When it Comes to Bailouts --- Congress Be Nimble, Congress Be Quick

But if history is any example, Congress usually falls when jumping over the Candle Stick --- at least for the first few times. Take a look at what I wrote in 2009 and tell me if it sounds eerily similar to what is happening today. Does this mean that as humans we don't learn from our mistakes? I would hope not but wow the similarities cannot be overlooked. If you're lazy I'll paste a few excerpts here from the initial 2009 bailout response from Congress (https://urbanomics.blogspot.com/2008/11/bailout-tarp-abandoned.html):

2009: "Here goes another I told you so. The bailout money allocated to buy distressed assets was abandoned by the Treasury Department. 

Fundamentally I agree with the fact that a bailout is needed but I have noted that the government needs to address both the supply and demand side of our economy. On the Supply side, I don't mind the Treasury department injecting cash into banks but I do think that one of the strange things is that but private investors like Warren Buffett are brokering better deals then the GOVERNMENT is. Part of the problem is no oversight or poor oversight because these banks are not lending to the public!"

2020 - Fast forward to March 23, 2020, the bailout provision did not pass the Senate last night. This will undoubtedly cause the stock market to fall swiftly even further, and oh boy is it ever. With a majority of my investments in cash, you have to take history into account. Everyone I talk to NEEDS the market to go up I assume due the sheer amount of leverage they have in the system. While I am hopeful as well, risk management IS NOT about hope. It's about threats and likelihood. I am certain no matter what the climate is, politicians cannot do the right thing the first time around. Similar to the courageous fighters "300", that they are NOT --- until the markets are truly crashing and panic is all around will something finally get done. Look at 2009, same circumstances in 2020. Compromise, take care of people first, protect your companies but make then remember the pillars so we learn from our past mistakes. 

2009: "Where do we go from here:

The markets will continue to trend lower or remain in a trading pattern. When I first spoke of actions to take to address the direction of the markets I recommended most folks get a majority of their money out of the market and into bonds. Then the Dow Jones Industrial Average (basket of the 30 large stocks representing the US economy) was trading around 9000 and my guess was that we would head lower and test recession like lows. The last time we could compare lows like this was in roughly 2002-2003 when the market hit lows of roughly 7700 (I believe). My assumption is that this will be the prudent time to begin to reallocate your portfolio back into the market. Again that is an assumption because I don't really think that this last time can be effectively compared to now. We are facing a local recession, rising probability of a global recession (in most areas except for China), and if these conditions exist we could be facing a depression due to deflationary pressure. This could be the one area that I initially got wrong...I thought we would be facing inflationary pressures or rising costs but that appears to be far down the line. Right now deflation is running wild and that is evident is the sharp decline of prices across the board. Gas is down from $4.00 to now roughly $2.00 and everything is falling with it, stocks included. If this trend continues deflation could lead to an extended recession and Dow 7700 may not even be a legitimate floor for the market."

2020: Again striking similarities. Gas then dropped dramatically to $2. Where are we now in 2020... this exact same range. I have not looked at the charts but my gut tells me we are headed to the highs of PAST which are significant lows from where we were just a month ago. Let's flash back the good times in 2007 and 2013 as examples:

Before the Crash we topped 14,000 on the DOW in 2007: https://urbanomics.blogspot.com/2007/07/dow-take-bow.html

After the Crash we hit 14,000 in 2013: https://urbanomics.blogspot.com/2013/02/dow-at-14000-pt1-are-you-too-late-for.html


We will get a bailout package in the next few days. Then expect the markets to bounce with euphoria. But then we will have to live with the unwinding process. If many of us are trying to get by living paycheck to paycheck...not everyone can be bailed out. Usually you see/hear debt or margin calls (people calling say you owe them money), foreclosures, evictions, etc. I am proud of the companies that have stepped up and delayed these payments already. But its a band aid measure. But proud non the less. I have not looked at the charts yet so this is not a prediction...but this could be a psychological number that is tested as it has been in the past.

Bailout / TARP Abandoned

Here goes another I told you so. The bailout money allocated to buy distressed assets was abandoned by the Treasury Department. I wrote here early, that this program was flawed for so many reasons. The biggest reason: "There was no way they could value the bad assets, manage them, or dispose of the assets correctly!!!"



Fundamentally I agree with the fact that a bailout is needed but I have noted that the government needs to address both the supply and demand side of our economy. On the Supply side, I don't mind the Treasury department injecting cash into banks but I do think that one of the strange things is that but private investors like Warren Buffet are brokering better deals then the GOVERNMENT is. Part of the problem is no oversight or poor oversight because these banks are not lending to the public! This would begin to address the demand side, however the banks are getting the cheapest money ever made available and using it to MAKE INVESTMENTS like buying other banks...SEE PNC Bank's acquisition of National City.


What the Government Should Require:

- All common stock dividends should be taken away
- Force banks to lend to consumer
- Punitive terms of the banks (firing managers)
- Goverment must get Main Street bank on their feet through mortgage adjustments, incentives for homebuyers to acquire homes, addressing unemployment, and some sort of stimulus (tax cuts/credits)



Where do we go from here:

The markets will continue to trend lower for remain in a trading pattern. When I first spoke of actions to take to address the direction of the markets I recommended most folks get a majority of their money out of the market and into bonds. Then the Dow Jones Industrial Average (basket of the 30 large stocks representing the US economy) was trading around 9000 and my guess was that we would head lower and test recession like lows. The last time we could compare lows like this was in roughly 2002-2003 when the market hit lows of roughly 7700 (I believe). My assumption is that this will be the prudent time to begin to reallocate your portfolio back into the market. Again that is an assumption because I don't really think that this last time can be effectively compared to now. We are facing a local recession, rising probability of a global recession (in most areas except for China), and if these conditions exist we could be facing a depression due to deflationary pressure. This could be the one area that I initially got wrong...I thought we would be facing inflationary pressures or rising costs but that appears to be far down the line. Right now deflation is running wild and that is evident is the sharp decline of prices across the board. Gas is down from $4.00 to now roughly $2.00 and everything is falling with it, stocks included. If this trend continues deflation could lead to an extended recession and Dow 7700 may not even be a legitimate floor for the market.

$700 Billion - Wall Street Hits the Jackpot

Yeah Baby!!! That's what I always imagined I would scream if I hit the jackpot in Vegas or if I won the lottery and now that is what Wall Street is screaming. $700 Billion is the amount that Wall Street is looking to claim for their winnings. Now they won't call it winnings but let's try to look at how this situation looks from my perspective. I have sat back, trying to not judge how the situation is being handled and I just want to determine what this means for me as an investor.



As an investor, the first thing that I would say is that a $700B move like this tells me that the Henry Paulson, head of the Treasury department is serious about this issue. It would signal that he believes that liquidity is drying up for financial insitutions and this bailout package allows them to right their balance sheets. My next observation is that if these companies are allowed to remove these toxic assets from their balance sheets they will see a few quarters where these assets will need to be marked down...if Mark to Market Accounting still exists and then they would have sparkling balance sheets with no direction to go but up. This leads to my next conclusion that the best investment for the short term will be the Financial Sector and you will see that through an addition to my STOCK TRACKER PORTFOLIO through the exchange traded fund, UYG.

Since I wrote this post much has changed and I will write from the prespective of Main Street, however this was written from the view of what this bill means to me as an investor.