautious about valuations,” said Howard Gorges, vice chairman of South China Brokerage.
Recent IPOs to be delayed include one from China’s largest aluminum-foil maker, another from a motorcycle manufacturer and also an offering from a department-store operator.

“The underwriters are realizing that people can discriminate,” said Gorges. “Unless the price is right, i.e. lower, they (underwriters) may just figure that it is too risky.”

Is the China bubble about to burst, and if so, what effect will that have on the US economy? Perhaps the China bubble was fueled by the wealth debt created in the United States (by rising real estate values), which allowed millions of consumers to buy Chinese made goods which in turn caused Chinese business to soar.

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Bloomberg.com reports that Abby Joseph Cohen, a Goldman Sachs strategist, predicts the Standard & Poor’s 500 Index will rise 14 percent by the end of next year.

Cohen, 55, says the S&P 500 will climb to a record 1,675, extending the longest stretch of annual gains since the 1980s. She joins strategists at Citigroup Inc., Bear Stearns Cos. and Strategas Research Partners LLC in forecasting the benchmark will at least reach that level in 2008.

“U.S. stocks will offer moderate gains and will dramatically outperform bonds over a 12-month horizon,” New York-based Cohen wrote in a report today. “Recession will likely be avoided, due to strength in exports and capital spending by corporations and governments, and thanks to a vigilant and flexible Federal Reserve.”

How appropriate for a site called “Drinking Is Believing.” She does, however, provide some supporting arguments for her prediction:

Pressure on earnings stemming from more then $60 billion in losses from subprime loans may be offset by a weaker dollar, strong U.S. labor productivity and healthy corporate balance sheets, the strategist wrote.

Looking at what’s going on with the markets, it’s difficult to see how things will get better any time soon, however the market isn’t always motivated by factual data. Human emotion is the driving force.

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