They Should've Passed The First Proposal

They should have passed the first two and a half page proposal! Our elected representatives said they needed more time to consider such sweeping and important legislation. What they wanted was time to dress the bill up with bells and whistles that make McCain's tirade against earmarks sensible. Two Oregon Senators, one a Democrat and one a Republican, put in an earmark for the Rose City Archery Co. It's an Oregon based company that makes arrows used by children . A provision repeals a $.39 excise tax on wooden and fiberglass arrows. It will save the Rose City Archery Company some money. Thank God for our diligent legislators! This is one of dozens of tax breaks that cover Hollywood producers, stock car racers and Virgin Island rum-makers. At least the rum is important. Makes you wonder ! ( And thanks to my colleague here at Soleil, Ian Horowitz who spotted this one.)

I have been talking about estimated earnings for the S&P 500 in 2009. Jason Trennert of Strategas and I are both pretty cautious. Not as cautious as David Rosenberg of Merrill Lynch who thinks earnings in 2009 will be below $70 against the guess (and it is a guess) I have of $77. The "bottom up" number is $103. I asked around and a couple of data services that survey Wall Street strategists for their numbers says the "top down" number is $96. If $96 is correct then the market is currently trading at only 12 times. I can't see a number that robust, but thought I would pass the info along.

There have been 26 trading days since 1990 where the S&P fell by more than 3%. It has taken on average 17 days for the market to recover that lost ground ( thanks Credit Suisse.) J.P.Morgan's excellent strategist, Thomas Lee, issued a report tracking the performance of the market after the VIX breached 48.5. The VIX is a convoluted but effective measure of fear and terror in the market. There have been only four occasions when the VIX was 48.5 or higher - a sign of extreme fear. The other day's almost 800 point Dow decline was the fifth. In the prior four occasions the market was higher 1 week later by an average of 7% with no down occurrences, higher 1 month later by an average of 11% again with no down marks, higher 3 months later by 15% ( no downers) and higher 6 months later by an average of 20% ( no downs.) Records are made to be broken, but this is interesting data.

What is also interesting is that GE sold Uncle Warren Buffett a slug of preferred stock. GE a AAA rate credit is paying 10%. At least it's the same as the Goldman interest rate. But 10% for a AAA ? The credit markets are tough ! Or Warren is a tough negotiator. Or both. But GE, Citi, Goldman, J P Morgan, and Morgan Stanley have raised about $55 billion in new capital these past few days. Money is available which is why I am optimistic we are not at the end of the world. Forbes Magazine stated that American consumers have $7.4 trillion in banks in one form or another. The move to expand the FDIC insurance is a good one (maybe not as good as the Rose City Archery move, but still good), and could go a long way to bolster confidence and get the interest markets more liquid.

Comments

[schoolmaster]

I am not sure whether infusing more money as big as 850 billion dollars is a right idea. Is it not like putting more money in a tank that is leaking, without attempting to plug the leak. As a first step they should have enacted sound regulations in the banking and investment industry to build adequate public confidence. It should have started with firing top officials for their incompetnce, neglect or greediness. Any new regulations will only be as good as the people who can expediciously implement them.The people to be fired should include political appointees, and members of the allied committees in the congress and senate( if legislation is neceessary, it should be brought about a quickly as possible) . If the stockmarkets are to be temporarily frozen to bring about these changes, and to prevent further bleeding in the interim, it may be worthwhile. The important issue is how to bring about public confidence as quickly as possible. With l done the public will be like once bitten twice shy.

[sposton]

I believe the threat from this financial meltdown is real and something needs to be done. But I think the same financial interests that brought us this disaster have designed this bailout with their best interest in mind. We ought not be surprised - read Naomi Kleins's "Disaster Capitalism" for a historical perspective. If we need to pass a structural solution to this crisis then it ought to be designed with a few simple principle in mind.

1. It must be effective

2. It must protect the American taxpayer to the greatest possible extent

3. It must be fair. The greatest portion of any costs must be carried by the class that has benefited the most from what proceeded this disaster.

When designing any system it does not cost any more to design the right system than a wrong system. Either system might work but the question is who benefits and who pays! To take advantage of the crisis for further transfer of wealth from many to few is criminal. We should fire Paulson and get someone untainted with the causes of this crises. Choose someone who could be acceptable to both Obama and McCain so that there is continuity into the next administration.

[KillTheMessenger]

"1. It must be effective"

You won't be able to tell until after the fact. At this moment it's mostly crap shoot.

"2. It must protect the American taxpayer to the greatest possible extent"

That is virtually impossible. The American taxpayer got us into this mess (for not wanting to pay so much tax and for trying to get rich quick) and he/she will have to get us out.

"3. It must be fair."

Life is not fair. Suck it up.

[sposton]

"You won't be able to tell until after the fact. At this moment it's mostly crap shoot."

That's like saying I don't know if I will die if I jump of this cliff and so you decide jump to find out. While we are not certain of something we can often know there is a good probability of certain outcomes. When designing a system these are the patterns you are dealing. When I says "it must be effective" I don't mean effectiveness is an absolute certainty but a goal. This is achieved by staying away from the edge of cliffs. ;-)

The other two points are not worth responding to.

[Mattjoe]

‘The great enemy of the truth is very often not the lie — deliberate, contrived and dishonest, but the myth, persistent, persuasive and unrealistic’
- JFK

So watch this!
http://www.youtube.com/watch?v=GqIFoBXGizc

[mmckinl]

Either you are stupid or you think we are stupid ...

Give Paulson a check for 700 billion with no strings attached ?

[WIpatriot]

...could be both....or someone yanked his chain.

[KillTheMessenger]

You gotta be kidding!

I am sure you are dead serious. That the bill would be "dressed" was clear. That it would be dressed with nonsense, not so much. But what do I know about how Washington works?