RSSBailout or Bailing Out?
By Jim Farrish | October 09, 2008 | 4:27 PM | 0 Comments
The response to the bailout has been pretty much in line with my expectations. The Paulson comments yesterday showed what Congress was worried about. No direction. The longer all of this takes the less confidence there is in a near term solution. The timeframe for the turnaround continues to get stretched out. This leaves me as an investor less and less confident of any impact from the move by the government short term. The long term benefits will be nice as the order is restored to the financial markets, but in the short term it makes me want to be short versus long this market.
Today Paulson stated the Treasury is actively buying stakes in banks. And we wonder why capital markets are falling? This rings of socialism. The bailout of $700 billion was to buy troubled assets and to improve the balance sheets for banks. Now the administration is arguing they have the power under the bill. This needless to say is going to get interesting.
The safest place to be is short it seems. No matter good news or bad the markets have yet to bottom. The aggressive selling heading into the close is evident of that fact. This is why I have continued to urge investors to hold cash. Mentally it is counter intuitive to our thinking, but the markets aren't exactly acting normal. Stay focused on preservation of capital so when this is done you have money to buy back into the market. This morning I heard one analyst state the market looks so cheap, but then it can always get cheaper. Patience.
Sector Trends
Picking up on some of the continuing thoughts from the podcast this week. Banks, which bounced back yesterday, I hope you enjoyed it because Paulson's comments referenced above sent the regional banks down more than 12%. Banks were down 10.6% and insurance was down 12.8%. This fear factor is back and it is has the bailout to thank. What was intended to help the sector his hitting it between the eyes.
Energy was down more than 10% today continuing the decline. Crude was down 2.6%, but the emotions attached to the global economic slowdown is taking its toll. Good news is UNG (NYSE: UNG) was up 0.3%. Basic materials has followed the energy sector lower as well giving up another 6.8% today.
These moves to the downside in one day are the type of numbers I am used to talking about for 3-9 month periods of time in bear market. The VIX ($VIX) spike to 64 today as the volatility continues to rise. The trend is down and nothing seems to be in line to change that outlook. Stay in cash and wait this out. Even a bounce higher tomorrow won't seem positive at this point.
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