I see a few problems, including the short sellers and the lack of liquidity. People can not borrow money to buy stocks. If you do not have to sell for a year, it may recover most by then; but while banks all over the world are not loaning, do not expect a quick recovery. The lack of liquidity will also affect the economy as a whole. The automakers will not be selling as many cars until people can get loans. This of course will affect the income streams of the companies, and thus the value of the companies. As people lose income this will slow down the economy. That puts more pressure on the housing market as people can no longer afford their homes.
If Obama wins, capital gains taxes will increase, thus there is less reason to buy stocks, thus decreasing the value of holding stocks. The oil exporting countries are reducing output to support oil prices, delaying economic recovery. The biggest question is which companies will survive. The lack of liquidity could strangle an otherwise healthy company. Without knowing which companies will survive, it would foolish to invest in companies.
As I ponder this, I am for the first time really worried about this. I see the market bottoming out but not recovering. It is possible we may enter another great depression. People, afraid of losing their jobs, may ask for trade protection. Already we have socialized many of the banks and insurance companies. The best thing we have going for us is the FDIC insurance, so we don't lose all our money and have runs on the bank. But with a Democratic congress and a Democratic president, I fear proposals that will not be helpful to recovering the economy.
Thursday, October 9, 2008
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3 comments:
Wow! The Dow is now off 39% from its highs, and for now, political parties are irrelevant except for both candidates shocking lack of leadership. Anyone up for a "Draft Michael Bloomberg!" movement for the last three weeks? Where's all our 'smart' Harvard/Yale pols now?
I look for it to cascade down to the 6000/6800 level before the next key level of support would be safe again for anyone to be buyers of the market.
But so far, we in the US have had an ad hoc, half-assed, on-the-fly approach to resolving the credit and financial crisis.
The smartest bailout approach to date has been the British/Swedish/Buffett approach: Inject capital at a corporate capital structure level by buying preferred stock, rather than at the balance sheet level by buying bad cassets. (Yes, it's a year late, and a trillion dollars short. Yes, this would have saved most of the firms that went belly up.
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PS: In the first paragraph, it's 'affect' not effect. ;-)
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I leave you with this gem:
Not only have individual financial institutions become less vulnerable to shocks from underlying risk factors, but also the financial system as a whole has become more resilient.
— Alan Greenspan, former Federal Reserve chairman, 2004
"bad cassets"?!!
My apologies. After 47 years, I still can't proofread myself. ha!
If Obama wins America will be OK it might even be a good time to buy stocks like Vestas, First Solar, GE, Microsoft...while they're low, if McCain wins pull all the money out of the bank and buy euros, yen, renminbi, rubles, bolivars and pesos, cause the economy will go bankrupt because the rest of the World will let it and they decide whether we tank or not, the rest of the world is just waiting to see if we elect another Bush or not... if Obama wins they won't let us tank, they want a strong free democratic America defending human rights not an oil addicted warring America that tortures innocent muslims and puts immigrant children in jail.
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