Boy was I wrong...
I guess all the kings horses & all the kings men couldnt put the market or the economy together again.
It now seems that the forces of contraction, especially with credit, are overwhelming even the most dynamic & unconventional efforts to stop it. The economic data will continue to reflect a very weak economy & plenty of uncertainty about the near & intermediate termoutlook. Corporate reports will also reflect the weakness & serious economic challenges to their businesses going out 3-9 months. The election will add further uncertainty to the situation...and lets hope its a clean election with no uncertainty about the outcome, i.e. contested election. While it looks as though the financial system will survive, the resulting economy & business enviroment will remain highly uncertain & risky for the next few months & quarters.
Suffice to say...I'm alot less bullish.
Bear Market Bailout
Don't Fight The Treasury, especially if they are backed up by the FED, SEC, Congress, & The President
After watching the Sunday morning news programs, I have completely rethunk my macro thesis...most importantly for the short term.
It has become increasingly obvious that the Treasury secretary, Ben Bernanke, Congress, & the President have gotten together & decided that they will not allow free markets to be free, that freedom would do bad things, so the financial super heros have come together & agreed to use all their powers to stop the free markets from being free.
Their reasoning & purpose is irrelevant. Fear is the motivation. They have the powers & tools to do what they want with no checks or balances....at least thats what they want.
Bazooka...haha, we are about to use the equivalent of a nuclear bomb to recapitalize the entire banking & financial system of the United States. The collateral damage is secondary to the task at hand.
We are also going to help out China, Japan, Saudi Arabia, & many other foreign governments & corporations...this is vitally necessary in order to get them to lend us more money in order to have enough money to execute the bailout plan.
The urgency & cooperation is scary, and seems to suggest that it's a done deal.
If this goes forward, banks are fine. The consumer will get a break in the form of easing credit & another stimulus package. Housing will most certainly get some more help. The automobile industry already begging, will now get its bailout.
I wouldn't be at all surprised if the FED decides to add its two cents by cutting interest rates adding even more power to the bailout punch.
Finally, the focus on & demonizing of the evil short sellers seems to have a lot of popular support, so maintaining short positions or viewpoints will be at an even greater disadvantage than they usually are.
While I am still convinced that the general economy has its problems, all this artificial support & stimulus will have an immediate & important impact on the general economy & probably the mood & confidence of the public. Bear market rallies can be quite strong & powerful.
Perfect timing to make sure the election is a happy one & the holiday shopping season is a profitable one.In short, I'm bullish on America!
Sunday, September 21, 2008
Fundamentally Sound...
We have been told over & over & over & over & over & over & over by administration officials, three treasury secretaries, two FED chairmen, congressional leadership, & the president that our financial system is strong & our economy is fundamentally sound.
Something must have changed this week. Based on the most recent events, which we are told almost caused a collapse of the banking system, there can be no doubt that our financial system is NOT strong. And there is a very good argument that the economy is NOT fundamentally sound.
If the government has to rescue or bailout the entire banking system in order to avert a systemic financial collapse, that is not good, strong, or sound. Whatever the new & improved resolution is, it cannot be done with ease or inexpensively. There will be huge & mostly negative repercussions resulting from the things that are being planned in order to fix or save the system. Doing nothing & allowing the problems to play out would be worse, much worse, than doing what our leadership is telling us we must do to prevent the natural course from happening.
Trust & confidence is in tatters. Foreign investors cannot be looking upon this as good or leading to a better investing environment in the US. Since we rely on foreign “generosity†in order to fund everything we do, that will prove to be a very bad thing. Interest rates will rise dramatically & the US dollar will decline in value. Gold will rise in value. Our financial health will continue to deteriorate whether or not the bailout proceeds.
We have been told over & over & over & over & over & over & over by administration officials, three treasury secretaries, two FED chairmen, congressional leadership, & the president that our financial system is strong & our economy is fundamentally sound.
Something must have changed this week. Based on the most recent events, which we are told almost caused a collapse of the banking system, there can be no doubt that our financial system is NOT strong. And there is a very good argument that the economy is NOT fundamentally sound.
If the government has to rescue or bailout the entire banking system in order to avert a systemic financial collapse, that is not good, strong, or sound. Whatever the new & improved resolution is, it cannot be done with ease or inexpensively. There will be huge & mostly negative repercussions resulting from the things that are being planned in order to fix or save the system. Doing nothing & allowing the problems to play out would be worse, much worse, than doing what our leadership is telling us we must do to prevent the natural course from happening.
Trust & confidence is in tatters. Foreign investors cannot be looking upon this as good or leading to a better investing environment in the US. Since we rely on foreign “generosity†in order to fund everything we do, that will prove to be a very bad thing. Interest rates will rise dramatically & the US dollar will decline in value. Gold will rise in value. Our financial health will continue to deteriorate whether or not the bailout proceeds.