Best of the Week
Most Popular
1. 2019 From A Fourth Turning Perspective - James_Quinn
2.Beware the Young Stocks Bear Market! - Zeal_LLC
3.Safe Havens are Surging. What this Means for Stocks 2019 - Troy_Bombardia
4.Most Popular Financial Markets Analysis of 2018 - Trump and BrExit Chaos Dominate - Nadeem_Walayat
5.January 2019 Financial Markets Analysis and Forecasts - Nadeem_Walayat
6.Silver Price Trend Analysis 2019 - Nadeem_Walayat
7.Why 90% of Traders Lose - Nadeem_Walayat
8.What to do With Your Money in a Stocks Bear Market - Stephen_McBride
9.Stock Market What to Expect in the First 3~5 Months of 2019 - Chris_Vermeulen
10.China, Global Economy has Tipped over: The Surging Dollar and the Rallying Yen - FXCOT
Last 7 days
Stock Market VIX Volaility Analysis - 19th Mar 19
FREE Access to Stock and Finanacial Markets Trading Analysis Worth $1229! - 19th Mar 19
US Stock Markets Price Anomaly Setup Continues - 19th Mar 19
Gold Price Confirmation of the Warning - 18th Mar 19
Split Stock Market Warning - 18th Mar 19
Stock Market Trend Analysis 2019 - Video - 18th Mar 19
Best Precious Metals Investment and Trades for 2019 - 18th Mar 19
Hurdles for Gold Stocks - 18th Mar 19
Pento: Coming QE & Low Rates Will Be ‘Rocket Fuel for Gold’ - 18th Mar 19
"This is for Tommy Robinson" Shouts Knife Wielding White Supremacist Terrorist in London - 18th Mar 19
This Is How You Create the Biggest Credit Bubble in History - 17th Mar 19
Crude Oil Bulls - For Whom the Bell Tolls - 17th Mar 19
Gold Mining Stocks Fundamentals - 17th Mar 19
Why Buy a Land Rover - Range Rover vs Huge Tree Branch Falling on its Roof - 17th Mar 19
UKIP Urged to Change Name to BNP 2.0 So BrExit Party Can Fight a 2nd EU Referendum - 17th Mar 19
Tommy Robinson Looks Set to Become New UKIP Leader - 16th Mar 19
Gold Final Warning: Here Are the Stunning Implications of Plunging Gold Price - 16th Mar 19
Towards the End of a Stocks Bull Market, Short term Timing Becomes Difficult - 16th Mar 19
UKIP Brexit Facebook Groups Reveling in the New Zealand Terror Attacks Blaming Muslim Victims - 16th Mar 19
Gold – US Dollar vs US Dollar Index - 16th Mar 19
Islamophobic Hate Preachers Tommy Robinson and Katie Hopkins have Killed UKIP and Brexit - 16th Mar 19
Countdown to The Precious Metals Gold and Silver Breakout Rally - 15th Mar 19
Shale Oil Splutters: Brent on Track for $70 Target $100 in 2020 - 15th Mar 19
Setting up a Business Just Got Easier - 15th Mar 19
Stock Market Elliott Wave Analysis Trend Forercast - Video - 15th Mar 19
Gold Warning - Here Are the Stunning Implications of Plunging Gold Price - Part 1 - 15th Mar 19
UK Weather SHOCK - Trees Dropping Branches onto Cars in Stormy Winds - Sheffield - 15th Mar 19
Best Time to Trade Forex - 15th Mar 19
Why the Green New Deal Will Send Uranium Price Through the Roof - 14th Mar 19
S&P 500's New Medium-Term High, but Will Stock Market Uptrend Continue? - 14th Mar 19
US Conservatism - 14th Mar 19
Gold in the Age of High-speed Electronic Trading - 14th Mar 19
Britain's Demographic Time Bomb Has Gone Off! - 14th Mar 19
Why Walmart Will Crush Amazon - 14th Mar 19
2019 Economic Predictions - 14th Mar 19
Tax Avoidance Bills Sent to Thousands of Workers - 14th Mar 19
The Exponential Stocks Bull Market Explained - Video - 13th Mar 19
TSP Recession Indicator - Criss-Cross, Flip-Flop and Remembering 1966 - 13th Mar 19
Stock Investors Beware The Signs Of Recession / Deflation - 13th Mar 19
Is the Stock Market Still in a Bear Market? - 13th Mar 19
Stock Market Trend Analysis 2019 - 13th Mar 19
Gold Up-to-Date' COT Report: A Maddening Déjà Vu - 12th Mar 19
Save Fintech? Ban Short Selling. It's Not That Simple - 12th Mar 19
Palladium Blowup Could Expose Scam of Gold & Silver Futures - 12th Mar 19
Next Recession: Concentrating Future Losses & Bringing Them Forward In Time As Profits - 12th Mar 19
The Shift of the Philippine Peso Regime - 12th Mar 19
Theresa May BrExit Back Stab Deal Counting Down to Resignation, Tory Leadership Election - 12th Mar 19
Phase 1 of Stock Market Correction - 11th Mar 19
Long Awaited Stock Market Pullback has Finally Arrived - 11th Mar 19
US Presidential Cycle and the Stock Market - Video - 11th Mar 19
Stock Market Elliott Wave Analysis Trend Forercast - 11th Mar 19
Chinese Economic Data Shakes the Global Stock Markets - 11th Mar 19
The Fed Is Playing a Dangerous Game - 11th Mar 19
The Stock Market Has Called the Fed’s Bluff, What’s Next? - 11th Mar 19
Turkey Holiday Bazaar Extreme Jewelry Price Haggling - Fethiye Market - 11th Mar 19

