Stephen T. S.

John Hussman: We Need Government Coordination Not Money

More and better government coordination as well as intervention are obviously needed given the worsening global financial crisis. The U.S. Government has no choice now but to continue pouring money into weak banks like Citigroup and Bank of America to keep them afloat because having them go bankrupt would be even more catastrophic. The U.S. Government will take more equity in some select weak banks like Citigroup and Bank of America as it gives them more money. One of the U.S. Government's goals is to prevent the bondholders from getting wiped out. The U.S. Government will get the extra money for all the bailouts by printing it, which it is obviously doing now, and this will eventually result in the U.S. dollar decreasing in value and causing inflation after the current deflationary phase is over. I never thought that I would see the day when socialism rescued capitalism but that is exactly what is happening now because so many politicians on both sides of the aisle and so many Wall Street "geniuses" made stupid and self-serving decisions. The most pathetic part of this is that capitalism needs to be rescued by socialism! My prediction is that equity prices will continue to decline for a while. Eventually we will reach a bottom and from there things will slowly improve. Unfortunately, we are a long way from the bottom. The good news is that the U.S. Government has prevented a complete collapse of the global financial system, which almost happened in the fall of '08, and I think that the U.S. Government will be able to prevent a complete collapse of the U.S. financial system in the future. Furthermore, I think that the U.S. will be one of the first countries to find its way out of this financial mess. An important question is: where is the bottom? A few will make a fortune by calling it correctly but most will lose a lot of equity by investing too early or will lose out on a lot of equity appreciation by investing too late. There is no question that the global financial system as we have known it will never be the same again. An example of the change is that we will never again have a lack of regulation which was valued and implemented starting with Reagan. It was extremely naive to think that the market would self-regulate. Self-regulation is inconsistent with the basic nature of man. Left to his own devices man does not behave well as every realist knows. As an aside, this global financial crisis will forever change how each of us lives but perhaps that is a topic for another day.

Four Commonsense Clues to a Genuine Market Bottom

I think we are a long way from the bottom. I anticipate that the bottom will occur in early 2010 when the S&P is at approximately 425 points. Many false bottoms will be predicted before the actual bottom occurs and millions of investors around the world will lose a lot of money when buying what they think is the bottom only to discover later that the true bottom was much lower. In this black swan economic disaster, the bottom will occur when most of us will have more important things to think about than where the bottom is.