Nov 25 Post

It was a real tug of war today in the market. We had the financials on one side and everyone else on the other. With the new bailout plan (second bailout in two days) the Federal Reserve is pumping $600 billion into a program to buy mortgage-related debt and should lower interest rates somewhat and thus spur lending and support the troubled housing market. This gave financials a boost. You may be asking where did this $600 billion come from and that is a very good question. The answer is simple….they are going to print it out of thin air. You don’t have to be economist to know that his will bring on inflation without growth…better know as stagflation.

Now let’s look at why we are here and how this bailout will fix the economy. We are here because people borrowed too much and can’t pay it back. The government’s answer to this is to make it even easier to borrow money. 50% of the reworks on mortgages are still going to foreclosure. There is a reason why David Ramsey has a show. I listen to his show every once in awhile just to laugh at how stupid people can be. Let me give you a typical caller…..caller makes $50,000 a year and thought it would be a good idea to run up his credit cards $50,000 at 20% interest, have a $200,000 house with an interest only loan and two brand new cars worth $25,000 each at 18% interest. Then he wants Ramsey to come up with a magic trick to fix this. Now the government’s answer is to print money so this caller can borrow more money. Only this time it will be for a motorcycle or a boat. This is straight out of SNL.

If anyone thinks this economy is turning around or we are near a bottom, just read the list of terrible data from this week.

Three banks were taken over this weekend. The most in one day ever.
FDIC number of problem banks has surged from 117 to 171
Bank industry income plummeted 94% (yes that is right….94%)
Import car makers are paying extra to park cars at Long Beach port
Porsche is slowing production
Nissan is slowing production
BHP Billiton and Rio Tinto merger isn’t going to happen
· Cisco is shutting down from Dec 29-Jan 2 because of weaker than expected demand
· HP is shutting down extra days in Dec because of weaker than expected demand

Does this sound like growth to anyone? I don’t think we are even close to the bottom. With guys like the Ramsey’s caller and our government feeding him the credit drug, we are going to see more pain in the market. There will be more foreclosures, repos, bankruptcies and bank failures. Unfortunately, these are the only things with growth in this economy.