I Eat Bear

No stock blog today, altough the market did a very nice bounce up today. More like maybe eating some words. Finally, and glad to do so.

First, as many of you have noticed, I have had little to no sympathy for all of the investments groups that bought all of the commercial paper relating to motgages (CDS). My reasoning is simple. The banks that originated the loans, did so at a profit, as did these buyers of packaged mortgages. In short, they already reaped in the good times, and they are not being held accountable in the bad times. And, I find it worse than just that. In their attempts to maintain solvency and/or liquidity, they have used other stock vehicles to force down stock prices. Merely by selling large volumes of stocks that they also own, the law of supply and demand forces stock prices down. There just are far less buyers than sellers. But they do get bought, just at reduced prices. And, they go through the same process, multiple times. Each time, the stock price reduces. Add that you have a group of short sellers out there, which is helping this process deteriorate quickly.

My big beef with all of this is very simple. It has robbed many people of many years of hard work to try to build up a retirement nest egg.

And, it is these same companies that are now failing, or being absorbed by others, that are the most guilty of this. Companies, are not people, but are composed of them. A company dies, and the employess are hurt. They lose jobs, and also much of their investment in the company they likely also invested in. So, the damages done by these very same businesses, is affecting a great deal of very real people. Yes, that chaps my buns. Why? Because it was avoidable, by using common sense.

But, today, I heard something positive from the group least likely to do something about it. Yes, the government. Ok, you may be saying they have done much lately, with interest rate cuts, Fed windows open, helping Bear Stearns be acquired, letting Lehman fail, and most recently, a huge buy in to AIG. I might add, that those may not all be the right moves, but the government is in fact trying,,, for a change. But, that is not what I applauded today. They are stopping short selling of bank stocks, and I think that is a wonderful start. I missed the whole story, but I think they said that was being done in Europe. I hope we follow suit, and do it for ALL businesses. But, even that was not the highlight of my day. They are FINALLY going to investigate all of the short selling, and yes, here in the US. BRAVO! They actually did something GOOD,,, or plan to. And, I had to appreciate John McCain in his announcement that he would FIRE the head of the SEC. Long overdue there, but not surprising, George Bush is still supporting him. In fairness to George, well, he has very few months left. As much as the action may have needed to be done, inaction was about as much as could be reasonably expected there.

Now, to moan and groan on AIG briefly. They turned down an offer of finacial assistance a day or two before the goverment comes in and throws taxpayer money down the tubes by giving them $85 Billion, and takes an 80% stake in the company. Well, the reason they give, is too big to fail. But, in truth, fail it did. The issue should be the orderly sale of all of it's assets. I will believe that when I see it. Ok, maybe to liquidate them quickly is an issue, but liquidate they surely should. It is only fair to every other business, especially since the government will not come to their rescue in times of distress anyway, as they did for AIG. But, the real issue here, and should not be missed, is that the government interfered into the private (business) sector.
This is clearly not a place for the government. And, the government is notorious for mis-management, not to mention, they just plain lack private business experience. But, AIG failed to save itself when it had a chance to. I find it very hard to support either side here.

Now, the state of the current market is not new. It started a serious decline over one year ago in August. There were predictions that it would recover in the second quarter of this year. In actuality, earnings of most companies were good, yet the markets have continued a downward spiral, across virtually EVERY business. And, it is all due to a depressed housing market and investment houses that made bad choices. No, I do not have compassion for those companies. They reaped in the good times, and robbed from way too many REAL PEOPLE, by destroying their asset values. I have compassion for those who have lost small and large fortunes in this stock market, and for those who are unemployed as a result of this mess. And, what is worse, is I am now hearing projections that it may not turn back up until mid to late 2010. Some people will not have time to make the finacial recovery they need. Yes, this concerns me too.

But, despite my compassion for people, and lack of it for the failing finacial institions right now, the rest of the market will recover. To lose faith in the market as a whole, could likely be a huge mistake. It may well be one of the best buying opportunies of this century.

So, to wrap this up, Bravo for looking into short selling, and expand it into ALL businesses, not just the chosen few. And, not for a short time, but permanantly.

Comments: View Comments |  Thursday September 18, 2008