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.

American International Group (AIG)

On a positive note today, we saw the shares of AIG rocket up 14%! As you have noted, we have recommended and are still bullish on AIG. The skinny:

~ AIG plans to repay the Federal Bank of New York

~ AIG is selling key assets, like their Asian life insurance, unit to drum up cash for repaying their loans

~ The market is reacting positively because it begins the process the US Treasury converting their shares to common stock

~ On the heels on GM, it LOOKS more feasible that the government may find receptive investors that want to snap up shares on a possible turnaround story

While there is still more room for this stock to run up, we have had a nice move here. I think with the developments highlighted above, this will DEFINITELY be a mainstay for my portfolio going forward with strategic buys going forward.

Wall Street - The PULSE

Hey everybody I am back to hit you with a quick post to keep you in the loop with what's going on in the stock market. By now, I know the average person is paying attention on a daily basis because I get a weekly call from my sister asking me about why things are falling or more importantly what should I be doing with my money. And if you recall when you don't hear much from me I am usually doing one thing and that's reading. I am constantly reading about what everyone has to write and listening to what everyone has to say...to get a feel of the market's temperature. How can you do this?!?! Well simply start by tuning in here as often as you can to get a pulse, not always daily but a frequent pulse as to what may be changing out there. And if you get tired of reading, check out CNBC's homepage and select the VIDEO tab for very frequent video posting of their on air show.

Wall Street's Pulse - Awhile back I compared Wall Street to a prized fighter that was down and out, maybe like one of my favorite fighters Roy Jones Jr. The latest prognosis is still not that good...the patient needs help getting up in the ring right now and the count keeps going to about 8 (get to 10 and the fight is over). For those of you that don't know what a knockout blow is for Wall Street, well its would be a depression. And the trainers right now are the Obama Administration, The Treasury Department, and The Federal Reserve. They are constantly looking at the fighter, checking its vitals, and assessing how to help him keep fighting. But right now the vitals of Wall Street do not look good:

• Unemployment numbers continue to rise and have now been estimated to reach over 10% within the next year or so.
• Companies continue to cut jobs left and right and give not so rosy outlooks for the rest of 2009
• Consumer Savings rates were above 5%, which is at levels that we haven't seen in a long time!
• Retail Sales numbers are barely off their lows, which means people ain't buying!
• The consumer and companies are still having difficulty getting access to capital.

Investors (who are like the fans in the stands) have sobered up to these realities and almost given up on the fighter, but the trainers keep working. And their work seems to be helping the fighter get a little bit better:

• Banks are receiving more and more capital
• The stimulus plan and housing bills are aimed at helping home owners and generating jobs
• There is talk about adjusting mark to market (how banks place a value on assets they own)

What this has done is given the investors a little bit of hope that the fighter may come through and still win the fight. So they have started cheering louder and louder and the fighter has responded. The stock market has rebounded off of its March 9th lows and the banks have come back roaring. But its almost as if the crowd (investors) forgot that the fighter is still hurt and hurt badly. That's why may believe that the stock market is in a BEAR RALLY. This means alot of people think the fighter is healthy but in reality he's not. And soon those cheering fans will see the fighter get knocked down again and they will not cheer as loud.

Now onto what I believe and what I'm doing:

I believe the fighter is still hurt badly which means don't cheer (or buy stocks just yet). I truly believe that safer alternatives are out there and should be evaluated for your portfolio. I still like OWNING CASH, and not doing a whole lot especially in your retirement portfolios...don't be the hero or the only one cheering when the fighter just got knocked down again. Invest in safer alternatives:

Cash
Gold (GLD)
High Yield Corporate Debt (LQD)
Municipal Bonds (TFI)

And if you feel like you need to be in the markets, be careful and be a bottom feeder...the nastiest thing out there. Wait until things gets really bad and nibble on the most beaten down sectors. For instance I do this when the banks look really bad, like when everyone though Citigroup was going out of business and I buy just a little bit of the bank stocks ETF on steroids (FAS)...it gives me 3X the returns of bank stocks, but I bite just a little. And when things start to look like they are on a roll I sell. I don't panic about selling to early because in a few days I start to look for a point to be a top feeder and bet that things will come back down and buy the FAZ, which bets the banks will fall...TIMES 3X! But don't stick around to long in these trades or else you'll be writing me with heartburn as I have often had, but irrational fans sober up eventually.

Twist And Shout...

The reason why I call this post twist and shout is because I am definitely about to throw my readers for a twist. The twist goes a little something like this:

I have recommended since last September/October that we MOVE all of our positions into Cash, and Cash-like assets (Treasurys,etc). And I mentioned we would hold those positions until we hit a relevant level that may help form a bottom. At this point, with the new Treasury secretary (Tim Geithner) delivering his plan for the banks TOMORROW...AND the Senate finalizing the vote on the stimulus plan TODAY I am under the assumption, that any hint of news (as minimal as it might be), may cause the market to start rallying in anticipation of both announcements. I would increase your exposure to the market however incrementally. At this point no more that MAYBE 25% of your CASH position should be used to take advantage of this situation.

Now here is the TWIST, I am resigned to say that we are purely taking advantage of what will probably go down as a BEAR MARKET RALLY. This simply means that there are pockets, during an economic downturn where the markets need a breather and goes in the opposite direction. And that direction would be UP.

But this will be short-lived and the hard part to determine is how long this BEAR MARKET RALLY will last. I will go out on a limb and say it the market top 9000 to head for the hills as I believe that it will be trading in a range for a long time. I know I continue to deliver news that you may not want to hear but I believe that once we hit those levels the markets will continue to decline until critical things are addressed such as unemployment, foreclosure, and failing banks.

$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.