Market Rant: All is Well – Do NOT Panic
January 18, 2008
Many of my readers have clamored for another article from me, but I was too busy clearing the wax from my ears in disbelief of what I was hearing from the White House to go to my computer. I have given up hope, applied for disability and am trying to learn lip reading as Paulson literally stutters his way through his master plan of fixing this mess. The only problem is his apologies of, “I don''t want to go into specifics like is it bigger than a bread box,” and “Christmas has come and gone, we are not trying to decorate a Christmas tree,” are not terms I am familiar with from my college economic classes. So I came from my spider hole to point out the obvious, and what people are afraid to say themselves.
Believers in many fundamental studies in the market investing, such as the modus operandi Warren Buffett, have shown what tends to work (at least for him and provided you do not tell people your real secret, which is hedging with options) and believe that the market is the most accurate and forward looking instrument there is. All the Nobel economists in the world cannot predict with any degree of accuracy where the economy or markets are going any better than a chimp (Erin Burnett of CNBC''s definition of Bush) throwing feces at The Wall Street Journal.
What does this mean?
The Dow has fallen as of last night 8.3% since January 1, and the S&P is racking up even more impressive gains of (9.2%), though I suspect we can outdo that by the end of the day if we really try. The market, which has been demonstrated to outguess any other indicator available, is telling us that there is an awful stench emanating from under the economic couch like a missing Easter egg from last year.
I have seen some financial stocks lose 90% of their value since October. The Dow is off over 2,000 points since the highs of 14,015 (closing price on October 11, 2007), an impressive and intimidating 14% decline in a tad over 3 months. This is a decline sufficient enough to wake Robert Prechtor from his cryogenic suspension next to Walt Disney and give renewed hope for his Dow 800 prediction. We will have to revive Disney as well, though, so that he can make the sequel to “Madd Max” to show us how the end plays out and if Bush and Bernanke get their much sought-after oil.
With any problem, Americans are better at pointing the finger in any direction but inward than coming up with solutions. The mess was supposedly created by those greedy people on Wall Street who were dishing out subprime loans like cheese in a “bread-line.” By the way, get use to that term. What the people pointing the finger at are forgetting is that they are the ones who wanted subprime loans so the financially disadvantaged and uneducated could have their share of the American dream.
Perhaps the politically correct neurosurgeons/politicians/economists were so afraid of what people may think if a certain minority group didn''t own the same percentage of homes that white middle class males do, that they dished out home loans via assembly line. Then they conveniently forgot that they force-fed mortgage lenders the obligation to lend to those who normally wouldn''t qualify for a loan (i.e., low-income individuals). What gets me is that these people are surprised that people who don''t earn $50K a year would screw-up a $100K cash station card granted to them through false equity in their make-believe appreciated homes. Now they want to point the finger and act surprised looking for a bogey man who stole money. Look in the mirror, Congress.
In a nutshell, Mr. Bush has announced today (January 18, 2008) his master plan for an economic stimulus package at a time when we are spending billions in Iraq building homes while 1 out of 122 Americans in Nevada are losing theirs in foreclosure. Besides a Chris Angel-like waving of a magic wand over Congress, he vaguely announced a stimulus plan equating to 1% of our GDP.
Keep in mind that one member of Congress suggested yesterday that Bernanke was the CEO of Goldman Saks (the retailer on 5th avenue?), asked if we could somehow get back the money CEOs made in the lending institutions to bail out the mess, and if people lose their homes would the Fed be in favor of giving them food stamps. Pure Genius! These people ought to have this problem wrapped up in days, especially considering President Bush said that he is confident that a bipartisan plan can be implemented immediately. Apparently Hell froze over and I was not notified – today''s forecast -273* K.
