Congratulations, President Obama!
Market Update: 2008-10-08
OK, call me going out on a limb, but based on the poll results from last night's presidential debate and the fact that John McCain's affinity for sandbox politics is only hurting his cause, I think we should all congratulate President Obama this morning. One anonymous phone poll showed Obama with a big double digit lead over McCain when being asked who would be better for the economy. Obama won on the "who is more presidential" question. Sure, McCain had a slight lead on terrorism, but lagged a bit on Iraq. Bottom line, the lessons learned from the Bush 101 crash course from 2004 will not work for McCain this year. Americans do not care about which candidate they think may be tougher on terrorists right now, all we care about is the economy. And if less than 40% of Americans are not impressed with McCain's views and stupid plans on the economy, how can McCain stand a chance next month?
By stupid views on the economy, I am specifically talking about the ridiculous plan that McCain put forward last night; he wants to renegotiate mortgage principle balances to the current market value of one's home. That is the most ludicrous idea I have ever heard, and it surely would not help the credit situation! If I were a banker and I knew that I had to risk my hard-earned money to give to a home buyer, knowing that there was a very good chance the government would tell me in a few years that the borrower no longer has to repay the full amount of principal that I loaned him because his home has since fallen in value, do you think I would be willing to lend anyone money to buy a home? Definitely not! This brings me to another point. If Mr. McCain (and Mr. Obama) and everyone else in Washington think that the current credit crisis is a result of mortgages and falling housing prices, then they are dead wrong. Subprime mortgages and a declining housing market are all symptoms of the problem, not the problem itself. This crisis was caused by a debt bubble. Too much money, easy money, was the cause. Bad mortgages were a result of the fact that there was too much money being printed in the first place. If you don't understand the root cause of the problem, it is guaranteed that you will not be able to fix the problem. As I have said all along, you can't solve the problem of borrowing too much money by borrowing more money! That is why the Federal Reserve can cuts rates to zero if they want and the credit crisis will not get better!
This brings me to my next little tidbit of news. The Federal Reserve and central banks around the world last night, including the People's Bank of China, acted together this morning for what is being dubbed a coordinated rate cut. Sorry if you thought that the big 50 basis rate cut was good news for the markets, because it is not. Actually, such a move tells me that the government is getting really nervous and that we should be even more concerned about our economic future. Fed rate cut or not, nothing has changed. I am not even convinced that our markets will get a bounce from this cut today. The only thing going for the stock market right now is that it is a bit oversold, which means we could get a relief rally any time now. Nonetheless, yesterday's close for the markets was not the bottom. That is my story and I am sticking to it!
Oh, who would have thought a debt bubble could cause so many problems? It was supposed to be different this time. America was supposed to be smarter than Japan, we were supposed to have learned from the mistakes of our financial past, and we were supposed to be much more capable to prevent and deal with financial disasters than we were in the 1930s. Right?
In the meantime, we are now to the level in the market that I was looking for as the point to start moving back into the S&P 500. If you recall, earlier this year on January 8, 2008 in my posting titled "Time to Hibernate?" I told people to prepare for the bear market and to be ready to pick up some deals later in the year. On that day, I moved a chunk of my retirement account’s S&P500 index fund into cash. I have been holding that cash ever since waiting for a good time to start moving the money back into the S&P500. Now that the S&P500 has fallen 28% since my move in January, I began moving the cash back into the S&P500 yesterday. I just moved a little, but it is a start. I believe the S&P500 will find solid support around the 800 level, which means from here I don’t expect to much more than 20% and stay there for long. We should have our bottom within the next 6 -12 months, and most likely before next spring. So for now I plan to dollar cost average my cash back into the S&P500 over the coming year. I can now say one thing with a high degree of confidence. With the S&P500 down over 36% from its record high and only 25% above its support, we are now closer to the bottom than we are to the top! To refresh your memory, here is what I said on January 8, 2008:
“I think we are probably entering a bear market, so don’t count on any stellar returns in the market anytime soon. But that is not to say there won’t be opportunities to take on some good, long-term stock positions in 2008. As a matter of fact, this year will likely be one of the best opportunities to buy stocks that we have seen since 2002. Before you go buying a ton of new shares tomorrow, remember that we may are probably in a new bear market. If the bear is back, prices will go lower. But you definitely want to buy shares as this bear hibernates. The harder he sleeps (i.e., the lower prices go), the more you should buy. Several years from now when stocks are flying high again, you don’t want to look back at 2008 and wish that you had bought when they were being given away!”
