Friday, March 14, 2008

State of the Market - 3/14/08

The market was crazy again today. End of story. No real need to analyze things because if anyone says they know what is happening or what will happen next, they are most likely either a psychic or lying. Once again the market looks awful until around 2:30, when out of nowhere, the Dow rises some 200 points or so in the course of 45 minutes. Anyone that is trading and making money right now, congratulations! You can have this market. I will continue to stay out of this mess until after the Fed decision. Since today we found out there is no such thing as inflation, the likelihood of another big rate cut next week increased, and therefore I would still not be surprised if we rally into this cut. The expectations of a 100 basis-point cut is quicky rising. Screw the dollar! Screw inflation! Save the banks!

A lot of the volatility today was based upon the news about Bear Stearns is facing huge financing issues. Funny, but I think the CEO of Bear Stearns came onto CNBC earlier this week and stated with a straight face that their institution was having no such issues. Whatever. Basically, as I read it, J.P. Morgan can go to the Fed and borrow as much as they want, and then give it to Bear Stearns. If Bear Stearns can’t pay the loans back after the 28 day period, then the Fed can’t do anything to J.P. Morgan. I don’t quite understand why the Fed wouldn’t just lend directly to Bear, but maybe they think doing it this way makes it looks less like the direct government bailout it likely is. I am not an expert, but it sure looks like the idea of “too big to fail” is certainly something our government does believe in. The concept of “moral hazard” is evidently a concept that our government does not believe in. We shall see how this develops – is Bear really the only one out there in this serious a state of trouble, especially when they lied earlier this week and said they were fine? It is becoming obvious that banks are not disclosing all of the issues they face, which I understand in a way because doing so would lead to a rush to the doors like you saw in BSC today, but it makes me believe that this is not the last type of bailout we will be seeing this year.

If you didn’t hear already, there was some other great news from our government today. Inflation isn’t a problem anymore, or at least it wasn’t in February. The Consumer Price Index was flat for the month, and energy prices actually fell 0.5%. This is a big relief to me personally. For a while there, I really though the extra $75-$100 I was dropping the past few months on food and gas compared to this time last year might be due to shortsighted and irresponsible fiscal policy and the rapidly falling value of the dollar. Turns out, I guess I was just a poor shopper. Maybe I was shopping at the wrong store, or at the wrong time of day. Obviously it was something I was doing, because inflation doesn’t exist, according to the new report today. It doesn’t matter that oil has risen dramatically over the past few months as well as other commodities like metals and or something as simple as food prices. That certainly doesn’t mean we have inflation issues. The possibility of gas prices rising to $4 by the summer certainly doesn’t mean we have inflation issues. We just need to ignore our pocketbooks, trust the Fed, and realize that allowing them to throw more and more money at our credit problems is the perfect way to solve all of the issues we have. because again, inflation is not an issue. Remember that. It doesn’t exist.

In other “good” news, it looks like Congress has decided that enough is enough with Americans paying lower taxes, as both passed versions of the Federal Budget for 2009 that will eliminate most of President Bush’s tax cuts. Luckily for all of us, however, the House is planning on “generously” increasing spending on social and domestic programs for all of those people that depend on government handouts for their livelihood.

“The Senate rejected calls from both parties' presidential candidates to take an election-year break from pork-barrel spending as a Democratic-run Congress pushed budget plans that would torpedo hundreds of billions of dollars in tax cuts won by President Bush.

John McCain, the GOP nominee-to-be, couldn't attract even a majority of Senate Republicans to vote with him Thursday night behind the earmark moratorium touted by party conservatives as a way to restore the GOP's credibility with voters.

It failed on a 71-29 vote. Only three Democrats joined with Hillary Rodham Clinton and Barack Obama in voting for it.

The underlying House and Senate Democratic federal budget plans for 2009, though nonbinding, drew blasts from Republicans for allowing some of Bush's tax cuts to die in about three years.

The House passed its $3 trillion budget plan by a 212-207 vote. It would provide generous increases to domestic programs but bring the government's ledger back into the black, but only by letting all of Bush's tax cuts expire at the end of 2010 as scheduled.

The Senate endorsed extending $340 billion of Bush's tax cuts but balked at continuing all of them as it headed toward a final vote well after midnight.”

They also had a chance to stop more ridiculous government spending, but did the exact opposite. Supposedly both the Constitution and our Founding Fathers both found wasteful government spending as both good and a right of office.

Now I’m sure you’ll hear in the news and through debates that these tax increases are “only on the wealthiest Americans” and that “the middle-class tax cuts are still there”, that the Democrats are only trying to “help” the middle-class. Well, here’s a little fact that I found interesting – I guess the Democratic definition of middle-class is a little different from mine:

“Obama, D-Ill., and Clinton, D-N.Y., both promise to reverse Bush's tax cuts for wealthier taxpayers, but the Democratic budget they'll be voting for would allow income tax rates to go up on individuals making as little as $31,850 and couples earning $63,700 or more.”

“The Democrats' Budget Would Raise Taxes On Individuals Earning As Little As $31,850. "Under both Democratic plans, tax rates would increase by 3 percentage points for each of the 25 percent, 28 percent and 33 percent brackets. At present, the 25 percent bracket begins at $31,850 for individuals and $63,700 for married couples. The 35 percent bracket on incomes over $349,700 would jump to 39.6 percent."

I didn’t realize couples making over $64,000 were rich, but I guess they are. Maybe I forgot that we don’t have any inflation in our country so that $64,000 will go much farther today than it did 5 or 10 or 15 years ago. Sorry for the rant - basically, it sucks right now to be a free-market, limited-government conservative in our country.

Let’s try to end this on a positive note. Given the sad state of affairs right now in terms of the integrity of the stock market, the Federal Reserve, and our government in general, I would suggest trying to not think about of these things for the weekend and enjoy yourself. Right now, the market is giving many people headaches and there is nothing wrong with stepping away from things a bit. Luckily for me, we’re just entering three of the best weeks of the year for sports fans like me, with March Madness starting Sunday with the release of the brackets. I have been enjoying the Big East tourney the past two nights and would love things to continue my team’s way Friday and Saturday as well. We shall see. Good luck next week.

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