I do not mean to be pessimistic as we do often see bipartisan cooperation during election years, especially when a change in parties in the White House looks inevitable. With the same logic that Bernanke''s speech provided yesterday and assisted in tearing the DJIA from a positive 100 to a negative 300, Mr. Bush''s talks are having a muted but similar reaction. People just don''t understand the genius of how Bush can give tax breaks without costing the government money. The answer is plain and simple – the tax write-offs on stock losses during 2008. Perhaps we can get Dorothea Lange''s granddaughter to be the spokesperson for this paltry $145 billion vague plan with no specifics?
What is going to happen now?
In 40 years we will elect an amoeba as President. Don''t get cynical! I am not talking about an ordinary garden variety amoeba, but one with some fame. Perhaps an amoeba that stars in a few movies since we are a nation that believes that all actors can singer and all singers can act – not to mention that most actors can also govern (no offense Arnold, I think you are the exception to the rule). You see, we are going in reverse evolution where we start out from George Washington and revert to primordial carbon-based single cell objects.
People often blame Herbert Hoover as the cause for the Great Depression, but I think that is unfair and more a matter of bad timing. But at least Hoover has a dam named after him and wrote a book on economics. I am not sure Bernanke, Bush or Paulson have even read one. The only evidence needed to support that statement can be confirmed by a 5-year old when asked about the economy. Take any kindergartener and ask them what it means when unemployment is on the rise, companies are slowing their spending, the consumer is stopping their spending (because they have no more money), home prices are falling, we have a negative savings rate (savings was a paltry +2.4% during leading up to the depression), the stock market is crashing 200 points a day, there are 5 for-sale signs on every block and mom and dad are arguing about bills. The current powers that be are saying, “The economy is still strong but not as strong as it was previously.” Though Mr. Bush will likely not have a dam named after him, he is working real hard to have an outhouse named after him and I only want to be the first to use the Bernanke on the left.
What is needed to fix the problem?
Good old-fashioned American bulls&#t! Our economy is a fiction that is as healthy as people believe it to be, and prevailing thoughts on the economy become a self-fulfilling prophesy. If people are confident they spend and it props up the economy. If people get scared they stop spending which is dangerous to an economy where 85% of purchases are for stuff we don''t need. We are a nation of people delivering pizzas to one another. My youngest son has 3 lava lamps in his room. Even Austin Powers only had 2, but he will not be getting number 4 until Bush and Bernanke say something intelligent.
Perhaps that is why we elect actors – they are good at lying to us, which is all we need right now. Paulson was less convincing with his statement that the fundamentals of the economy are strong than Ted Bundy of his innocence. This whole problem could be fixed and we would be back on track if only one person at the upper crust of this administration acted like they knew what to do. We could put a sock puppet on television and say, “This is the problem but it is easily fixed. Tomorrow we are doing this, that and some other thing and I guarantee you that next month everyone will be out of the woods and on their way to being millionaires” and the American people would bite. That is called leadership. Make a decision!
All we got today was people agreeing for the past 3 months that a decision had to be made and somehow Republicans and Democrats (in an election year) could get together and agree on something in the future. Yesterday they couldn''t even agree if food stamps were good for people kicked out of their homes.
What do you do?
- Do not panic. It will be worse in 40 years when Jenna Bush is president.
- Sit back, watch and laugh. If you take this too seriously you will realize just how scared you should be when you hear the stooge''s plans to fix things. Besides, I don''t want to be walking down the street and have an investment banker fall on me.
- Accept that fact that we will be socialized in 20 years. Sure, Russia couldn''t make it work, but they didn''t have the good old-fashioned American ingenuity working in their favor.
- CYA. If you have stocks that you are concerned about learn how to hedge them now through collars.
- Watch Donald Trump''s “Apprentice” as you will certainly get more economic wisdom from Gene Simmons of Kiss than our Treasury Secretary and Fed Chairman—both of whom could only giggle in their last conference meeting.
- Learn to hedge your stock positions with collars all over again.
- The next time Bush or Bernanke talk, play the soundtrack to Benny Hill in the background and the speeches will make more sense.
You asked for another article—you got it.
Scott Kramer
Staff Writer and Trading Strategist
Optionetics.com ~ Your Options Education Site
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