It’s a bird. No, it’s a plane. Maybe it’s Superman! Sorry, it’s none of these things; it’s your friendly central banker to the rescue again!
Couldn’t believe the news yesterday morning…
To calm banking concerns in Europe, mostly centered around the repercussions of a default by Greece, the European Central Bank, the Bank of England, the Bank of Japan, the Swiss National Bank and even our own Federal Reserve are providing three-month loans to euro-area banks.
Will this work? And where is the money coming from?
The markets loved the news that central banks are basically backstopping European banks. And why wouldn’t the stock market love the news? After all, bank stock prices rise on such news and, when the bank stocks go up, so does the general stock market.
However, I believe this is a short-term solution, similar to a bandage. The big question that members of the euro currency need to answer is: will they let Greece go under or will they support it? Until that question is answered, the lack of confidence in the euro-area banks will continue.
In respect to how they’ll pay for it, to lend billions to the troubled European banks, world central banks will need to print more money. You can’t lend money if you don’t have it. Sure, we’ll be told these are loans that will be repaid and that the central banks will actually make money on the loans. But, as I said, you can’t loan money you don’t have. You need to print it first.
The more money central that banks print worldwide, the higher gold bullion prices go, the more valuable gold investments become, and the great the chance of inflation. That’s simple economic analysis.
Michael’s Personal Notes:
After pulling back on their foreclosure activities, as lenders faced scrutiny from State governments over sloppy paperwork, it looks like lenders hit the ground running in August.
According to California-based data provider RealtyTrac Inc., default notices to delinquent U.S. homeowners jumped 33% in August from July. First-time default notices were sent to 78,880 properties in August—again, that’s only first-time default notices! Total foreclosure filing jumped seven percent in August to 228,098 filings.
The U.S. real estate market isn’t getting better, as some would have us believe. If we look at the numbers, lenders are getting serious again about foreclosing. This will glut the housing market with inventory and place more downward pressure on housing prices. Forget those new-homebuilding stocks for a while longer!
Where the Market Stands: Where it’s Headed:
What a difference a couple of days make! After yesterday’s big rally (which coincided with my article Thursday morning (“Huge Bearish Sentiment to Propel Stock Market Rally”), the market is close to breakeven for 2011.
With so much negativity in the marketplace, with so many stock advisors turning bullish, this bear market rally is picking up with some real life.
I continue to believe we are in a bear market rally that started in March of 2009. Stocks will continue to ride “the wall of worry” higher.
What He Said:
“You’ve been reading my articles over the past few months and have seen how negative I’ve become on the U.S. economy. Particularly, I believe it’s the ramifications of the faltering housing sector that are being underestimated by economists. A recession doesn’t take much to happen. It’s disappointing that more hasn’t been written on the popular financial sites and in the newspapers about the real threat of a recession happening in 2007. I want my readers to be fully aware of my economic opinion: I wouldn’t be surprised to see the U.S. economy in a recession sometime in 2007. In fact, I expect it.” Michael Lombardi in PROFIT CONFIDENTIAL, November 13, 2006. Michael was one of the first to predict a U.S. recession, long before Wall Street analysts and economists even thought it a possibility.