The Real Bail Out Package... Capitulation or Sucker's Rally? UBS nationalizes debt $60 billion, Merrill Loses $5.2B, Citi loses $2.8B...

A billion here, another billion there, if you are an US tax payer, it really should make you wonder how that huge trillion (notice I said trillion, not $700 billion) package will affect you... or not. 

After the spectacular $250 billion offer of the Feds on Monday October 13th to purchase additional bank debts (in a clear attempt to avoid liquidity crunch like in 1929), things have once again become somber in the markets.

In fact, the S&P 500, NYSE, TSX are all lower this morning compared to Monday, wiping off any gains and plunging further. 

Is Consumer Price Index (CPI) really contained as popular press indicates? Realistically I can say that around here, food prices and cost of living has been steadily hiking up, so it's hard to imagine places in the US would be much different. 

Industrial production figures are falling by the most since 1974. General Motors (GM) is laying off workers and closing factories - declining auto loans except to the cream of the crop consumers... a beacon score of 700+ is necessary, which is about less than 25% of the US population. It's hard to imagine business getting better when credit is tighter, therefore less target market - and to put nail in the coffin, your major competitor Toyota is still able to offer financing at 0%. 

NEW YORK (AP) - Toyota Motor Corp.'s unprecedented offer of zero-percent financing on nearly a dozen models is trying to make the point that tight credit is no excuse for buyers — in fact, it's literally giving credit away for free.

But after the top Japanese automaker posted a 32 percent drop in September sales that only domestic competitors had experienced until now, the question is: Is it enough to get people to buy?

"I don't think it's going to just open the floodgates," said Jessica Caldwell, an analyst at the auto Web site Edmunds.com. "But it's going to help a lot of people who want a quality car, who don't want to worry about it, and are now going to be able to afford it because of this deal."

Yet, reports from Washington is rosy with CPI steady and unemployment actually declining. Real world experience from checking with your podmates and colleagues should paint a drastically different story.

WASHINGTON (MarketWatch) -- Consumers got a break on inflation in September, the Labor Department reported Thursday, as overall U.S. consumer prices were unchanged, while energy prices declined and food prices rose.

The report for September should ease inflation fears a bit -- giving the Federal Reserve room to ease rates -- even as the government grapples with ongoing and widespread economic and financial problems.

Energy prices dropped 1.9% after seasonal adjustments, the September data showed. For the second consecutive month, food prices rose by 0.6%. In August, overall consumer prices declined 0.1%, following gains of 0.8% in July and 1.1% in June.

The government's core consumer price index, which excludes food and energy price inputs, rose 0.1% in September.

Economists surveyed by MarketWatch had been looking for both the overall and core readings of retail-level inflation to rise by 0.2%. See Economic Calendar.

Inflation has peaked, wrote Ian Shepherdson, chief U.S. economist with High Frequency Economics, who sees "huge declines" coming in the overall number, and a slower core as well. He added that there should be some relief over coming weeks in food prices as global prices have "dropped sharply" in recent weeks.

The CPI has risen 4.9% in the past year. Growth in the core rate has been 2.5%, a little faster than the Federal Reserve would prefer. The Labor Department also reported that real average weekly earnings for September were down 2.5% from the prior year.

Banks in the headlines today showed a similarly dreary situation... fabled prestigious banking firm UBS accepts Swiss Government's bailout to the tune of $60 billion... or WAIT, the bill's addressed to the Federal Reserve Board as well.  

Swiss National Bank Takes $60B in Toxic UBS Assets

Swiss authorities moved to stabilize their storied banking system today, agreeing to move $60 billion in troubled assets from the books of financial giant UBS and into a special government-backed fund.

In a deal financed at least initially by the U.S. Federal Reserve, the Swiss National Bank will buy a host of "currently illiquid securities" from UBS, attempting in one step to cleanse UBS's balance sheet of the mortgage-backed and other assets that have tangled the global financial system.

UBS will post $6 billion toward the sale, but the Swiss central bank will put up the rest by turning to the U.S. Federal Reserve. The Fed, to ensure an adequate supply of dollars to Europe and other economic centers where financial activity has ground to a halt, announced earlier this week that it would allow Switzerland and collection of other central banks to have dollars in whatever amount they request.

The company [CitiBank] said it lost $2.8 billion, or 60 cents a share during the third quarter, compared with a profit of $2.2 billion, or 44 cents a share a year ago. Revenue fell 23% to $16.7 billion.

Analysts polled by FactSet Research, on average, expected the company to lose 49 cents a share.

The highlighted last sentence poses a frightening possibility. Elsewhere, we see Citiground dropping 7% on news of another $2.8 billion quarterly loss while Merrill  Lynch painfully admits a gigantic loss of $5.2 billion. 

"The core businesses did relatively well in a very difficult environment," said John Thain, Merrill's chief executive officer, in a conference call Thursday morning. "September was particularly difficult for us," he added.

Thain said that Merrill's wealth management business "continued to be a very stable, very good business," with pre-tax margins up 2 percentage points to 24% for the quarter. "I think that's a great example even in a very difficult environment the fact that that business continues to do well."

Special items in the quarter included net write-downs of $5.7 billion from the previously announced sale of soured investments called "U.S. super senior ABS CDOs," and net losses of $2.6 billion resulting primarily from sales of toxic mortgage investments.

Frightening news all around the world, Japan's Nikkei was down 11% earlier today with most of Asia following suit. 

The scenic Iceland banking fiasco (mixed with UK investors suing Iceland FI's over frozen bank accounts) seems to have finally come to a conclusion

Iceland finally opens its markets after nationalizing its banks and promptly drops 77% in the first hour of trading. Is that the bear market we can expect in the US, following the widely followed nationalization of major bank debts as above??

Iceland's benchmark stock index plunged 77 percent, the biggest decline on record, as trading resumed after a three-day suspension and the nationalization of the country's largest banks.

Investors demanded a higher premium to hold Icelandic government bonds, while the price of the country's currency remained "undetermined," according to TD Securities.

The global financial crises sparked the collapse this month of Kaupthing Bank hf, Glitnir Bank hf and Landsbanki Islands hf with debts equivalent to as much as 12 times the size of Iceland's economy. The three banks accounted for about 76 percent of the OMX Iceland 15 Index's value prior to the nationalization.

"We are quite far away from having it up and running in terms of anybody being able to invest, or disinvest in the Icelandic stock market,'' said Lars Christensen, a senior strategist at Danske Bank A/S in Copenhagen. "Given that we don't have a normally functioning exchange-rate market, a fixed income market, we don't have a clearing system between the banks internally, it's hard to talk about any well-functioning stock market.''

Is commodities still the answer? Paper trading will have us believe that gold, silver, copper, and even oil has fallen from grace. Do yourself a favor and check around the bullions or local exchanges. Last I checked, actual physical delivery is 4-5 weeks minimum, with mints offering a nice premium over the paper trading prices on Kitco.

A popular mint around this neck of the woods is NorthWest Mints, great for online shipping and quotes. 

Kitco shows Gold futures trading at $799/ounce, but if you try and order one online from NWTMint.com - you're looking at $885.56, nice discrepancy eh?

In store bullions at your local exchange is guaranteed to be higher. Go down there and see for yourself. Now is a great time to pick up gold juniors and miners at bargain prices... when gold and commodities are again the investment of choice in uncertain times, the favor will come back very, very fast.