Tuesday, October 14, 2008

Welcome to the Paulson Administration.

The most powerful leader in our country is now Hank Paulson. He is our de facto President. Just so you know.

I am not impressed by this forced bailout. We had a huge rally yesterday and will have another today, but Paulson has once again skirted the law and has little to no oversight or standards for deciding who needs a bailout and how. He's also not letting the banks decide themselves -- he's forcing them. Rather than taking a meaningful equity stake, we are getting preferred shares which somehow 1) are non-dilutive and 2) receive dividends that aren't from earnings. I always thought that was impossible. Where do dividends come from if not from earnings? The answer is that we are simply taking tax dollars to pay dividends, and I have no idea why.

Today would be a great day to sell your longs and start shorting something (in very, very small quantities). The economy will continue to be a trainwreck. It will continue to constantly surprise to the negative, and so will the earnings of public companies. I will be shorting things today. The only thing different today is that we won't have a total systemic meltdown equal to the Great Depression. We will merely have the third worst depression in the nation's history with sky high unemployment. Why that is worth a 20% rally in the markets I have no idea.

When should you start thinking about buying stocks? After election day, if Barack Obama wins. He will start a "new New Deal" with enormous infrastructure projects and unleashing the next great bubble (the Green Bubble (TM) ). That would actually do something meaningful to pull us out of a depression. $300 billion in public works is much more effective than $700 billion of bad equity purchases. Until then, things will continue to fall.

Talk of a bottom always, always means you're not at a bottom. Talk of despair, and how "it is different this time" and how the markets will never be the same and will never go up again is how you know you are at a bottom.

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