Bounce?!?!?!

Okay, I did not see that coming and apparently those that drove the market down to new lows early on did not either. Here I was feeling all smug and superior in anticipating the market had worse things ahead and then the turn. Not just any turn mind you, but a massive one. I have not done the math but I believe the market swayed close to 10% today, from low to high. The odd part is that the volatility index was down nearly 10% today despite the fact that the pricing on the volatility index (VIX) itself ranged over 15% today. So how can the volatility index end down for the day, significantly, when the volatility index itself had one of its most volatile days? Go figure.

Green Pastures Ahead . . .

If you think that is what I am going to say, you have not read this blog long enough. Yes, the extreme "dead cat bounce" today was reassuring. It perhaps might signal that there is some support at the bottoms we reached again today -or it might not. I agree that the market has some great bargains right now, which is why I am back in a bit. Heck, I even have one call option (I won't say what it is but the stock was up over 16% today and my option did not change, arrgghh!). Still, the prospect for medium to long term pain remains.

So let's talk a bit about the TARP. Few hundred billion in and Paulson apparently decides all his previous brilliant ideas are dumb and now he needs to focus on consumer debt. I question how one man can cause so much economic disaster to one country with one bad idea after another. He is obviously bending over forwards (not backwards) for some political folk in doing this or an alien has overtaken his brain and permanently programmed it for stupid ideas.

Okay, reducing consumer debt by transferring it to the federal government is not stupid, though that is not what Paulson has in mind. It is, however, what the last "stimulus" package did in part and will undoubtedly be what happens to the next stimulus package. Right now that helps the man and woman on the street and the federal government has an easier time now getting credit at good rates. But the plan is ostensibly designed to get people to start spending again. I know this is the mantra from both parties - revive the economy by reviving consumer spending, which is what got us out of the last couple of bubbles, I mean recessions. But we are, as a consumer, in heavy debt and can not, should not and will not start spending above our means despite how much money they give us. Wake up politicians!!! Debt needs to be paid down, not added to. Yes, doing so will prolong the recession, but in the long run restoring balance to individual balance sheets is much more important. So yes give money to consumers in debt but ask them to use this to pay off debt. The sooner it is paid off the sooner the consumer can help the economy - but not until then.

Da Plan

Paulson's new plan is not to pay the average Joe (the plumber) on the street a dime of what is left of the $700 billion, but rather to back those companies providing credit to consumers so the over-their-heads-in-debt consumers can borrow more. Brilliant!! NOT!! Somebody pleeease give Paulson a chart showing the consumer debt load and its ratio to the GDP and explain to him very slowly "This is bad, very bad. Debt going down is good. Debt going up is bad."

Did I mention that Paulson is doing some stupid things with our money. It is a bunch of bull to give J.P. Morgan $25 billion (on top of the $29 billion Bear Stearns guarantee) to get it lending only for it to say it will use the money, likely, for an acquisition. J.P Morgan, lest you haven't already noticed, has already gobbled up more than its fair share in this downturn and it is quickly transitioning from the "too big to fail" to "too big to save" status. We do not need to go there, yet the federal government is giving them more than enough rope to hang themselves. Bottom line, if you want to give them $25 billion to lend and get credit markets working, you require them to do this with the money or at least get board positions where you have a say. Paulson is an idiot. (That is an opinion, not advice!!)

So, what should we be doing with the money? Well everyone else is telling the government what to do, so I might as well add my two cents worth (since they are certainly spending much more of my money than that on these plans).

Money going to support the commercial paper market was a great idea. Commercial paper is critical to our businesses operating properly. We need more of this. Right now the shipping industry is at a standstill because traders cannot get letters of credit or, for those that do get letters of credit, financial institutions do not honor them. We need government support here right away- as in yesterday. International trade is critical and we should use our dollars to get it moving again. Seriously, this includes food getting to countries that desperately need it. We need to break this log jam.

In a word, infrastructure. We need a lot of spending in this country to improve roads, bridges, dams, levies and everything else. So let's think about this, hmmm. We have a lot of blue collar construction industry workers out of work and collecting unemployment or living off government benefits. We have thousands of desperately needed infrastucture projects. Seems like a good fit to me. Perhaps the TARP has a few billion that it has not yet spent on companies that deserve to go bankrupt that it can spend on companies that actually make things and are the backbone of our society.

I am sorry to say, but I think the best plan is for the government to quickly decide which companies should fail and take them down quickly. The survivors should get "some" assistance, but not much. If they need a lot, they should be on the fail list. We need to clean out the bad pieces of our ecnonomy fast, not slowly. The faster we do it the faster we recover.

Just some thoughts to consider.