200 Point Stock Drop Isn't Even a Crash Anymore!

Percentage-wise a 200 point swing on a 11,000+ Dow isn't earth-shattering, but it still represents real dollars in my 401k (and yours!). Yesterday's drop received so-so coverage.

They say a Recession is when your neighbor loses their job, a depression is when you do. Well, I am not there, but a lot of my neighbors are worried. It was bad enough when everything was melting down, but now inflation is hitting at the same time; a big reason - $5 gas (coming soon!). As energy touches everything, it raises every ship in the harbor.

Heck, the interest rate cuts aren't even helping as promised, since credit markets are getting tighter. At least we could of had a refinance (I was hoping for one!) to dump some $$$ into the mean green machine.

So, how do we get off this Tilt-a-Whirl o' Doom....Eventually the Fed will have to tighten the money supply at some point. Which means it would get worse before it gets better. Not trying to be the Siren of Death, but it is one set of body blows after the next...gee I hope one of the political parties raises my taxes next :)

Then again, maybe I just shouldn't post after I pay bills :)-

Personal Finance QuickTake: Uncle Ben's Nice

Uncle Ben's Nice to the market with a 3/4 point reduction in the Federal Rate, down to 2.25%.

This is the sixth cut in the Fed Rate and now at 2.25% reaches a low from 2004.

From the report:

However, there has been opposition inside the Fed to the aggressive moves. The latest rate cut came on an 8-2 vote with two members of the Federal Open Market Committee dissenting. Both Richard Fisher, president of the Dallas regional Fed bank, and Charles Plosser, president of the Philadelphia regional Fed bank, voted against the rate cut, arguing they would have preferred less aggressive action.

In explaining its actions, the Fed said that it was having to navigate a difficult policy environment that included sluggish economic activity and rising inflation pressures. The Fed statement said that "the outlook for economic activity has weakened further" but that "inflation has been elevated" with some signs that expectations of future inflation pressures are rising, a dangerous sign for the Fed.

But the Fed signaled that it stood ready to cut rates further if necessary, saying that "downside risks to growth remain." Bernanke and other Fed officials have said in recent comments that they view the threat of economic weakness as a bigger risk at the moment than inflation given the risks to financial markets.

"Financial markets remain under considerable stress and the tightening of credit conditions and the deepening of the housing contraction are likely to weigh on economic growth over the next few quarters," the Fed said in its statement.

Seems like some of the Fed Governors are getting nervous about the affect on inflation and feeling that the action is getting a bit aggressive, especially since the Stimulus checks are still 6-8 weeks away.

What...Me Worry?

(Photo from AP)

Personal Finance QuickTake: Big Cut Tuesday

Big cut Tuesday? The pressure is mounting. How aggressive? Caught between a rock and a hard place.

They have already cut rates this week on Sunday but are expected to cut cut rates Tuesday, perhaps even up to a point.

From the report:

With the quick collapse of the investment bank Bear Stearns, fears are mounting about whether other financial companies may fall. Many believe the country has already sunk into recession and all the problems — if not contained — will deepen and prolong the pain.

"The Fed is on high alert — something you don't see but once every quarter century; maybe, in this case, since the Great Depression. This is a very unusual period," said Mark Zandi, chief economist at Moody's Economy.com.

That's because the Fed is having to fight multiple battles at the same time: a housing collapse, a severe credit crunch and Wall Street turmoil that threatens the stability of the entire U.S. financial system. All those problems feed on each other, creating a vicious cycle that can be hard for the Fed and other Washington policymakers to break. The weight of those troubles is like a millstone on the ailing economy.

"Now the issue is fighting the deeper recession," said Brian Bethune, economist at Global Insight. "It has kind of moved to another level. The fires are spreading," he said.

To limit the damage, Bernanke and his colleagues may ratchet down a key interest rate, now at 3 percent, by as much as a full percentage point, to 2 percent, which would put that rate at the lowest it has been since late 2004. Because that rate affects a wide range of rates charged to millions of consumer and businesses, it is the Fed's most potent tool for reviving economic activity.

I don't know if it is the dawning of a depression, but it seems that the Government, nor many others have a feel how deep the rabbit hole goes.

The real concern is to over-correct or to blow-out inflation. But if this is the beginning of the issue and not the beginning of the end, we are using a bunch of our ammunition right away. The question is that would be be running this fast if it wasn't an election year?

Personal Finance QuickTake: RIP Bear Sterns

According to a report from AP, Four Days after saying the company was OK, Bear Stearns will sell out to JPMorgan-Chase for the bargain price of $2 per share, or $236 Million.

This is a stunning reversal for Bear Stearns, that will at least save them from bankruptcy, as the Mortgage Liquidity crisis gets its first well-known victim.

The Fed jumped in already and not only approved the buyout, but also guaranteed $30 Billion of Bear's assets, essentially making the buyout risk free for JPMorgan. JPMorgan Chase & Co. said it will guarantee all business — such as trading and investment banking — until Bear Stearns' shareholders approve the deal, which is expected to be completed during the second quarter. The acquisition includes Bear Stearns' midtown Manhattan headquarters.

