Dow was up 400, and everything’s bottomed out. Financials rallied, it’s a new quarter, and stocks are now a bargain. The Fed has loosened up the credit crisis and the US economy is strong enough to weather the storm. From here on out it’s the start of the long climb upwards.
The International Monetary Fund cut its forecast for global growth this year and said there’s a 25 percent chance of a world recession, citing the worst financial crisis in the U.S. since the Great Depression.
Sorry about that, couldn’t resist.
The world economy will expand 3.7 percent in 2008, the slowest pace since 2002, according to a document obtained by Bloomberg News at a meeting of Southeast Asian deputy finance ministers and central bankers in Da Nang, Vietnam. In January the fund projected growth of 4.1 percent.
The reduction is the third by the Washington-based lender since last July, when it predicted the world economy would cope with the U.S. credit squeeze and grow 5.2 percent this year. Central banks will need to conduct policy “as flexibly” as the circumstances warrant, the statement said, adding that the European Central Bank has room to lower borrowing costs.
“The financial shock that originated in the U.S. subprime mortgage market in August 2007 has spread quickly, and in unanticipated ways, to inflict extensive damage on markets and institutions at the core of the financial system,” the statement said. “The global expansion is losing momentum in the face of what has become the largest financial crisis in the United States since the Great Depression.”
Now the serious talk is about a coming global recession. What a marked change from just a few months ago. Helicopter Ben is talking in front of Congress this morning about his rosiest, best-case scenario for the US being pretty craptacular.
Federal Reserve Chairman Ben S. Bernanke acknowledged for the first time that the economy may contract as homebuilding weakens further, unemployment rises and consumer spending slumps.
“It now appears likely that real gross domestic product will not grow much, if at all, over the first half of 2008 and could even contract slightly,” Bernanke said in testimony to Congress’s Joint Economic Committee today. He also told lawmakers the Fed’s agreement to provide an emergency loan to Bear Stearns Cos. followed a March 13 warning by the company that it “would have to file for Chapter 11 bankruptcy the next day.”
Bernanke, making his first extensive public comments since the Fed’s decisions two weeks ago to back the takeover of Bear Stearns and lower interest rates by 0.75 percentage point, is trying to fend off criticism of the rescue while aiming to prevent a deeper economic contraction.
While the Fed expects the economy to return to its long- term growth pace in 2009, “in light of the recent turbulence in financial markets, the uncertainty attending this forecast is quite high and the risks remain to the downside,” he said.
The Fed is hedging its bets on 2009. 2008 has all but been written off, and this again is a rose-colored glasses moment. The Fed’s officially talking about GDP contraction now…and everyone all together now, two or more consecutive quarters of GDP contraction is what? A recession, very good class.
The Fed’s gone from “robust growth” to “some mild concerns” to “a slowdown” to now “the possibility of slight contraction.” I’m sure that will be revised downward in the future too.
Meanwhile on Capitol Hill, Senators are scrambling to put together a package to help out homeowners. The White House has voiced complaints…but it’s an election year, and the GOP is basically owning this debacle. Suddenly there’s an almost unprecedented spirit of cooperation.
Democrats and Republicans in the U.S. Senate agreed Tuesday to draft a housing rescue bill that could deliver billions of dollars to homeowners facing foreclosure and help steer the economy away from a deep recession.
Democratic leaders want the federal government to pay for more mortgage counselors, rehab projects for empty homes and tax breaks for borrowers stuck in unaffordable loans. Perhaps the most controversial provision of their plan would let bankruptcy judges erase some mortgage debt.
Lawmakers and policy-makers on all sides agree that the country is facing a tough economic crisis led by a wave of failing home loans, but Republicans generally resist a big government bailout.
Earlier this year, Democratic lawmakers failed to muster enough votes to carry their agenda unilaterally and so decided to work with Republicans.
Setting a deadline of noon Wednesday to reach a bipartisan deal, the senators said they would try to overcome deep disagreements over the scope of the legislation.
“Bipartisan senators are committed to moving forward with legislation,” Senate Majority Leader Harry Reid, a Nevada Democrat, told reporters.
Senate Minority Leader Mitch McConnell, a Republican from Kentucky, said senior members of the Senate Banking Committee would work together over the next 24 hours to merge proposals from both parties.
The compromise language will chiefly be written by Sen. Christopher Dodd and Sen. Richard Shelby who are, respectively, the top Democrat and Republican on the Senate Banking Committee.
Nobody wants to be on the wrong side of this issue. Both sides know they’ll get killed on this if they are seen as “voting against homeowners”. In reality this plan won’t make a lick of actual difference, but it sure looks good in an election year, huh? Throwing money at the issue won’t solve it, and either way the taxpayer’s on the hook for it, but hey, your Congress in action.
Needless to say, to avoid a total GOP mutiny, Hammerin’ Hank is indicating the White House will go along.
Treasury Secretary Henry Paulson indicated the Bush administration is willing to consider congressional plans to stem foreclosures by expanding government guarantees for mortgages.
“I think you will continue to see flexibility as we learn and go forward,” Paulson said in an interview with Bloomberg Television in Beijing. He spoke after meetings with Chinese President Hu Jintao and Vice Premier Wang Qishan, and praised them for making “very material progress” in allowing China’s currency to appreciate.
Paulson’s housing comments are a shift from last month, when he said proposals to use government funds were a “non- starter” and played down concern about homeowners whose houses are worth less than what they owe on their mortgages. House Financial Services Committee Chairman Barney Frank said yesterday that officials are warming to his plan to widen mortgage guarantees.
Remember, just 48 hours ago the plan was “too expensive”.
By the way, if you’re wondering what happened yesterday with that 391 point gain, it’s a classic “short-covering rally” where people who shorted stocks took the opportunity to buy low to cover their bets just in case the stock goes back up. Yesterday was basically a day-long short covering rally based on the short contracts that expired at the end of the month/quarter, yesterday being April 1. It’s a whole new quarter to start contracting into a global disaster, whee!
The roller coaster continues, but gravity always pulls downward.
Be prepared.
