On October 3rd I mentioned a rash of optimism that swept across the building landscape relative to a rise in builder stock values. At the time it seemed to me that a lot of people were having unrealistic expectations in the face of other market indicators both at home and abroad. So I held on to my pessimistic view that things were not right in the total financial sector. For example:

• The Federal Reserve was responding to stock market activity instead of to the larger economy by infusing capital and lowering interest rates;
• The sub-prime home lending debacle was continuing to worsen;
• Later that month we heard of two banks that were pumping capital into the system in order to help stabilize a jittery market;
• Even later three more banks were said to be pooling their resources to help increase liquidity in the credit market.

Then starting on Monday this week Wall Street was actually holding its breath waiting for the FED to drop interest rates. By Tuesday the stock market was sliding and still holding out hope for a reduction in interest rates. Also on Tuesday we discovered the home mortgage crisis had gouged Merrill Lynch by $10 billion and that there was possibly more to come from other financial entities. Curiously, these financially astute companies seem to have trouble seeing problems in their books so they are suddenly “surprised” by just how deeply into these sub-prime markets they really were. Finally the interest rate cut came on Wednesday and the market rallied.

Yesterday we saw stocks plummet because of a rash of bad news like Citigroup needing to potentially cut dividends in order to raise $30 billion and the possibility of further FED intervention in interest rates being signaled as unlikely. The losses wiped out Wednesday’s gains. An S&P analyst in a CNN Money article hinted that banks will continue to be troubled through the end of the year since they will be marking down loans and mortgage-related securities.

I’m not an economist but I know how to balance a checkbook and figure out how much money I can spend before I go broke. From my perspective there seems to be a lot of smoke and mirrors in the financial sector and it seems that what’s going on is no different than losing your job and then living on credit cards. Sooner or later you have to pay, but with what?

In upcoming posts we’ll include some tips from experts on how best to cope with, and hopefully prosper through, erratic economic times.

Recent News