JPMorgan's acquisition of Bear Stearns represents roughly 1 percent of what the investment bank was worth just 16 days ago. It marked a 93.3 percent discount to Bear Stearns' market capitalization as of Friday, and roughly a 98.8 percent discount to its book value as of Feb. 29

No word on Bear Stearns 14,000 employees or if the brand that survived the Great Depression and World War II would continue. They were considered to be the most leveraged major bank out there and based on the last weeks news, basically went into a death spiral.

At almost the same time as the deal for control of Bear Stearns was announced, the Federal Reserve said it approved a cut in its lending rate to banks to 3.25 percent from 3.50 percent and created another lending facility for big investment banks. The central bank's official meeting is on Tuesday. Before the emergency move to lower the discount rate, which is the rate at which banks lend each other money, the Fed was widely expected to again cut its headline rate by as much as a full point to 2 percent.

This doesn't feel like the end of this. Maybe the beginning of the end, but not beginning.

Personal Finance QuickTake: Another Rate Cut Coming

Chairman Ben Bernanke signaled to Congress on Wednesday that the Fed is ready to again cut rates to help jump start the economy according to an AP story.

The Fed is in the unenviable position to get the economy moving while not fanning the flames of inflation, which is already showing its ugly head. Bernanke is fighting an uphill battle against home mortgage and general credit issues in the market. But the economy is the top concern, over inflation fears. He pledged to adjust a key interest rate and help the economy, which many fear is on the verge of a recession, if not already in one.

"The economic situation has become distinctly less favorable" since the summer, the Fed chief told lawmakers. The country should prepare for "sluggish economic activity in the near term," he went on to say. Concern continues to grow for a new period of stagnation, where inflation grows stronger while the overall economy is weak.

The Fed is prepared to lower rates again to bolster economic growth, Bernanke said. The Fed "will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks," he said, sticking closely to assurances he offered earlier this month.

Bernanke said at some point this year, the Fed will need to "assess whether the stance of monetary policy is properly calibrated" to foster the Fed's objectives of price stability "in an environment of downside risks to growth." Bernanke said he was hopeful that previous rate reductions and the $168 billion economic aid plan of tax rebates for people and tax breaks for business would energize the economy in the second half of 2008.

"Should high rates of overall inflation persist," Bernanke said, "the possibility also exists that inflation expectations could become less well-anchored." If people think inflation is escalating, they will act in ways that could make things even worse, a sort of self-fulfilling prophecy. Also, if oil prices continue to skyrocket this year, it would be "hard to maintain low inflation," Bernanke acknowledged.

What this means for us:

Most believe that the Fed will cut rates in March and in April hoping to get the economy in good strides when the economic stimulus plan hits. If consumers are still worried, larger numbers then planned for would save or paydown debt with the funds instead of spending them in the general economic. This would minimize the overall impact.

Personal Finance QuickTake: Fed Ready to Act

Today Fed Chairman Ben Bernanke told Congress that the Fed was ready to continue to act as needed to support the economy. He also stated though that signs point to growth later in the year. The Fed has lowered interest rate 2.25% since September, lowering the rate to 3%.

From Reuters:

He acknowledged that the growth outlook has worsened over the past few months. His comments reinforced investors' expectations the central bank would lower interest rates by a half-percentage point at its next meeting on March 18.

However, the central bank chairman also said he expects sluggish growth to give way to a somewhat stronger expansion in the second half of the year as the impact of fiscal and monetary stimulus now put in place is felt. Bernanke painted a somber picture of risks facing the economy, and U.S. stock prices and the dollar fell on his gloomy assessment. In early afternoon, the Dow Jones industrial average was down more than 140 points, or 1 percent.

So it looks like more cuts are coming and they are doing whatever they can to avoid a recession, perhaps even at the cost of future growth as inflation becomes a bigger concern.

Personal Finance QuickTake: Fed Cuts Rate 3/4%

Early this morning, in a surprise mood, the Federal Reserve cut the Federal Funds rate by a whopping from 4.25% to 3.5% . A cut was expected at the next meeting, but by doing this they obviously are showing that they feel the economy is headed south ...fast!

The cut is not only surprising due to the timing, but also the size. .75% is an outsized drop at the Fed where the have been making small .25% cuts.

Unfortunately the market took this as further evidence that the economy is in worse shape than though of earlier. The stock market dropped over 450 points at the opening of the day, but bounced back as some tried to lock in lower prices.

What this means to us! It will be very hard for all of these high Interest Rate savings account not to cut the same percent, so it look like 4% is the new 5%! Credit Card Rates should come down a bit, and it may become a good time to refinance your house or debt.

The worst thing to do is panic. You will only lock in losses. Downturns happen and looking at them as potential buying times can secure good returns later.

Remember in budgeting or managing your money it is Buy Low, Sell High...not the other way around!