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September 17, 2008
Fed and Treasury End 2-Day Bailout Strike
The Federal Reserve Board on Tuesday, with the full support of the Treasury Department, authorized the Federal Reserve Bank of New York to lend up to $85 billion to the American International Group (AIG) under section 13(3) of the Federal Reserve Act. The secured loan has terms and conditions designed to protect the interests of the U.S. government and taxpayers. Press Release
September 16, 2008
Has The Healing Process Begun?
In a New York Minute
Everything can change
In a New York Minute
Things can get pretty strange
In a New York Minute
Everything can change
In a New York Minute
With thanks to the Eagles, the above chorus line about sums it up. The biggest bailout in U.S. history last week presaged the biggest bankruptcy in U.S. history yesterday. Things have definitely gotten pretty strange…
To his credit Treasury Secretary Paulson finally drew a line in the sand over the weekend, confirming yesterday that he “never once considered that it was appropriate to put taxpayer money on the line in resolving Lehman Brothers”. If Paulson is serious about letting capitalism work there will definitely be more failures. However, if more financial institutions are allowed to collapse this could also serve to speed up the healing process.
The alternative to making financial market players sort through the mess that they created is to try and concoct the mother of all bailouts. Although difficult to comment on what such a bailout might look like, it is safe to say that it would include a consortium of central banks and financial institutions joining hands and throwing an obscene amount of money at the financial markets. Supposedly for the greater good, some of this money would undoubtedly be connected to taxpayers.
In short, while no one wants to see the financial market upheaval worsen, a more troubling outcome could be if Paulson and company continue to try and temporarily infuse a false sense of optimism into the marketplace by throwing more good money after bad. With WaMu, AIG, and others potentially about to collapse, Paulson and Bernanke are on the stage. They should stop trying to bail the system out and instead start suggesting that the crisis does not stem from a buyers strike but from the delusional expectations of sellers. Moreover, they should hint that the limits to monetary policy and U.S. government intervention are at threat of being met. In other words, hold that line Paulson, hold that line!
But alas, something tells me he won’t.
“I'm committed to working with regulators here and abroad, as well as policymakers in Congress, to take additional necessary steps to maintain the stability and orderliness of our financial markets.” Paulson, September 15, 2008
September 15, 2008 (5:00 AM)
Of Failure and Opportunity
Was Bear Stearns bailout the prelude? Did the as Fannie and Freddie bailout mark the intermission? Will today come to regarded as the climax? The remarkable thing about history is that you never quite know when it is being made.
Here is the latest: talks to keep Lehman afloat failed over the weekend and the company has filed for bankruptcy protection, Bank of America is acquiring Merrill, AIG is begging the Fed for money, 10-global banks are pledging $7 billion each and joining hands to combat market mayhem, and the Fed is expanding its already generous loan offerings. In response to these events the Lehman filing is catching the most attention, at least for the moment (i.e. global stock markets are being pounded, U.S. futures are pointing lower, and gold is one of the few financial instruments catching some bids).
While it is tempting to paint a negative path these and other events may take the financial markets over the near-term, it may be more prudent to simply admit that today’s historic happenings are the sideshow to the more important feature: that being your individual investment portfolio.
If you think that you can build a successful investment platform utilizing today’s events you are almost surely misguided. To be sure, what we now have in many financial markets – including commodities, currencies, and equities – is a gambler’s paradise; which is to say that while there is plenty of action in the markets, strategies to directly profit from this action can be very risky.
So what can the investor do as history continues to unfold? Far from being direct investment advice, the suggestions spun here before are worth reiterating today:
1) Be cash heavy and ready.
2) Own individual companies that you are comfortable owning in any economic/financial market environment.
3) Be exposed to precious metals.
4) Be cash heavy and ready.
Why reiterate (for probably the hundredth time since late 2003) the idea of being cash heavy? Because the best bargains U.S. and global stock markets will offer during the current bear market have not yet arrived.
Obviously this prophecy is not meant to suggest that beaten down U.S. financial stocks have significant room to fall further and/or that financials would be worth the investor’s time to seriously research. After all, the word ‘bargain’ assumes that you have some knowledge of what the item is actually worth.
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