Thursday, September 11, 2008

The Perfect Storm

It seems like the perfect storm is brewing. The financial markets are being hammered by the potential collapse of Lehman Brothers. However, most of the bad news is good news.

Dramatic economic slow downs in places such as Australia and England are forcing mortgage rates and fuel costs to fall.

A few months ago, the fear was that mortgage resets would severely damage the mortgage market. The resets are being done at low short rates in the USA or they are being refinanced at low long rates.

High short rates in many nations (Brazil just raised short rates to 13.75%) are forcing down inflation rates, as seen in the dramatic fall in the price of gold (gold has fallen from 1035 to 780 in just a few months).

The "take over" of the GSE's by the treasury department has increased the value of trillions of dollars worth of mortgages and mortgage backed paper. Banks holding marketed to market paper will have to mark the value up.

The near collapse of Lehman Brothers is the kind of thing that happens at market turns.

The failure of congress to come up with a reasonable energy plan is giving support to ending the ban on drilling in US waters. The drilling ban will die in 19 days. So far the only thing offered by congress is a Christmas Tree -- Pork Barrel Bill. Perfect for McCain and Palin to run against.

The 123 Agreement with Russia was pulled by the Bush administration. The pressure is on Russia to continue their prior movement toward a successful trading partner or they can continue their recent path of returning to the days of the Cold War. Bush has avoided a no vote by congress. The next president can resubmit the treaty if conditions improve.

Osama bin Laden is still on the loose seven years after 9/11, but three of his top commanders have been blown away during the past several weeks. Osama's (almost wrote Obama's) second in command blames Iran spies on the deaths.

The Air Force does not have enough trained personnel to plot bomb attacks, but the army is using digital, GPS binoculars attached to digital radios to call in ordinance. The ratio of deaths from friendly fire is dramatically lower than it was in the old days. The number of bombs used goes down as the accuracy of the bombs goes up. High tech pairs of binoculars have become laser guided missiles.

OPEC has announced a 500,000 barrel per day cut back in production, but Brazil just found another 3 to 4 Billion Barrels in an off shore well. Natural gas production in the USA is soaring due to tech improvements.

Stocks have been pounded by the pull of the huge rally in the bond market, but the 10 year is below 3.6% and is offering less and less competition to stocks as yields fall.

A Spanish airline just went out of business; one less competitor.

Obama regained his face time on the news networks by the artful use of the expression about lipstick on a pig. However, McCain suddenly has safe leads in a number of states, he has pulled into leads in several battleground states and it even appears that his coat tails could cut the gains expected by democrats in the house and senate.

Only 39 Senators have signed the letter of strong support for ending the moratorium on off shore oil drilling, 41 votes are needed. McCain and Lieberman could provide votes number 40 and 41.

I'm headed off to the beach for a retreat with the Maple Springs UM Men's Bible Study. I'll keep an eye on the market and will be back in touch on Monday.