October 6th, 2008

Not just "an American problem".

Last week in the German parliament, finance minister Peer Steinbrück declared, "The financial crisis is above all an American problem."

Guess not.

Over the weekend, he was scrambling to organize a €50 billion rescue package to save Hypo Real Estate Holding AG, one of Germany's biggest housing lenders. To try to stop a bank panic, the German government also had to match the Greek and Irish governments and announce a national guarantee on all consumer bank deposits.

Maybe he should have waited a bit before indulging in schadenfreude.

Jim Cramer just threw in the towel.

It might be time to buy. :)

From http://gawker.com/5059535/jim-cramer-begs-america-to-abandon-hope:
Whoa, Jim Cramer has fully turned around as much as a man can possibly turn around! The shouty CNBC (poor) stock picker—who as recently as last November was trumpeting "10 Reasons to Be Bullish" ("1. The stock market is cheap")—went on the Today show this morning to virtually beg Americans to pull all the money they might need in the next five years out of the stock market, no matter what the cost. He looks like he's about to cry. This will be one of the defining moments in the media narrative of our nation's impending financial doom.

Something very interesting is going on with Treasuries and the dollar.

There was some worry that, with all the money the Federal government is throwing at banks to keep them afloat a) this mass issuance of debt would flood the markets with Treasury securities, which would force up interest rates because there wouldn't be enough buyers for it and b) that the budget-busting this represents would cause people to flee the dollar for other currencies, driving down its value.

Neither of these things is happening. In fact, quite the opposite.

It's true that there's been a lot of new Federal debt, but such is the scramble for low-risk assets like Treasuries that their prices are now soaring, which drives yields down. At this point, the interest rate on Treasury securities is so low, buying them amounts to a deal where you give money to the Treasury and they promise to give it back, plus a minimal amount of interest. Then again, considering the other possibilities on offer which might not pay you back, that's a pretty good deal right now.

In order to buy Treasury securities, you have to have dollars, so demand for dollars has been strong. And however bad things look here, chaos overseas means that things don't look any better elsewhere. All of this has meant that the dollar is gaining lots of ground on the euro. The euro dropped below $1.35 during the day today, down from around $1.60 in mid-July.

How long will this go on? Who knows? It wasn't really expected to go this way to start with.