Market Outlook: Bailout Vote

It has been a busy time for all of us managing investments.

The events of this week hit two subjects where we have some special expertise.  That does not mean, of course, that we will be correct, but our odds are better than most.

With respect to the so-called "bailout" vote, we expect that a winning coalition has finally been forged.  Barring some surprising new events, we expect the latest variant of the Paulson Plan to pass the House on Friday, after passing the Senate last night.

We expect that this will be a bullish event for the market, especially for specific sectors.  These include sectors that we have highlighted in our TCA-ETF reports, like regional banks (IAT).  It does not mean that traders on the sidelines should act right now.

We have Friday's employment report, for example, and that will be announced before the House vote.

There will be plenty of time to analyze how this will be implemented.  An important element is the SEC move to adjusting fair market valuation to reduce reliance on mark-to-market when the market is completely illiquid. 

We have been all over this problem, something that led to a death spiral for financial firms.  A search on our siteshows about 80 hits, with almost nothing on MSM sites until the last week or so.

Those who did not understand how FAS 157 was an important contributing cause to the credit problem are still in denial.  There will be excellent opportunities for those who grasp the significance of the changes.  More later.

For the record, this is the first time we have predicted passage of the legislation.  We shall see.

Comments

[Geodan:]

The economic/monetary engine is sick and about to blow. Paulson, Bernanke & Co. want taxpayers to pay for filling up this vehicle's humongous gas tank, even though they are the ones that drove the engine into the ground, and want for us to guarantee to get them where they want to go, and don't ask where, which rough calculations predict at least another six tanks full if the vehicle doesn't totally crap out first.

A better idea? Let them walk under their own damn horsepower and, instead, pour the gas all over the vehicle and ignite it.

This is sick. Really sick.

For a better understanding of what this is all about read the last two Ellen Brown articles at webofdebt.com/articles/ entitled "It's the Derivatives, Stupid" and "Thanks But No Thanks: What Lincoln Would Have Said to Paulson."

2008 Oct 02 10:43 AM

[secmaven:]

The house democrats who were instructed by Peolosi to vote no on Tuesday so the Republicans, who were the majority no votes, could be the fall guy will vote "yes" on Friday and the Democrats will claim that they saved this bill and thereby saved the country. Ain't politics sweet in an election year? Hail to Chief Obama!

2008 Oct 02 01:38 PM