9.26.08

9.26.08

            All major Indices lost ground last week, and the bulk of the losses occurred in the first two days. On Monday, stocks gave back most of last Friday's gains due to concerns over the scale of the $700 billion government rescue plan. It sent the dollar lower and oil prices higher. Stocks plunged as a result. Weakness continued into Tuesday, as Treasury Secretary Paulson and Fed Chairman Bernanke presented the government's financial bailout proposal to Congress. But both Republican and Democratic lawmakers voiced concerns that cast doubts over the plan's future. Investors decided to sell, sending the Indices lower. After a quiet session on Wednesday, optimism returned to the markets Thursday on hopes that lawmakers were about to approve the financial rescue plan. Stocks jumped higher as a result but relinquished part of their gains by day's end as no deal could be reached in Congress. The markets remained under heavy pressure Friday morning following news that Washington Mutual had just become the largest U.S. bank to fail, and its assets were seized by federal regulators and sold to JPMorgan Chase. The large-cap indices were able to recover and finish in the black after congressional leaders provided assurances that an agreement will be reached over the government rescue plan.

            As we all know, whenever the government tells us what the cost of anything will be, it is always going to cost double or triple, or even more. History has proven that point over and over again.

            Right now they are trying to prevent an Armageddon type-  financial disaster. The biggest part of the problem is in the pricing of so many of these derivative securities. For many of them there is no “bid” side, so they cannot be “marked to market” as the rules require. Treasury will pay more than the true value for some securities because they are at a huge disadvantage regarding the actual value of some of the more complex and incomparable securities. Whatever route they take, it will be time consuming and cannot be done in a mere matter of weeks. It will take months, and in some cases, years to complete. Don’t start spending the money they tell you the taxpayers will make off of this deal. They are trying to placate us into believing this isn’t some new version of the old “shell game”. The final result will make "the bridge to nowhere" seem like child’s play.

            The inner workings of the plan will to tell the real story. The devil is in the details. No matter how good their intentions, some big mistakes will be made, some money will be wasted, and a lot of cheating will get in the way. On that point, we reiterate that a stabilization of our financial system is an essential precondition for economic recovery, and we urge Congress to act quickly to address the grave threats to the financial stability that we currently face. 

            We are going to remain 100% in CASH and wait for some of the risk to work its way out of the market. That may take a while so be patient.

Till next time

The MTA Staff