Markets at the pivotal point
Posted by Frugal on September 23rd, 2008
SPY has pulled back to exactly half point of the initial rise from 113.80 to 128.00, at about 120.90, not counting the recent 0.691 dividends paid. I’m quite busy observing this market. I guess no one knows for sure that which way this market will go next, but one can definitely put in their bets.
I won’t write more here, but it looks like the $700 billion is a little precarious through Congress. Unfortunately, they’re debating the actual mechanism of the implementation, which simply should be a market-based reverse auction (which the Congress doesn’t have a good grasp of), and a very good transparency with oversight and veto power over the Paulson “King”. As long as things are transparent, with all money accounted for, and that Congress can veto and retain control, the rescue plan will be fine.
Anyway, markets are moving lower, and it could easily retest the low again before the final bill is passed. Trade carefully.
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September 23rd, 2008 at 5:26 pm
We have to look at reality: The US Government is insolvent. Throwing fiat money at bailouts is not going to help anything. Better to let the big ones go under and let the honest ones rise to take their place.
About the only good thing about this mess, is that it is happening before a crucial US election. Let the incumbent candidates sweat it out to get back into power. Its too bad Ron Paul did not get his chance in the Presidential candidate selection. As far as I am concerned every incumbent needs to be put on the street and new leadership needs to be elected.
September 25th, 2008 at 5:58 am
Once both republican and democratic leaders agree on the solution, the rank and file will have little choice but to vote for the bill. The “bailout” package will go through. However, it is more of a long-term investment package in mortages from people just like you and I. I think what the press is missing is that there are only a small percentage of “toxic” mortgages. These are people who were swindled by greedy mortgage company crooks into believing they could really afford a huge house on a tiny income with no downpayment. Luckily this situation was truly only a small percentage of the overall mortages. Most mortgages in the country are actually very good as long as unemployment remains in control.
The biggest problem lies in the fact that we do not have a good nationally or internationally standardized way of rating mortgage-backed investments. Just like Moody’s rates bonds based on a companies ability to pay, we need a widely respected/standardized way of rating mortgages on the homeowner’s ability to pay. In the past, each bank had their own method of doing this, so there are many tried and true methods available. However, there is NO WIDELY STANDARDIZED way of doing this.
For example, just like Moody’s rates their bonds with a letter grading system, you could create the same letter grading system for mortgage backed securities. There will be A-rated mortgages, B-rated mortgages, and C-rated mortgages. Once this rating system is established, then it can be privatized (maybe Moody’s will pick up this role).
The most important thing that needs to be done is to have the government establish a rating standard for mortgages, just like Moody’s did for bonds or Morningstar does for mutual funds.
America is a great country, has great people and has great potential, but we have to pull together and get past this mortgage crap and focus on what is really important for the next generation, reducing our dependence on oil. This is truly the root cause of most of the economic issues today and for the forseeable future. We are in the weakest position right now than we have been for over a hundred years because we have wasted trillions of dollars on useless wars to protect oil instead of using our resources and ingenuity to find ways of reducing our dependence on it. This issue, by far, trumps any other. The current economic issues are just a by-product of our unwillingness to face the facts of the new global economy and our addiction to oil.