Tomorrow is a big day for investment banks. Yes, Bear Stearns bit the dust today, but their troubles were seen looming for some time. Tomorrow, investment bank, Goldman Sachs, reports its 1st quarter earnings. Goldman is considered the strongest investment bank by Forbes because of its very low exposure to the subprime lending market. It's stock is down nearly 30% so far this year, so despite avoiding the bulk of this mess, the stock plunge leaves me scratching my head. They've written down a billion here and there but not to the scale other banks have. My best guess is that it is a result of a general distrust of the banking sector. Goldman was just roped in with everyone else. I've been looking for news about this earnings report all day with little luck - it almost seems like nobody cares. What Goldman reports tomorrow is a huge indicator of the strength of the banking sector. How good the best of any industry does speaks volumes about the health of the industry as a whole. Let's just hope their results impress.
Speaking of financial topics, this Fed issue is going to bite normal people in places that don't see the sun much. The issue of cutting rates is seemingly complicated. Cutting rates, or "providing liquidity" is code for "flooding the markets with new money." When the Fed cuts rates, it literally causes inflation by increasing the total supply of money. While the effects are complicated and, in my opinion, immeasurable, one has to admit that this can't be good for the dollar. Simple economics tells us that increased supply lowers the price. I'm pretty sure the Fed knows that it sinks its knife deeper into the dollar every time it drastically cuts rates. This is good for the banks for sure because of the non-neutrality of money. It's everyone else that gets screwed. Maybe that article is a little long, just trust me on this one.
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This makes me wonder if we did a smart thing by paying off our mortgage early.
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