http://otweb.com On The Web Blog http://otweb.com/phramework/pw/module/blog/index.php?id=883 Today, the Dow closed under 10000. Almost 10 years of gains wiped out. One of the basic mantras of stock investing is to buy and hold. And it is one that I disagree with. Sure, if you look over the long term (as in decades), stocks do go up. But, if you want to get somewhat decent returns, you've got to be a little more active than simply buying and holding. People point to the indexes (Dow, SP500, etc) and show that over the long term, they go up. I would say though that it's rigged to go up. Here are some reasons: - Bad stocks are dropped from the index and good stocks replace it. If you just keep the same stocks on the index forever, it would not go up that much. - Inflation also goes up. If you discount inflation, the results would be less dramatic. - The FED, SEC, and Treasury will do everything in its power to keep stocks from falling (banning shorts, lowering the interest rate, bailing out companies, PPT). But they will do little if stocks are flying. If the market was truly a free market, it'd probably go down as much as it goes up. What is my point? It's simply that just because the indexes go up, that doesn't mean that simply buying stocks and holding them is a great idea. The minimum strategy would be to invest in an index ETF during a bull market and in an inverse index ETF during a bear market. Sure, it's difficult to time the markets, but I think even if you had bad timing, you'd have more than 0% return over the last 10 years. http://otweb.com/phramework/pw/module/blog/index.php?id=882 Russia, Italy, South Korea, Taiwan, and Australia has banned all shorting of stocks. Source: Financial Times http://otweb.com/phramework/pw/module/blog/index.php?id=881 A very telling chart of why the FED and the Treasury have been quite worried in the past several weeks: Source: Cumberland Advisors http://otweb.com/phramework/pw/module/blog/index.php?id=880 1. Congress fails to pass Paulson plan 2. Citigroup Plans Buying Banking Operations of Wachovia 3. Biggest point drop ever in major indexes (Dow 777 point drop) 4. Dow dead cat bounce of 500 points on Tuesday 5. Senate passes own $700 bill 6. Catalyst Energy loses credit, files Chapter 11 7. Buffett $3 billion investment in General Electric 8. Financial companies borrow record amount from Fed 9. Wells to buy Wachovia for over $16 billion 10. U.S. Sheds 159,000 Jobs; 9th Straight Monthly Drop 11. Emergency Economic Stabilization Act of 2008 passes Congress and White House 12. Dow falls 157 on Friday At least gas stations here are starting to have gas now. http://otweb.com/phramework/pw/module/blog/index.php?id=879 I had already stated that I would vote for Chuck Baldwin. So, I am very glad to see that Ron Paul made the decision to support Baldwin. Ron Paul is the person in Congress that I respect the most. And he was the only person in this Presidential campaign that I've actually donated to. I didn't think Paul had a good chance of getting the GOP nomination, but there was always that slim chance. But after it became clear that McCain would clinch it, I moved to Baldwin. And I'm glad to see that Paul has followed suit. :) Ron Paul Endorses Chuck Baldwin for President http://otweb.com/phramework/pw/module/blog/index.php?id=878 1. Goldman and Morgan turn into holding companies 2. Short sale ban extended to others including GM, GE, AXP 3. Goldman Sachs get $5 billion investment from Buffett 4. Paulson plan falls apart 5. WaMu goes under 6. Southeast gas stations continues to have supply problems 7. Bill Heard dealerships shut down http://otweb.com/phramework/pw/module/blog/index.php?id=877 Most gas stations here in Atlanta have been closed for most of the time for the second week since Hurricane Ike. If a gas station does get a truck delivery, it gets sucked empty in no time by a long line of cars. Earlier this week, I thought surely it couldn't last til this weekend. Well, I guessed wrong. Fortunately, I was able to catch one station nearby with gas Wednesday and top off both our cars. We don't really drive that much, so this will last us two weeks without a refill. But I don't see how other people can do it, especially commercial drivers. Driving around, there are still a lot of cars on the road. But I have a feeling most people will stay home this weekend and avoid driving too much. Gas shortages: get ready for more http://otweb.com/phramework/pw/module/blog/index.php?id=876 - Responsibile taxpayers should not be liable for irresponsible Wall St decisions - Largest bailout in the history of any country in the world - Handing over of Wall St to Penn Ave - Other sectors and companies will also want a bailout - Moral hazard - It does not not guarantee to solve the problem - It does not address the fundamental problems (overleverged and falling home prices) - There has not been a clear case made on what exactly would happen without such a bailout - There will be a request for even more money if it does not work - Corruption is inevitable with so much money at stake - Will double the yearly federal budget deficit - Assets will be unloaded to the government above current market prices - No guarantee of any buyers after the government buys them - The FED/Treasury have never been honest about the situation. Before they say the subprime is contained, now they say that they must act soon. - The FED/Treasury have been trying many different measures for the past year to control the problem, but has not been able to. Why should we believe they can do it now? - Sounds so much like blackmail, "Give us a blank check and unlimited power by the end of the week or the whole financial system will collapse." - Bernanke and Paulson have never publicly stated that a financial collapse is imminent. - No time for a full debate among Congress - No figure given on the chance of a total collapse. What is it - 100%, 50%, 5%? - Paulson is leaving office this year. $700B can make a nice golden parachute. http://otweb.com/phramework/pw/module/blog/index.php?id=875 I thought I'd never see the day when the government could admit such a possibility. "we’re literally maybe days away from a complete meltdown of our financial system, with all the implications here at home and globally." Congressional Leaders Stunned by Warnings I watched Hank Paulson on Meet the Press and on Face the Nation this weekend, and boy did he not inspire confidence. He hemmed and hawed and couldn't give a straight answer. He kept saying if Congress did not act quickly, the "alternative" would not be acceptable. I was waiting for them to ask, "So, what exactly is the alternative?" Of course they all avoided going there. The plan would be to "invest" in illiquid assets on the books of financial institutions. And then sell them back to the market later. Come on, who are you kidding? Nobody is going to buy them later. One good question was how would they determine the price that the trust would buy them at? They said the "market" price between the buyer and the seller. OK, so the trust would buy all these worthless assets at face value that the institutions got them at and then the government would hold them forever since nobody would want them. Um, could you also buy my house during the peak price also? All the taxpayers are on the hook for at least $700 billion. And everyone also admits that nobody really knows how much it would really cost. And that's only the limit for now, they could increase that limit later. And then also admit that they don't know if this will solve the crisis. So, are they going to come up with another trillion dollar plan to bail out other companies and sectors? And I'm outraged that the taxpayer will be stuck with all this. I don't care about the suppossed CEOs that got away with millions. What I care about is the government bailing out all these companies with the excuse that if they don't then something catastrophic will happen. The government should just let the free market work. If companies choose to make bad decisions, they them pay for it, not me. The argument is these companies are too big or too important to fail. Well, if they keep on saying that the fundamentals of the economy are strong and that long term the economy is healthy, then you can't have it both ways. Either the economy is extremely fragile and one company like AIG will cause a massive collapse of the entire system or that a failure of one company will certainly cause problems but not a total catastrophe. Also I have a sneaking suspicion that some insiders are going to make a boatload of money on these bailouts. Paulson is going to be leaving in several months. Why not use his powers while leaving to provide the most massive bailout in the history of the universe and skim some of it to his friends and oversea accounts? http://otweb.com/phramework/pw/module/blog/index.php?id=874 This has got to be the most frantic week in the world of finance ever. 1. Lehman Brothers declares bankruptcy 2. Government takeover of AIG 3. Merrill Lynch taken over by BOA 4. Russian Stock markets halts trading for several days 5. Primary Fund Money Market went below $1 6. Treasury rate went negative 7. Fed accepts stocks as collateral 8. Central banks inject $225 billion 9. Treasury guarantees Money Markey funds 10. Ban on shorting financial stocks 11. Fed borrows $200 billion from Treasury 12. Discussions to create a Resolution Trust Corp 13. 1000 point drop in DOW and 1000 point rebound 14. And locally here in Atlanta, gas stations closed and prices spiked to $5.