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Where Is The Bottom? Bearn Stearns, Housing, Taxes, Recession

Read more articles on Finance and Politics and Real Estate and Investing.

April 9, 2008

Posted by neillevine

About This Editor: I am a writer. Have been writing for other sites, but expect to do most of my future work HERE! My expertise extends from the esoteric such as burning hydrogen to the unpredictability of the stock market and my writing makes me a jack of all trades and exasperated master of none. I have had some influence over national wildfire and water policy and there are hints of a change in energy policy, BUT as Samuel Goldwyn once said, "A verbal promise is not worth the paper it is written on."

         

I last wrote about the stock market and finance at the end of February.  Since then, time has played ahead and the markets have traded in their fashion but whether anything has changed depends on where you come from and what you bring to this discussion.

The Dow is at twelve thousand five hundred approximately, up five per cent from the recent bottom.  As I have said before, if you can figure out the low point, it is possible to start out ahead by five to fifteen percent, a nice advantage.  To tell the truth, I have never been able to precisely predict the bottom, but the thought is there.

So when the market will really rally is an important starting point.  The three hundred dollar all citizen rebate is a good place to start.  Before is anticipation.  During is motivation.  After the rebate the economic statistics are fairly sure to improve and the rally will probably have begun, less the unforeseen developments that sometimes crop up.

In the meantime, there have been some very interesting developments.  Some of the bond insurers such as MBIA and Ambac presumably providing protection from losses have had capital infusions and have not suffered the dire fate of Bear Stearns, trading at thirty dollars on the Friday before emergency meetings with Federal Reserve officials and at two dollars the Monday after based on a rescue offer by J.P. Morgan.

The explanation is the huge amount of mortgage debt the company was bundling but not able to sell immediately.  Let’s Merrill Lynch was doing a trillion dollars in this type of financing.  Bear was obviously doing less, let’s say six hundred billion dollars worth.  So a ten percent drop in the average price of homes being bundled would translated into a sixty billion dollar paper loss, a rather large sum.

Explaining the fire sale of Bear Stearns, even at the ten dollar or so a share price on the table.  As for a government rescue, not only is it going to take a while for the real estate market to recover but home ownership involves not only mortgage payments but also upkeep costs so its an average of two hundred thousand dollars a house plus.

Then there is the drop off in government revenues.  New York State is reporting the required first quarter tax payment from the top twenty tax payers dropped to seventy-two million dollars from five hundred thirty-three million dollars last year.  For the state that means two billion dollars a year less in income in just one category.  And much of this reflects problems in real estate, a fairly stable market plus losses on wall street and so on.

No wuoder there are so many complaints about leftists wanting to make everyone poor.

Last 5 Entries by neillevine

• Tax Cuts Follow The Bouncing Interest Rates - November 3rd, 2008
• Fund Raising, Jobs, The Future Of The Economy - October 24th, 2008
• Term Limits, Debates, Speaker Pelosi Investing - October 17th, 2008
• Economics=Dismal Science. Budget Deficits Balance Of Trade - October 14th, 2008
• Cam Getting Osama Bin Laden Boost Confidence - October 8th, 2008

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