I am still not convinced that President Obama will be able to accomplish all the great things he talks about. Just like McCain, I don't know if he understands that mortgages didn't cause this problem either. But one thing is for sure, Mr. Obama is getting ready to take the reins of what is likely going to be one of the worst economic fallouts in decades. He didn't make this mess, but he will be expected to clean it up. And to that, all I can say is "Good luck, prez!"
We will know more later about what President Obama will do to try and get this situation under control. Until then, Happy Investing.
Gregory
OK, call me going out on a limb, but based on the poll results from last night's presidential debate and the fact that John McCain's affinity for sandbox politics is only hurting his cause, I think we should all congratulate President Obama this morning. One anonymous phone poll showed Obama with a big double digit lead over McCain when being asked who would be better for the economy. Obama won on the "who is more presidential" question. Sure, McCain had a slight lead on terrorism, but lagged a bit on Iraq. Bottom line, the lessons learned from the Bush 101 crash course from 2004 will not work for McCain this year. Americans do not care about which candidate they think may be tougher on terrorists right now, all we care about is the economy. And if less than 40% of Americans are not impressed with McCain's views and stupid plans on the economy, how can McCain stand a chance next month?
By stupid views on the economy, I am specifically talking about the ridiculous plan that McCain put forward last night; he wants to renegotiate mortgage principle balances to the current market value of one's home. That is the most ludicrous idea I have ever heard, and it surely would not help the credit situation! If I were a banker and I knew that I had to risk my hard-earned money to give to a home buyer, knowing that there was a very good chance the government would tell me in a few years that the borrower no longer has to repay the full amount of principal that I loaned him because his home has since fallen in value, do you think I would be willing to lend anyone money to buy a home? Definitely not! This brings me to another point. If Mr. McCain (and Mr. Obama) and everyone else in Washington think that the current credit crisis is a result of mortgages and falling housing prices, then they are dead wrong. Subprime mortgages and a declining housing market are all symptoms of the problem, not the problem itself. This crisis was caused by a debt bubble. Too much money, easy money, was the cause. Bad mortgages were a result of the fact that there was too much money being printed in the first place. If you don't understand the root cause of the problem, it is guaranteed that you will not be able to fix the problem. As I have said all along, you can't solve the problem of borrowing too much money by borrowing more money! That is why the Federal Reserve can cuts rates to zero if they want and the credit crisis will not get better!
This brings me to my next little tidbit of news. The Federal Reserve and central banks around the world last night, including the People's Bank of China, acted together this morning for what is being dubbed a coordinated rate cut. Sorry if you thought that the big 50 basis rate cut was good news for the markets, because it is not. Actually, such a move tells me that the government is getting really nervous and that we should be even more concerned about our economic future. Fed rate cut or not, nothing has changed. I am not even convinced that our markets will get a bounce from this cut today. The only thing going for the stock market right now is that it is a bit oversold, which means we could get a relief rally any time now. Nonetheless, yesterday's close for the markets was not the bottom. That is my story and I am sticking to it!
Oh, who would have thought a debt bubble could cause so many problems? It was supposed to be different this time. America was supposed to be smarter than Japan, we were supposed to have learned from the mistakes of our financial past, and we were supposed to be much more capable to prevent and deal with financial disasters than we were in the 1930s. Right?
