Thursday Outlook: Commodities, Emerging Markets

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I really didn’t want to post today since it seems futile given impending news and associated fireworks. But someone put a gun to my head and said, “Do it or no cocktail hour for you bub!” So the deed is done and now I’ll have a beer thank you very much.

Buffett is drinking coca cola out of a champagne glass tonight while no doubt trolling for more victims. Am I jealous? You bet!

This entire bailout episode has many including me pretty upset. One thing is that it’s revealed to some and reinforced to many skeptics how dysfunctional our government and politics have become. Money and power is the name of the game in DC.

No doubt there will be a deal of some kind. Then we’ll see if they sell the news like they did last Monday before the last so-called deal failed.

But investors are ignoring the real economic and earnings news while focusing exclusively on a bailout. That will come back to bite those that ignore reality I should think.

Have a pleasant evening.

Disclaimer: Among other issues the ETF Digest maintains long or short positions in SDS, QID, SIJ, SMN, SDP, IEF, GLD, DGP, EFA, EFU, EEM, EEV and FXI.

Comments

[fatcat:]

Thanks a million....er...thanks a thousand,David....may be thanks a hundred next week..

2008 Oct 02 06:23 AM

[unfaire:]

The situation we are in can be described as we American collectively are having too much debt. The teaser low or no interest loans lured us to buy the houses we cannot afford or take out secondary or other mortgages with the inflated prices of our houses. There is an estimate that the aggregate of the mortgages is 20 times the $700 billion rescue package or $14 trillion. We are also bombarded by the banks to charge on our credit cards more than we can pay back each month. The result is we together also have $2.5 trillion on our credit card balance.
The U.S. population is about 300 million with about 100 million families. Therefore, on average, each family is in debt for about $175,000. Suppose the average mortgage annual interest charge is 7% and that part of interest comes to about $10,000 a year per household. The interest on credit card can be as much as 20% a year and that part of interest comes to about $5,000 a year per household. The median annual household income is about $50,000 BEFORE TAX out of which each household is paying about $15,000 just for the interest charge. This is simply a untenable situation. More than half of us are under crushing pressure of this debt and many have already or will go bankrupt sooner or later.
As we get behind in our payments, the underlying securities become worthless and the banks owning them go belly up. As we cannot borrow and spent any more, businesses also go down. This is where we are today.
We are going to see a slower household spending and business growth if not some regression of both of them in the immediate future. This is unavoidable. We American have been living beyond our means and we have to put our financial house both private and public in order. This is going to take a long time. Perhaps there will be a recession first and the inflation afterwards. We are already in a recession. We do not know how deep it will go. Inflation is inevitable because without it we cannot wipe out all this debt crushing on our shoulder. We will be out in the clear when we look at half-a-million dollar houses as very cheap just like we now look at fifty-thousand dollar houses of thirty or forth years ago as so cheap that we can pay off the mortgages very easily. I bet many of us have done so and hadn’t succumbed to the lure of second mortgages and those are the financially prudent ones and who can weather the current financial storms.
So, what is this bail out about? Is it going to help any? As I just heard over the radio, someone said what the congress is facing now is between a bad bill and no bill at all. It is a clear choice: No Bill.
The consequence may be an immediate disaster in the financial market. However, after that, I hope the people who are in the position of directly affecting the politics and policies will hunker down to face the reality and do some things toward addressing the real problems of today. That would be a right step.
We are in a long haul regardless of whether the bill will pass or not.

2008 Oct 02 06:49 AM

[Sidj:]

This year Buffett has been saying that the slowdown would be longer and deeper than many people think. If he's right (again) then we still have a long way to go. He's also been calling for higher inflation and a lower dollar over the next several years. Want part of his sweetheart deals? Buy some Berkshire Hathaway.

2008 Oct 02 08:09 AM

[corley10:]

Since Warren is getting a sweethearts deal, is it time to buy brka?

2008 Oct 02 09:05 AM

[buyitcheap:]

Any thoughts on all of the swaps that are supposed settle next week - something like a trillion? It was in ft.com - it seems as though if those auctions do not go well and there's even 5-10% defaults that will be enough to trigger a pretty big sell off.

2008 Oct 02 09:16 AM

[Yankee Runn...:]

Thanks for the link to the SEC website the other day, this stuff really opens your eyes...It all starts sounding like a badly scripted cartoon. Let me see, we got to make "le petite bourgeois" feel like democracy actually is working so Round 1 in the house goes to "the people" Then quietly slip in the rule change on Marked to Market so that King Henry can make sure to rip off the taxpayer by buying illiquid lumps of SH*& at retail prices instead of what they are worth, nothing. The bill passes and everyone pats themselves on the back, democracy works, congress can work together and come up with effective legislation in a crisis and the world is saved... Or is it?. Bush is starting to look like the sage with his pronouncement last week, "This sucker could go down"

One sidebar on the marked to market rule change. When cheap fed money fueled a huge bubble and prices were skyrocketing, the banks were not complaining about the marked to market, it overvalued their assets and they were happy. When it goes the other way, time out, rule change and now we can make the US taxpayer buy up our lumps of sh$# at overvalued prices... Why is not someone going to jail? I mean after all, its just a few billion (probably about 200!) of taxpayer money.

Does anyone know a good liquor stock to invest in, I need a drink!

2008 Oct 02 10:19 AM

[A Different...:]

Dave, We'll all need a friendly bar soon. Same one our Capitol Hill Dunderheads been using since they traded in their cool aid stand.

2008 Oct 02 10:56 AM

[copper1987:]

Dave, thanks for your comments. I have made a lot of money with SDS since last week. That is why I never believe in charts and T/A but I always enjoy reading other people's opinion.

2008 Oct 02 11:29 AM