prudentinvestor

Weekly Street Sentiment: ‘Benefit of the Doubt’ Rally Continues for 14th Straight Week!

"... and as long as optimism reins, the rally will continue simply ..."

You rein in a horse to stop him. Kings and Queens reign. I suspect you meant to write ".... optimism reigns.....".

Preview from Europe: Markets Dismiss Stress Tests and Crack 900

"On the latter, the aggregate sum looks easily within the bounds of the deep pockets of Uncle Sam, and thankfully so ...". Apparently, the uncle has very deep pockets for banks and pork, but not for honoring obligations to creditors.

When socialist countries nationalise companies, they usually assume their debt, and in some cases even compensate their equity holders (to some extent). Venezuela just did that with their national phone company. Egypt did that when they nationalised their canal in 1956 (but was attacked anyway). And the list goes on.

Here, on the other hand, Uncle Sam is in the process of nationalising the auto companies for the benefit of the UAW, and without assuming their debt, let alone compensating their equity holders.

I can already hear dissenters saying "... but the auto companies are only being nationalised because they're bankrupt ...". So, how come the banks are not being nationalised? Indeed, if Uncle Sam were to "invest" in the auto companies one quarter of what he has poured down AIG's conduit to the "sound banks", the auto industry would survive until the next upturn.

However, it appears that rather than "wasting a good crisis", the auto industry is being nationalised for political reasons, and without honoring its creditors. This is an ominous precedent for the bond markets.

Close to the End of the Selling Cycle

There are some investors who have legitimate concerns that many stocks may not recover for a very long time due to the changes in consumer behavior and global economic balances. For instance, who is to say that AXP card holders, some of whom are being paid to just "go away", will resume spending (and paying their bills!) in anything like the past decades? In the case of BA, who is to say that global travel will return to the overheated excesses of the past decades, in which "Joe Sixpack" hops on coast-to-coast flight for a weekend out? Additionally, both these companies have balooning pension liabilities.

So yes, the stocks are at multi-year lows, but perhaps for good reasons, and perhaps these reasons are not going to disappear soon.

Monday Outlook: Earnings - Or Lack Thereof

Congress and President Obama need to address, and possibly recover, bonuses paid by financial companies after they already knew they were insolvent and will have to be bailed out by the public. If the news reports about John Thain's actions at the end of 2007 are correct, they imply that he personally decided that he had the right to disburse billions of taxpayers' funds.

Bailout Accountability: Something's Rotten in the Treasury's Kingdom

The bailed-out banks should have been given the same oversight that the bailed-out auto companies are being subjected to. While I am personally against all bailouts, if we really have to do them, at least we should avoid double standards.