ZAY Blog

The market was a little hesitant towards going up this morning, and I was a little worried because the consumer confidence and home prices data did not look so good. Consumer confidence was the key for economic recovery, which has plunged to the lowest since 1967, when the index was first measured while home prices had the largest drop in 21 years.

However, all fears seems to have erased  and the market bounced back fairly quickly after the Chairman of Federal Reserve, Ben S Bernanke, testified in congress that the recession could end as early as this year.

“Could”, of course, means there may be a “could-not”, but any assuring remarks from the government is something that investors are definitely hope to hear.

S&P ended up bouncing back to above 750 points, which is something that I feared it would stay below or drop further for a while.

However, the question remains:”are we there yet?”

Frankly speaking, I would pay someone 1000 bucks if he could convince me we are definitely at the bottom, and it is a good time to buy some oil while short on gold, a typical bull-market strategy.

The reality is, there are still questions remain to be cleared before the market advance further.

AIG is still in talk with the government to try to spend more money in reviving what was once a giant in the insurance industry (or perhaps spend those money on more luxury holiday resorts).

Citigroup, although far from collapse, remain unclear of the direction that it is heading to in the next couple of months.

Finally, the automakers are talking about merger, but whether they could survive to the day merger happens remains to be a huge question mark.

On top of that, we still have to face the reality that the general public are still in fear of what is going on.

The remarks made by Bernanke, to me, is more like a defibrillator to the economy – the heart will beat for a second or two regardless of who the defibrillator is applied to, live or dead.

However, whether it is the magic pill of revival remains to be seen.

The past week is definitely one of the most turbulent times (if not the most) in the financial world since September 11, 2001. With Lehman lawyers rushed to file for bankruptcy and Merill Lynch acquired by Bank of America, as well as the possible failure of AIG, people can not stop wondering what is going on.

However, we did see some hope today when Barclays agreed to buy the North America operations of Lehman, which prevent up to 10000 people from losing their jobs and it seems that Feds has provided emergency loan to AIG so that it is unlikely to be in the same fate as Lehman.

Of course, it does not mean Lehman is far from bankruptcy. In fact, we should hear an official end of Lehman pretty soon since the talks with commercial banks have failed. On the other hand, the 85 billion loan from Feds comes with the condition that AIG has to shed up to 80% of its assets in the next couple of years, which essentially kills the entire firm.

The next question that comes naturally is: what will happen?

Now that Morgan Stanley and Goldman Sachs are the sole survivors of the bloodshed, and Goldman posted a 70% fall in quarterly earnings, it is difficult to imagine those two firms would be able to live long on their own feet. However, the CFO of Goldman has blatantly rejected any thoughts of a merger with the commercial banks, claiming Goldman “can not be funded by deposits”.

What could possibly happen then, is a merger between the investment banks themselves. However, this option is very likely to have regulatory difficulties.

Another alternative is to split themselves to have the “good” banks and the “bad” banks so that the “bad” banks will have sufficient time to wind down the business without causing too much disruption in the market while the “good” banks would continue to be able to sustain a good credit rating and attract the much-needed capital from investors.

On the other hand, in the insurance market, we are very likely going to see a period of adjustment to the entire industry, particularly with the insurance on financial products. New players will involve in the insurance market as insurance companies strive to look for new cash-generating products.

In a short term, of course, it is inevitable that the job markets in finance and related industries will not be that bright. Wall Street alone has lost 40000 jobs this year and they are very likely to fill up the very few new openings in the industry.

We have to see that it is necessary for period of adjustment and the sooner it happens, the better. Subprime mortgage itself was a huge loophole in the first place, just that it was too attractive for the investors to close the hole in the past several years.

In Buddhism, it was said: there is always a time when good deeds will be rewarded and bad deeds would be punished, the only question is when.

I guess now it is the time the boys in Wall Street are punished for what they’ve done.