The problem is that the fundamentals aren’t just bad. They’re bad and they’re getting worse. But even an acceleration of the decline would eventually get priced in, and stocks down 50% would indicate that the markets are seeing past what’s still just been a minor downturn and will eventually get worse. Maybe stocks drop another 20% or so…given that they’re already down 50%, the bulls could argue that it’s 20% downside risk, 100% upside potential…So why aren’t we more bullish right here, right now?
It’s ironic, of course, but the fact is that we’re all losing what little confidence we had in our markets as the government does ever more to try to buy confidence. Since word one of TARP and the Wall Street bailout, I’ve argued that rather than stemming off any major depression that TARP and the other wild policy disruptions that the Republican/Democrat regime in power has panicked the country into is actually driving us toward a depression.
You and I would have more confidence (not to mention more wealth) already today if the government had simply done what it promised you and me it would do — enforce the rule contract law whereby people and companies deal with the consequences of their actions, including those who are rich enough but stupid enough to invest in bad financial stocks or foolish enough to lend fraudulent institutions like Citigroup and Morgan Stanley money for the idiots in those places to lever up and lend to people who wanted to buy real estate at unsupportable bubble levels. Oh, yeah, and those idiots who bought insurance from fraudulent institutions like AIG which probably wasn’t the best place to casually try to protect those foolish investments, as the company never had anywhere near the assets to cover those contracts.
Indeed, the very fact that all these socialist Republicans and Democrats that you vote into office keep telling us that if they can protect the people and companies and organizations that were rich enough but stupid enough to be investors, lenders, borrowers or even trading partners of any of these deceitful companies like BofA, Merrill Lynch and AIG, then all those losses can be “contained”. They never explain to me how the Republican/Democrat methods of spreading the losses across the entire tax base and then actually giving trillions in out and out free cash to the shareholders at the top of these companies is supposed to stop the losses from spreading across the entire tax base.
And that kind of double-thought Catch-22 policy making is what has really got this market on the ropes. It’s why you and I can’t figure out how much risk we can and should take. It’s why the few banks who weren’t stupid and foolish with their assets are panicked and in danger of being nationalized, as they don’t anymore know what is LIBOR, which used to be the rate at which these private banks thought was a reasonably profitable rate at which to lend each other money.
TARP, the new stimulus package (all you hypocritical Republicans who voted against this latest one but voted for TARP or the stupid $160 billion stimulus package from early 2008 or any other pork barrel or targeted tax-trick policies that you always put through too don’t fool us for a minute, btw) and all these policies annihilate the contracts and rule of law that you and I sign every day and instead just ad hoc change the rules of the game…and it’s all being done behind closed doors by the same regulators, politicians, bureaucrats and cronies who have been creating this anarchy for the last twenty, thirty or fifty years.
And that leads us to our final point. It’s the magnitude of both the dollars and the magnitude of the disruption of the rule of law that really has us worried. Trillions of dollars of capital that used to work its way through the system chasing profits will now be chasing politics. In case you were wondering, profits — not politics — make stocks go up.
We will get through this economic downturn. And we will return to a rule of contract law. But we’re gonna have to be very vocal about reinstating those profit-seeking, private property policies. And yes, we’ll have to be patient with the markets as get there. As I noted in my column yesterday, we’re likely to see $250 billion in dividends cut this year. $800 billion in public spending for the most well-connected industries and companies isn’t going to help counter that $250 billion loss of the efficient and multipliable profit-seeking capital.
And really, I hate to say it but this market probably won’t bottom until you and I are both so sick of wondering about the risk of missing the bottom that we don’t write about it on these pages any more. That ain’t today. And that ain’t tomorrow.
Again, let’s be patient.
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Bob Sloggin
"It does tick me off when big wig in GOP vote yes on TARP, but no on auto bailout and this stimulus. They did not have a clue as to how the $750 Bn TARP was going to be spent, but are 100% against Obamas waste. Wasteful spending is wasteful spending." Yes, but the Dems, who had control of congress since 2006, were more than happy to vote that POS TARP in. The GOP could never have done it by themselves since they did not control the house or senate. Now, the Dems do not need the GOP to enact this catastrophe in the making. They have the votes to do it themselves, they only need the GOP to be complacent for purposes of future finger pointing. While the leadership of the Dems is lacking in intelligence (as is the overall leadership of the GOP), they can not actually be stupid enough to believe their own BS in regards to this stimulus package (or can they).
MEB
Write on Cody!! Unfortunately greed at every level draws a significant number of our neighbors into the game. It is the "It's a freebie for ME!" mentality, without concern for future generations.