Keeping the Historians Busy

The market is trying to hold after the treasury announced a $1.2 trillion investment; $300B in buying long-term U.S. government bonds, and the balance to purchase mortgage-related debt. The dollar fell around 4% against the euro and pound.  I think watching the dollar's value is one good measurement stick to recognize when we are reaching the 'bubble' with our government's debt creation.  The Consumer Price Index was up .4% in February, the largest since 7/08.  Remember one of my biggest concerns is inflation.  It can take time to gain momentum, but once it reaches a certain point, then it moves quickly, devaluing everything.  By the way, England and Japan are following our lead in buying debt.

I am quite vocal about how congress is now trying to back-peddle by going after AIG's bonus distribution.  That $700B bailout and that which has followed was done in a haste with no business forethought.  Congress should accept responsibility for these actions and let business get on with business.  Government is getting too far into the details of our financial system, and we history has shown that it is very inefficient.  It is during our darkest hours that we can lose our freedom, without realizing it.

Some other interesting notes:

*  60% of seniors over 60 are now postponing their retirement because of the losses in their retirement accounts.

*  5.47 million people are receiving unemployment benefits.  I wonder how many have used them up and are no longer being counted.

*  An recent article in BBC stated that in 2030 there will be about 8.3 billion people on the earth.  This will require 50% more food and energy and 30% more fresh water than what is produced today (we hear all the time about starvation and water shortages now).  Just imagine, lot of us will still be here. That is only 19 years from now.  

Inflation

GDP contracted, a given.  The Feds loaning and giving billions to the top banks, backing commercial paper and money market funds.  Banks holding the money, doing the opposite of the intention of $700B bailout.  How long has it been since it was shoved through congress with the warning that there would be a financial meltdown without it?  There's a credibility gap with the Treasury with them using the 'cry wolf' approach.

Everyone is focused on the trees as inflation moves silently through the forest.   I can see a headline on the near horizon:  The world struggles to contain inflation that has jumped into the double digits.  People would argue that commodity prices are falling.  I am looking at the massive printing of money to meet the trillions of spending set in motion by Congress and the Treasury Department.  And if we end up with a Democratic controlled House of Representatives, Senate, and Presidency, then the momentum will continue with deficit spending to rescue the 'American people.'  

The good news is the stock markets don't mind inflation because prices can be raised to offset it.  The bad news is the consumer's money is worth less unless they are receiving raises or creating money to meet or exceed the inflation percentage increase.

What I find unfortunate is that we have had a check and balance for the last 8 years with a Democratic controlled Congress and a Republican presidency, and still we increased our debt by the trillions.  It appears that regardless of who is in control, the same path is continued.  I know that, at the world level, we will reach a peak regarding the debt level because there will no longer be willing and eager buyers without huge interest returns.  There will be a point where the answer is 'no.'  That will be a good turning point and also a painful one for those of us who participate in the financial system; virtually all of us.

The Unquantifiable Bailout

We are definitely living at a time of great change mirrored in the financial arena of the world.  The citizens of the U.S. are going to assume more debt, collectively, to rescue the financial sector due to dire consequences of what would happen if we don't.  When congressional leaders, the president, and the Fed got together last night and listened to what lies ahead, there was a stunned silence of 5-10 seconds.  When politicians have no words for that period of time, there is a landscape portrayed that none of them have experienced before.  The total liability is not measurable as this time, but 'hundreds of billions' means closer to two to three trillion.  I worked in the defense industry for 20 years and no contract met its original estimate, especially those funded for new design and technology.  We are dealing with the same here.  The ones deciding what to implement to save the U.S. financial system are having to be creative.  

This 'Plan' covers toxic mortgage-backed securities that banks hold.  The government would take these off their hands, hold them, and try to sell them again at a later date after they figure out the maze of who owes who. 

Today, the SEC put out a list of 799 financial companies that are excluded from the short selling list.  I think they should have excluded all companies like Britain did under pressure from us.  

Has anyone started talking about the bond insurers yet?  They are a new wrinkle in this financial fabric that is being sown.  Today ABK dropped 42% and it was on the excluded short sale list.   Our system has evolved to be so expansive and intricate that no one person or group understands the total ramifications of our actions.  Keep looking for the red flags like ABK.  There is a blind path here that takes a special dance.  We are only learning what the steps are.

We are only 11 days away from October, the month that has historically reflected major changes for the market.  What does October 2008 bring?