Today we got some more good news from Capitol Hill. Lawmakers came together and have reached an agreement to fund the $700 billion "bailout" of the financial industry.
I was surprised how many people and how many commentators were against the idea.
As I wrote last week, the alternative was a financial disaster of unprecendented proportions.
Imagine a world where you can't borrow money to buy a car or a home. Where many companies could not borrow money to finance their operations. Companies like GM going out of business as a result.
I think we were looking at skyrocketing unemployment, maybe as high as 20-25%. Massive bank closings. Frankly, I felt that the the cost of paying out the FDIC claims would have been far greater than the "cost" of the bailout. That was easy, because the "cost" of the bailout is negative.
The government will make money on this. They will buy these mortgages for less than they are worth and eventually will turn a profit. That is what happened in 1991 with the Resolution Trust Company.
There is one problem with this plan, the Treasury will need to borrow more money to finance the purchase of these bonds and that is inflationary and bad for the dollar.
I believe we are in the tail end of a bear market that is about to celebrate it's 9th year. That is a long bear market. One of the four longest in the last 108 years.
I don't think that we are about to see the market take off. I do think we have seen the bottom. That bottom is around 10,800 on the Dow.
Over the next several weeks, we will look to modestly restructure our portfolios to take advantage of the next 6-18 months. Looking out past that period, we can begin to see the outlines of another robust Bull Market forming that will carry stocks into new, as yet unimagined, territory.
I was surprised how many people and how many commentators were against the idea.
As I wrote last week, the alternative was a financial disaster of unprecendented proportions.
Imagine a world where you can't borrow money to buy a car or a home. Where many companies could not borrow money to finance their operations. Companies like GM going out of business as a result.
I think we were looking at skyrocketing unemployment, maybe as high as 20-25%. Massive bank closings. Frankly, I felt that the the cost of paying out the FDIC claims would have been far greater than the "cost" of the bailout. That was easy, because the "cost" of the bailout is negative.
The government will make money on this. They will buy these mortgages for less than they are worth and eventually will turn a profit. That is what happened in 1991 with the Resolution Trust Company.
There is one problem with this plan, the Treasury will need to borrow more money to finance the purchase of these bonds and that is inflationary and bad for the dollar.
I believe we are in the tail end of a bear market that is about to celebrate it's 9th year. That is a long bear market. One of the four longest in the last 108 years.
I don't think that we are about to see the market take off. I do think we have seen the bottom. That bottom is around 10,800 on the Dow.
Over the next several weeks, we will look to modestly restructure our portfolios to take advantage of the next 6-18 months. Looking out past that period, we can begin to see the outlines of another robust Bull Market forming that will carry stocks into new, as yet unimagined, territory.
Posts
No comments:
Post a Comment