Saturday, August 22, 2009

Two of the largest US bank failures in history with little fanfare.

This week two of the largest bank failures in the history of the United States were announced. Yet Colonial Bank (6th, link: here) and Guaranty Bank (10th, link here) went down with few words and even less impression on the markets.

The question this raises to me is: does the media's selective coverage and "spin" represent some sort of concerted effort to manipulate the markets? Last fall to spring the media constantly bombarded us with these images of banks and factories closing, people being laid off, and a broadly-felt malaise. Today the media's tone has done a 180-degree turn. They present all of the "green shoots" in the best possible light, with the overarching message being that everything is getting better. All the while, these reports feed this "new" bull market where the S&P marches above 1000! Hurrah, everything is gloriious!

But is that the case? I'm not 100% convinced. I'm not some whacked-out conspirator from Snopes, but I have a hard time buying into a conviction that everything is all better. Sure it is heartening that national unemployment dropped month over month from 9.5% to 9.4% in July. And that's not some statistical fluke of an exodus from the labor force because the more broad U-6 number also fell by the same amount.

I think we are going to see positive GDP growth in the second quarter fed by the replenishing of depleted inventories. This fact, combined with the seasonal summer hirings, may have pushed the unemployment figures down as hiring managers have been loathe to fire seeing picked up demand during the holidays while simultaneously hoping for demand to pick up. However, if managers don't see sustained improving demand going into the fall we may be in for another, deeper round of job losses.

These are the predictions that I see for the upcoming three months. Considering this, I think that the market and the media are overhyping the earnings outlooks and therefore the prices of companies. Since I don't consider myself the smartest man in the world I doubt that I am the only one to share these beliefs. In fact many of these bits and pieces are borrowed from various economist's publishings. Which is why I am dumbfounded that the media has taken this deliberate, overly-optimistic mood; almost inviting the criticism that they are manipulating the markets. These ideas are probably in my head because I am reading Lefevre's "Wall Street Stories," which play up on the idea that there is a "man" in control.

In summary, I have to say that I hope my ideas are far-fetched and off-base because I don't want the suffering to be even broader and, for those [masses] on long term unemployment, even deeper. And as someone who checks their account daily, I want to be wrong. But if I am, my savings will come off the sidelines to pick up bargains. As I have come to learn, with every piece of bad news on Wall Street there is a silver lining.

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