Tuesday (3/18/08) could be the first day in a series of many toward a recovering US economic situation.
So what is the problem in the first place? It is mostly tied to the banking system. Too many people used packaged mortgages as assets to back mortgage loans that turned out to be worth less than thought. Some are still worth quite a bit and others aren’t. But if the job report continues to decline then more will switch to the less valuable kind (because people will lose the ability to pay their debts).
So was Tuesday the first day toward a recovery in the US economy?
A brief answer as to “yes”
The fed slashed the lending rate 0.75 points. This makes it more enticing to borrow money from bank to bank because you are getting an interest “deal.” Basically it is cheap money. Usually the banks pass this savings on to other people asking for loans (so far that isn’t the case, but it is expected to happen).
Two Wall St banks surprised investors by beating expectations for earnings. Lehman Bros and Goldman Sachs each performed better than analysts thought in the first quarter of 2008.
Visa’s IPO netted several banks millions of dollars. All told Visa raised 17.9 Billion. With banks having more income coming in they are more likely to benefit from firms that aren’t surviving as well as they are and buying them at a discount.
The stimulus checks are a little more than a month away.
Investors want to get out in front of the wave back up. Most investments are cheap right now so buying now doesn’t hurt the investor. Maybe it isn’t the lowest point, but it is probably close.
A brief answer as to “no”
Jobs! If the job report for March comes in as dismal as February then this slide will continue. Not because of the current credit problems but rather because the balance between Wall St and Main St finally tilted to affecting those that buy and sell goods and services day in and day out.
Energy costs are not dropping.