In the meantime, we are now to the level in the market that I was looking for as the point to start moving back into the S&P 500. If you recall, earlier this year on January 8, 2008 in my posting titled "Time to Hibernate?" I told people to prepare for the bear market and to be ready to pick up some deals later in the year. On that day, I moved a chunk of my retirement account’s S&P500 index fund into cash. I have been holding that cash ever since waiting for a good time to start moving the money back into the S&P500. Now that the S&P500 has fallen 28% since my move in January, I began moving the cash back into the S&P500 yesterday. I just moved a little, but it is a start. I believe the S&P500 will find solid support around the 800 level, which means from here I don’t expect to much more than 20% and stay there for long. We should have our bottom within the next 6 -12 months, and most likely before next spring. So for now I plan to dollar cost average my cash back into the S&P500 over the coming year. I can now say one thing with a high degree of confidence. With the S&P500 down over 36% from its record high and only 25% above its support, we are now closer to the bottom than we are to the top! To refresh your memory, here is what I said on January 8, 2008:
“I think we are probably entering a bear market, so don’t count on any stellar returns in the market anytime soon. But that is not to say there won’t be opportunities to take on some good, long-term stock positions in 2008. As a matter of fact, this year will likely be one of the best opportunities to buy stocks that we have seen since 2002. Before you go buying a ton of new shares tomorrow, remember that we may are probably in a new bear market. If the bear is back, prices will go lower. But you definitely want to buy shares as this bear hibernates. The harder he sleeps (i.e., the lower prices go), the more you should buy. Several years from now when stocks are flying high again, you don’t want to look back at 2008 and wish that you had bought when they were being given away!”
I am still not convinced that President Obama will be able to accomplish all the great things he talks about. Just like McCain, I don't know if he understands that mortgages didn't cause this problem either. But one thing is for sure, Mr. Obama is getting ready to take the reins of what is likely going to be one of the worst economic fallouts in decades. He didn't make this mess, but he will be expected to clean it up. And to that, all I can say is "Good luck, prez!"
We will know more later about what President Obama will do to try and get this situation under control. Until then, Happy Investing.
Gregory
Gregory - my comments from our earlier conversation are cut and copied below. Just to avoid confusion - while I believe McCain's mortgage rescue plan is ridiculous, I never have and never will consider voting for Obama. He is a stereotypical, "us versus them" populist. His entire campaign is based on first convincing Americans that they are downtrodden, in despair, and most importantly, helpless and powerless to do anything to change their circumstance. Step 2 is to convince Americans that he, and only he, is ready willing and able to help them. He's managed to do this without any regard for reality of the situation. For instance, he's stated that he will follow Bin Laden wherever he goes to hunt him down and kill him, including Pakistan. Sounds great, gets people fired up, etc. Only problem is that one country dropping bombs within the borders of another sovereign country is typically frowned upon, particularly when the dropper is trying to court the droppee as an ally. He has no spine - none whatsoever - and he will prove to be one of the worst "leaders" our country has ever seen.
The disclaimer is a bit longwinded and overdramatic, but I just wanted to make sure that there was no impression, none whatsoever, that I would ever consider casting a vote for Obama. That said, here's my thoughts on the McCain bailout plan...
It's an awful, awful, awful proposition.
there are plenty of people out there who 1) didn't buy houses they haven't saved enough money - me; 2) bought a reasonable house at a reasonable price on a standard mortgage and sold at the right time - you; 3) bought a reasonable house at a reasonable price, didn't sell, scared as all heck about the price now, but doing the responsible thing and continuing to take all steps necessary to make payments - several of my friends.
his plan is ridiculous in that 1) it would encourage people to default, thereby increasing foreclosed houses, which increases inventory on the market, which drives prices down 2) encourages people to default on the loans and have them written down to be restructured, thereby forcing more bank writedowns and bank failures, further depressing confidence in our system; and 3) completely destroys all faith that anyone had in contracts and sets the precendent that if you enter a contract with an able and willing counterparty, then later than contract could be voided, to your detriment, if the contract is deemed to be politically unpopular. Mortgage rates increase to >10%.
the only thing i can hang my hat on there is that i don't think that bill would ever go through. i think he's just trying to get elected. unfortunately, i don't think he will.
again - we're in deep, deep trouble when obama gets elected. america is done - we're soft, we've lost our competitive edge, and we're more concerned with being "fair" than we are with being the best. obama is the final nail in the coffin. welcome to socialism.
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