Bear Stearns, Asian Markets, and the Week Ahead

Late tonight the news sources are reporting that Bear Stearns is having a firesale, with its shares being bought out for $2 a share. Besides the impact on the broader market that one of its key players has fallen in short order, it could bode poorly for many other big financial firms who also leveraged heavily during the housing crisis and then invested their money into mortgage-backed securities.

"This is about credit being overextended, and how bad it is for major
financial
institutions and for individuals. This is why we're probably
heading into a
recession." -- Peter Dunay, chief investment strategist
for New York-based
Meridian Equity Partners.(from the linked article)

Further, the Federal Reserve lowered the Federal funds rate one quarter of a percent to 3.25 percent. This is an emergency cut, with another cut probable at the Tuesday meeting. The results of the cut and firesale of Bearn Stearns so far have been a drop in the Asian markets and rising gold prices. Gold has been over a thousand dollars an ounce for the first time, though still below the inflation adjusted levels seen during the Eighties.

With the declining dollar value, commodities pricing has risen dramatically, which has been seen in gas price rises and a rise in the cost of food. Since the CPI-core rate does not take into account these "volatile factors" exceluded, the media reported CPI rate of inflation is often lower than the real inflation rate felt by consumers. That will be discussed more at a later time, as this is enough to digest for one night.