Market Oracle FREE Newsletter

Stock and Finanacial Markets Trading Analysis Worth

Bailout Crisis - What Happens Next

Politics / Credit Crisis Bailouts Sep 25, 2008 - 04:06 PM GMT

By: Justice_Litle

Politics

Best Financial Markets Analysis ArticleWithout further ado, here's a quick tour of the five things you should know...

1) The bailout is one of staggeringly massive proportions.
As I write to you in the wee hours of Monday morning, prior to my transatlantic flight, the number being bandied about for the size of the bailout is $700 billion. Keep in mind, too, that this is an opening number. It doesn't necessarily include relief for upside-down homeowners, strapped consumers, foreign banks or many other potential “extras” that could be added to the tally.
And yet, all by itself, $700 billion is a breathtaking number. How breathtaking, you ask?


  • $700 billion is more than four times the cost of the Savings & Loan bailout in the late ‘80s and early ‘90s.
  • As Dan Herszenhorn of the New York Times points out, $700 billion is “more than $2,000 for every man, woman child in the United States.”
  • The bailout is roughly equal to what has been spent (so far) on the Iraq war and more than a year's annual budget for the Pentagon.

What's worse, the terms of the bailout give the Fed and Treasury unprecedented power. In a single stroke, America has trashed its reputation as a bastion of free-market principles... possibly beyond repair.

It is so bad, in fact, that the finance minister of Italy is making fun of us.

“Greenspan was considered a master,” Italian moneyman Giulio Tremonti says. “Now we must ask ourselves whether he is not, after bin Laden, the man who hurt America the most. … It is clear that what is happening is a disease. It is not the failure of a bank, but the failure of a system.”

2) You will still be able to go short.

A lot of questions have been swirling around the shorting ban proposed by multiple countries.
The UK has banned shorting until January. Australia has banned shorting entirely. The SEC in the U.S. has temporarily banned shorting on nearly 800 financial stocks. Other countries are getting in the act, too.

This knee-jerk reaction to the crisis is utterly stupid and pig-headed. But rather than go on a rant and risk missing my plane, here's what you need to know: You will still be able to go short via the use of options.

In America at least, many stocks are still shortable outright. And even for those on the “banned list,” they haven't outlawed the purchase of put options -- option contracts that allow an investor to profit when a stock goes down. So don't worry about that aspect of things. In spite of the ferocious rally we saw late last week, versatility will still be a virtue in this market. You'll still be able to go short.

