As Treasury Yield Nears Zero, Paulson And Bernanke Testify In Congress

The banks are in chaos. The US T-Bill yield is almost zero. Commodity prices are collapsing. Traders are desperate. What next? Well, today the Treasury Secretary and the Chairman of the Federal Reserve Bank testify in Congress. This ought to be an interesting day.

Yesterday, the DJIA (-223.73 -2.63% to 8273.58), S&P 500 (-22.54 -2.58% to 850.75) and NASDAQ Composite (-34.80 -2.29% to 1482.05) were hammered again. Confusion reigns.

The only sector that had signs of gaining on the day, Utilities (XLU -0.17%), slipped into negative territory at the close. The worst hit were the Financials (XLF -6.4%), sunk mostly by the Broker-Dealers ($XBD -6.3%), which was largely a case of the sinking of Goldman Sachs (-6.4%).

The Goldminers ($XAU -4.7%) also dropped. $GOLD was only down 50 cents an oz to $742.00, however. $WTIC Crude Oil dipped -$2.11/bbl to 54.49/bbl.

The Cara 100 saw GOL Airlines (GOL) had soared +12.2%. Tata Motors (TTM) drove +7.0% to higher ground. RIMM +5.6% sent a nice mhessage and is also popular in the pre-market today. Hewlett-Packard (HPQ), though not a Cara 100 (but close) was very very strong in the pre-market. Three Canadian stocks were the leading losers on the day: Silver Wheaton (SLW -13.2%), Goldcorp (GG -9.2%) and Manulife Financial (MFC -8.2%). VIP -7.5% wasn’t. Disney (DIS) and Goldman Sachs (GS) both dropped -6.4%. GS was dropped from the Cara 100 this past weekend.

I quickly reviewed DIS last week end as well:

Re Disney, the Value Line report was done at $26.02 and the DIS closed the week at 21.08, so the numbers are so out of whack, the analysis doesn’t make sense.The corporate balance sheet is just so-so. It’s rated A, but doesn’t look that strong. I don’t care for the deficit working capital ratio in tough economic times. A severe recession could hurt the stock further.

But I do like the management, and will keep the company on the Cara 100 list.

DIS closed Monday at $19.74.

There were two 52-week lows among the Cara 100: Electronic Arts (ERTS) at 19.26 and Westpac Banking (WBK) at 51.41. I guess people (i) have no time for games and (ii) they are worrying about their banks. The WBK had a high this month of 84.37, closing yesterday at 53.00. In the Fall a year ago, WBK hit 144.

The US long bond ($USB) gained +0.22% to 118.81. T-Bill’s were yielding just 0.09% — the worst ever.

On the forex front, all major currencies gained a bit, while the Swiss Franc dipped -0.75%. The $USD was up +0.09% to 86.80. The Euro was up +0.31% to 126.43. The Pound +1.73%, the Yen +0.77% and the Loonie +0.89% were stronger as well. It’s surprising that $GOLD did not dip further, but the almost zero rate on T-Bills means that gold, which doesn’t pay a yield was also attractive.

Overnight, the Asia-Pacific equity markets were all hammered. The Japanese Nikkei (-2.28% to 8328.4), Hong Kong (-4.54% to 12915.9), Shanghai (-6.31% to 1902.4), Australia (-3.47% to 3513.4) and India (-3.81% to 8937.2) all have eyes on Washington. Traders there were unhappy that the G-20 meetings produced no policy that might be implemented quickly with desirable results.

At 9:15am ET (vs 8am ET) today, the French CAC was down -1.01% (-1.69%), German DAX -1.10% (-2.04%), and UK FTSE -0.79% (-1.69%). Banks are pulling equity markets down with them, but the picture has improved over the past couple hours.

The gold, palladium, platinum, and silver spot prices at 9:15 am ET were: 736.15, 213, 822, and 9.27.

The Euro is a bit soft at 126.10 and $USD a bit stronger at 87.38.

Crude Oil is up +$0.44 to 55.93, and the DJIA futures still down -30 at 8929, but improving.

Comments & Outlook

Paulson goes to the Hill today to discuss his new plan to bail-out America. The legacy of this once-successful man is being reduced to unkind limericks, and rightly so.
http://news.ino.com/headlines/?newsid=68947266728710

(INO.com/AP) The two top salesmen for a $700 billion financial bailout are in for a grilling by Capitol Hill lawmakers just one week after the administration officially ditched the original strategy behind the rescue. In a profile published Tuesday in The Washington Post, Paulson, who is overseeing the bailout program for the Bush administration, said he was also working on a proposal that would allow the government to take over a wide range of financial institutions –not just banks– that are in danger of collapse….

In a televised interview by the WSJ, Treasury Secretary Paulson got instantly testy and defensive when asked to explain his experimental practices right off the top of the interview. To paraphrase, Paulson retorted, “We saved the public’s ass. The public has seen what’s happened to the economy and the bank failures. It’s hard to get credit for what didn’t.”

The arrogance of this man is beyond belief. The “grilling” in Congress ought to be interesting. Let’s look into the man’s eyes when he’s asked the tough questions he knows are going to be asked. Let’s see if he shows us what happens to a bully who gets cornered by a gang of people he really doesn’t like.

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