What to make of this week's proposed massive federal bailout and the mess of the economy we are faced with? Got me. Here's some things that worry me though:
- Experts had an impossible time valuing their bad loans, but now the government (e.g. us, the taxpayers) will be asked to buy these bad debts at some price. Sound like a good investment to you? Still, I don't have a better solution.
- Remember the housing crisis that started this all? Housing starts hit a new low this past month.
- Remember inflation and the energy crisis? We are back down to the $100 level on oil, but why? One reason is the strengthening dollar based on expectations that the U.S. will raise interest rates relative to other currencies. A second is slackening global demand. But can slowing demand really be seen as good news in the broader scope of evaluating the economy? And if the fed reverses course and does in fact lower rates, we may the dollar weaken once again.
- Oh, yeah, I forgot. Lehman Bros, AIG, Fannie Mae, Freddie Mac, Bear Stearns. Think some jobs may be lost? Think those people laid off may spend less money? We have yet to see the fallout of rising unemployment on Wall Street. Wait for bonus time, Christsmas season, and next year's New York budget.
- Think we won't have partisan rancor passing the federal bailout? Democrats are already talking about adding consumer relief to the bill. I am a die-hard democrat, but I think this bill needs to be bailout needs to be done quickly and cleanly.
- Think the market rebounded this week because we have faith in our government to restore order? I have a sneaky suspicion the rally was a combination of wishful thinking plus short covering. I say we're in for a wild ride.
I urged caution in my investment blog earlier this week rather than preaching my normal approach of buying dips. The unusual congressional briefing by Paulson and Bernanke earlier this week struck fear in the hearts of our government. We would be wise to heed this fear. The experts are in new territory here. Numerous sources have proclaimed the credit crisis the most severe challenge to the system since the Great Depression. This play has no script. Even if we implement our best ideas with perfect execution, we don't know how the many comingling stories of our economy will respond. And how many of you trust our current government to execute flawlessly?