3) Global growth is still the place to be (as opposed to U.S. exposure).

If you thought last week's rally in the Dow and the S&P was impressive, you didn't catch an eyeful of what happened in emerging markets.

It was the biggest move in 20 years for many markets, with Russia and Brazil leading the way. While the Dow booked gains in the neighborhood of 3%, a number of other indexes (like Brazil's Bovespa) picked up triple that.

The long and short of it is, global growth is still the place to be. The U.S. still has to deal with a belt-tightening consumer, even if the beleaguered and battered banks have now gotten a free pass from Uncle Sam... But with coordinated central bank efforts and new cash flooding into markets all over the globe, it's much more likely to be “back in the pool” global growth stocks.

We've seen evidence of this, too, in Safe Haven Investor , the newsletter I recently took over as editor. On Monday I recommended a high-quality South American growth stock with a fat dividend yield. That pick is up more than 10% from our buy price in less than 10 days.

4) Savers will be punished.

The sad fact is, this bailout is all about saving borrowers from themselves and punishing risk takers in the process. If you were leveraged up to the eyeballs and loaded to the gills with debt, then the Paulson-Bernanke plan is a godsend... like a helicopter coming to pull you off the roof of your house as the floodwaters sucked at your ankles.

But if you actually avoided this whole mess by shunning excess risk and keeping a good amount of cash in the bank, then guess what -- it's upstanding citizens like you who get to pay for the whole thing. The money to make the bailout happen will ultimately come from one place: the pockets of the American taxpayer.

Some will say it's not necessarily a given that the taxpayers will lose money on this bailout deal... that it's possible everything works out and that the $700 billion doesn't go up in smoke. Maybe we'll get our money back, or at least a portion of it.

But the people who say that are also the ones who never thought we would get here in the first place. And it's hard to see the difference, in principle, between a Bear Stearns or a Lehman Brothers assuring me I'll get my money back vs. Uncle Sam doing the same thing. Shouldn't it be up to you and me to decide who we write checks to?

As the dollar craters in the coming months, and the cost of living rises, savers will continue to be punished. Money in a mattress is decidedly no good at this juncture. Cash is most definitely NOT king, in the sense that paper money just gets more and more worthless when the printing press is chugging away like there's no tomorrow. That's what it's doing now.

5) Invest or go broke.

“Invest or go broke” might be a harsh way to put things, but these are harsh times in more ways than one.

By pledging to crank up the printing press and bail out everyone in sight, Paulson and Bernanke have ginned up a paper tornado of sorts. Think of the crazy action we saw last week, with the markets down hundreds of points and then flying sky-high on news of the bailout.

There is an old saying, “In a tornado even the turkeys will fly” -- meaning even lousy stocks will go up in the right market conditions. Right now we could be headed into a scenario where everything but the kitchen sink catches a bid, with paper asset inflation swamping all other conditions.

This is a very dangerous environment to be in for holders of cash and money market funds. Costs of living go through the roof, too, and the meager returns on interest bearing accounts can't keep pace. This is the type of environment Marc Faber talked about when he said (paraphrase) “Sure the Dow can go to 20,000... But if that happens, gold will go to $6,000.”

When the turkeys are flying and paper asset inflation is roaring, you almost have to be in the game -- and invested in the right things -- just to keep the inflation monster from eating everything you own.

That's all for now. Time for me to make my mad dash for the airport. Let me know your thoughts, and maybe together we can map out a course for what to do next: justice@taipandaily.com

By Justice Litle
http://www.taipanpublishinggroup.com/

Copyright © 2008, Taipan Publishing Group

Justice Litle is editorial director for Taipan Publishing Group. He is also a regular contributor to Taipan Daily, a free investing and trading e-letter, and editor of Taipan's Safe Haven Investor, which helps guide readers to new global investment frontiers and safe harbors.

Justice_Litle Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules