Global Blast Of Liquidity: What Does It All Mean?

Reprinted from The Political and Financial Markets Commentator at http://politicsandfinance.blogspot.com

Friday, December 5, 2008

Global Blast Of Liquidity: What Does It All Mean?

The Rate Cut Merry-Go-Round Just Keeps On Spinning

In a throwback to an earlier time, the Bank of England cut its key lending rate 100bp. to 2.0%, the lowest level since 1939. If they were to cut it to below 2.0%, it would be the first and only time since the Bank of England came into existence in 1694. In a similar move, the EU cut its key lending rate 75 bp. to 2.50%.

These cuts are just more of an indication that the growing and spreading global recession is showing no signs of abating despite the massive infusions of capital around the world. Inflation, the term that has historically brought fear and quick action not only to our fiscal watchdogs but to those around the world as well, is obviously nowhere in sight, with deflation closer to the real story.

These massive and unprecedentedly aggressive easing moves, together with the flavor of the day action taken by the Fed and Treasury to try and stem the escalating tide of economic destruction, makes one think that what we see as a very bad situation, might be just that much worse.

The newest trial balloon is an unconfirmed story that the Treasury and Fannie and Freddie will enter into a program the net result of which is to bring mortgage rates for new home purchases down to about 4.5%. Good news for prospective buyers of homes, but what about current homeowners seeking to refinance high interest loans (which is where most of the mortgage problems are) as well the unknown effect a move like this would have on the secondary fixed income markets. Just another in a long line of wait and see situations.

The Big Three Go To Washington

You can bet that in some way, shape or form Detroit will get some amount of money sent their way (terms and conditions attached), but not before the congressmen and senators get to play that famous Washington game,

"Who Can Ask The Most Irrelevant and Asinine Question?"

From listening today, the winning question is one that was not hard to predict would be asked beforehand, but which still makes you wonder about what it is that is that rolls around inside the heads of some of our elected officials. You have an industry on the brink of failure, a failure which has the potential to bring an economy that is already extremely weak to its' knees, and the important questions asked were:

"You drove to Washington to show us you were serious, but who drove. Did you have a chauffeur? How are you getting home? Are you driving? Are you flying?"

For the love of Pete, can someone tell me how this makes any difference in terms of anything what so ever? Will the answer to this question somehow give some insight as to whether or not to vote for money to the big three? Or is it simply just one more example of a politician trying to get that gotcha answer to put in the trophy case? Let's get serious.

The Employment Numbers On Friday
Expectations are that the non-farm payroll numbers are going to show an extremely large decline, and that the unemployment rate is going to show a large increase when released at 8:30 this morning. Some thinking goes that if it comes in at those estimates or better, the equity markets could take off. The one thing that I know is that I don't have any idea and neither does anyone else. It's all just educated guesswork.