- Government can wipe the debts clean, but they cannot repair broken business models. The big investment banks had in reality become primarily mortgage trading and mortgage banking companies. That business is DEAD. So after the balance sheets have been fixed, where is the income going to come from to support the current market capitalization (number of shares outstanding x the price of the stock) of these companies?
- Short sellers did not cause the collapse of the financial companies. Poor planning, dumb calls, hubris, arrogance, stupidity, etc... were exacerbated by nearly unlimited access to cheap credit and truly asinine social policy (mortgage lending to the poor as promulgated by the CRA, while noble in concept and purpose, had the absolutely predictable outcome. Any one who ever lived or worked on the "other side of the tracks" (like me) could have told you you can't help poor folks by lending them money. Then again, who sponsored such a bill? The likes of none other than Ted Kennedy. It is VERY hard to understand the mentality of folks living in poverty when you are the beneficiary of a $40 MILLION + trust fund and opportunity is a f%$&^%g birthright. And I like old Ted - would love to have a beer with him... but trust fund folks and family members from political dynasties are just so detached from the realities of what makes and keeps people poor in the first place).
- Many folks think we were in a deflationary spiral. I am not sure that we were, but I don't deny the possibility. If we were, I do not see how this bailout would not reverse that as the plan seems ENORMOUSLY inflationary. Further, it is the WORLD monetary aggregate that matters, not just the U.S. I don't see that contracting, so I don't see deflation AT THIS MOMENT (that means I will change my mind on a DIME if the data suggest otherwise).
- The Finance, Insurance, and Real Estate sectors of the U.S. economy are going to contract DRASTICALLY. No amount of bailout is going to change, or even slow, this appreciably. This is going to drive unemployment up, BIG TIME.
- By KILLING the shorts, this bailout is going to drive the market higher in the short term. But markets, like nature, abhors a vacuum, and there is a high likelihood of a Willie E. Coyote moment for the market when it looks down after this rally and realizes there is nothing there (or I could be wrong, and inflationary pressures drive the markets higher NOMINALLY).
- The market is comprised of participants. By killing the SHORTS, this bailout might have done some real harm to the market.
- By changing the rules on the fly, the government is certainly harming free and open markets. History will have to judge whether the cost/benefit was worth it. That is not my game. My agenda is not to lose a lifetime of hard work.
- Oil imports might fall faster than the decline in the economy, revealing yet another chasm of structural discombobulation.
- Home and commercial real estate prices are likely to continue to fall. Until that correction is complete, everything else is a stop gap and a bandaid as it applies to financial assets.
Saturday, September 20, 2008
No Rush to Judgment
Sometimes your first take is your best, and sometimes it isn't. This is especially true when it comes to trading in the financial markets.
Ny FIRST take on the bailout, and in no particular order:
More to come.
Good Luck! You are going to need it!
Mentatt (at) yahoo (d0t) com
Posted by The Short Story Man at 4:20 AM