As the Sell-Off Continues, Investors Look to the Election

Corporate earnings results have trended towards the "not too bad" and "above lowered expectations" columns more times than not this quarter. However the expectations game and fears of a drastic 4th quarter slow down have stocks reeling worldwide. From Europe to Japan, the sentiment Monday morning was profoundly negative, causing a halt in Dow futures trading as contracts dropped significantly in the early hours.

At the open, American markets led off with a 500 point drop in the Dow, and while some traders have bought off the bottom, the morning was still holding to about a 400 point decline, roughly 4.5%.

Major corporations have been forced to plan layoffs, amongst other cost-cutting ideas, not only to shore up business capital, but  also to provide Wall Street investors with any type of strategic plan to try to hold down sellers. More recently it was Yahoo (YHOO) and Goldman Sachs (GS) announcing a round of firings.

As all the headlines surrounding the markets paint the gloomiest of pictures, it should be a time to make the sideline Investor think of potential opportunities. But this attitude has not worked recently. The Dow continues its slide and has dropped to 10,000....9,500....9,000.. down to its current levels of 8300. As this credit and financial crisis has expanded, it's become abundantly clear that its effects have been and are worse than anyone in the economic field imagined. The fear of the typical market participant and consumer is at an all-time high. This feeling is confirmed by action in metrics such as the Volatility Index.

As the US approaches the Federal Election, perhaps the hope of a change in policy will divert the economic fears enough to showcase a plan of action and a call for change. While Barack Obama continues to lead in most polls, running on a platform of change, John McCain still finds himself within striking distance as the race closes in on Election Day. Americans will determine on November 4th who will lead them away from these economic fears and into a future of change and prosperity.

The resolution of uncertainty and a Call to Action from a newly-elected President could be the catalyst the market needs going into the finale of a rough, tumble and volatile trading year.

Comments

[MichaelZZ:]

RESOLUTION FOR DISTRESSED "RESET" MORTGAGES:

Concepts:

1) One size does not fit all, i.e., each situation should be tailored for the borrower.

2) Responsibility should be resolved between the lender and the borrower.

3) No taxpayers’ funds should be involved.

4) A mortgagor must sign a document, subject to perjury, whereby the mortgagor states that he or she was unaware that the interest rate was to be reset. (OPTIONAL)

The mortgagor has the option of the following alternatives:

The mortgagor will be allowed to wind the clock back to the time prior to the purchase with the information that the mortgage will be reset at the end of five years at a rate to be determined and explained that the rate may be significantly higher than the rate offered at the time of purchase.

1) Can agree to the purchase and will remain with the current situation.

2) Can refuse the 5/25 loan as offered and opt for a conventional fixed rate loan at a rate of the then-current rate, e.g., 7.25% and will have all payments adjusted to reflect that loan.

3) Can terminate the potential purchase.

4) Can remain in the property, while making payments equal to 120% of the old payments for the next five years, and, at the beginning of each subsequent 5-year period, the payments will be adjusted by another increment of 20% of the original payment. The lender or agent thereof will be given a lien on the property that will be equal to the accumulation of the difference between the contractual payments and the payments being made. Further, interest will accrue on this differential at the contractual rate.

If the mortgagor opts for option 3), and there is no significant evidence reflecting that the rate reset information was given prior to entering into the mortgage, the mortgagor will vacate the premises and the mortgage will be cancelled, with no further obligation.

Any other encumbrance upon the property will be the responsibility of the mortgagor.

The mortgagor will be given a moving allowance of $5,000 (OPTIONAL).

Further, the mortgagor will be responsible for any damages done to the property.

One of the most critical factors is the business model of a CountryWide negotiating mortgages, and then having them bundled and sold as securities. That "model" stimulated the numbers, since the negotiators were no longer involved with these mortgages.


The logistics of my idea would be to have the funds consisting of two pieces (one, the payment from the mortgagor, and the second, the augmented payment from the "negotiator"... who will hold the 2nd) and the total would be paid to the "security" as a whole payment.

This would place the responsibilities where they should be, on the mortgagor and on a "CountryWide&quot.... i.e., the negotiator.

If these logistics require some tweaking, so be it.

Michael Z.
Sherman Oaks
[e-mail]
310-479-7480 cell

2008 Oct 28 09:50 AM

[MichaelZZ:]

"BAILOUT" PARAMETERS SHOULD BE ADJUSTED:

Paraphrasing Isaac:
Objects in motion tend to remain in motion, objects at rest tend to remain at rest, and to change either condition, requires energy.

In this case, the energy factor should be effected by Congress by legislating the appropriate fiscal adjustments, i.e., immediately (do not wait until 2010) repeal those portions of the Bush tax legislations for those with taxable incomes in excess of $200,000 (arbitrary, i.e., could be $225M, $230M) and legislate permanent tax reductions for those with taxable incomes under $80,000.

This will be the energy factor, which will prime the engine of our economy. The longer it takes to do this, the more problematic will be the results.

A one-shot stimulus package will not work, as the recipients will pay down debt or add to savings due to insecurities, whereas a permanent tax reduction will mean that they will see their net paychecks increase and will have greater confidence. Unless consumers increase their collective confidence and spend, the situation will become much graver.

The parameters of the first traunch/tranche of $125 billion should be changed:

1) Only those institutions who want the funds should receive, i.e., none should be coerced into taking

2) The dividend rate should be changed to, at least 11%, for the purpose to stimulate the institutions to attempt to raise capital from private sources. They would know that they have the backstop of the 11% preferreds.

3) The conversion factor should be significant

4) As in the case of the Buffett purchase of GS preferreds, there should be substantial long-term warrants

5) The "fund" should be given seats on the Boards.

6) All dividends, other than any preferred stock dividends should be deferred for one year and will be re-assessed at the end of the year

7) There should be a moratorium for any bonuses and this will be reevaluated at the end of the first year

8) Those institutions which do not accept the "fund's" requirements and eventually fail, and which will have exacted bonuses will place in civil and criminal jeopardy those recipients of the bonuses. The punishments will include imprisonments and the return of the bonuses plus substantial monetary penalties.

The common shareholders will be adversely affected (much of which has already been reflected), but that is appropriate.

CAPITALISM WILL BE ALIVE AND WELL.....................

Michael Z.
Sherman Oaks
[e-mail]

2008 Oct 28 09:52 AM

[JasonC:]

Is everyone here very stoned?

Anyone notice the 11% moonshot today?

2008 Oct 28 08:40 PM