The political and financial reputation of America is sitting on a slippery slope of disaster. Relief checks are out. Gas prices are shooting through the roof. Home prices are off some 10% - 30%. Financial firms have still not revealed their true losses. And of course I have saved the best for last, a political fight of biblical proportions is a brewing. God this sounds like the makings of a blockbuster movie! To bad it is real.....
Can it get any worse? Oh yes. One of my favorite analyst, Bill King, just released this little note:
"
Because the US financial system did not implode when Bear was rescued, people assume all is well in the credit markets and financial system. This is a gross miscalculation. The Fed proved this last Friday when it expanded its record credit-creation gimmicks and loosed collateral standards to a new all-time low."
Better yet how about this quote from Morgan Stanley economist Richard Brenner:
"The economic fallout begins: Financial turmoil peaked six weeks ago, but the economic downturn is only beginning. It’s still a recession, in our view, and that’s no longer in the price. Indeed, reflecting higher energy quotes and slipping growth abroad, we see weaker US growth over the next few quarters than we did a month ago..."
It is safe to assume a couple of points of financial interest. Are we done with the fall out of the banks? No way man. We are just at the top of this giant wave getting ready for the ride of our lives. My opinion is that we will see one of the majors like Wachovia, Citigroup or B of A take a dive. B of A is prime for failure with the Countrywide bailout on their books. A closer look at the banks shows that they are dealing with unresolved uncertainty, consumer loans cracking, commercial headaches, less lending and shady swaps.
Our government can't bail them all out. Again, this is a capital market. You win some and you lose some. Banks and investment firms are going to take a beating. Can we see a collapse of the banking industry? This is a tough one. With the savings rate in the USA at a negative and the IMF rate at .5 and a deficit blowing up, well, you get the picture.... It ain't pretty.
And let's not forget the politics of the USA. Many of my friends tell me they are scared that Obama is going to win the elections. Hear me know and listen to me later, he will not win. McCain will take the White House and the Democrats will take the House and Senate. Fine by me. I really thought that Hillary had a shot but her opportunity is over. I am fine with McCain in the White House. We will continue to have 4 more years of conflicts overseas, government spending will increase for the conflicts, my stock recommendations will continue to go up (See my 2008 Stock Picks) and we will see the most veto's ever recored.
My only concern with the coming elections is that Obama might have a shot of winning the popular vote but will lose the Electoral Collage. (Do you know what the Electoral College is? http://en.wikipedia.org/wiki/United_States_Electoral_College). If this event happens I predict we will see a lot of America burn to the ground in riots and civil unrest. If you study your Roman history you will see the past is living again today in the USA. Scary times. I can only hope that we solve our differences within the parties now before this happens. My bet is that we won't solve the problems and we will have to battle for change. As a side note, if this happens all of you who support the ban of guns in your home will be changing your minds very quickly.
I hate to be so bleak in these times. Our government has failed us. Our banks and investment firms have failed us and now we have to let the capital markets run the course of correction. Is there a chance to stop the correction? Tough to say. There has been talk of opening the discount window for a "lengthy period" and having to raise taxes. I think the only way to head off a major correction will be by the raising of taxes and heavy government regulation in the banking industry. But this time it will not be the rich that have to pay more in taxes, it's going to be everyone one of us. God this is going to be a good movie one day!
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