OT: This how stocks come back � government corporations paying 10 and 12%!

[artto]

http://www.marketwatch.com/News/Story/white-house-fed-step-rescue/story.aspx?guid=%7BF942EDC2%2DE975%2D4F01%2DAF6F%2DF1D7591E4526%7D'>

This should put a floor under the stock prices.

It might. But then it might not.

There is good news and bad news in all of this. The bad news is we still haven't any sort of capitulation, even as lousy as the broader market breadth is, we still haven't reached the near panic levels set back in March and January.

The good news is a capitulation isn't always an absolute necessity to form a bottom.

And there's more goods (I hope). A daily market sentiment newsletter I subscribe to combs through historical precedents using criteria based on recent market action. Late Friday night I recieved sort of an "emergency" email from them, regarding the IndyMac failure. To save some time, this is what the conclustion was after examining the other largest and/or most-publicized failures in modern banking history:

"Despite proclamations of doom at the time, these failures tended to be climactic events."

"The average return in the S&P 500 six months after these five failures was +19.5%. The maximum loss during those half-years averaged only -2.0% compared to an average maximum gain of +22.6%, more than ten times as large."

Not too shabby stuff [<)]

EDIT: Another good sign. CBNC has had perpetual bear Bill Fleckenstein on twice in the past week. This is ALWAYS a good sign, LOL

[Jeff Matthews]

This is the game called "Heads I win, tails you lose." During the past many years huge profits have been taken into PRIVATE hands by Freddie and Fannie. Now that it is turning to huge losses, the PUBLIC must pick up the tab. This has been how bankers have always operated - privatize profits and then socialize losses! It's been going on since banking was invented. In fact, you could say banking was invented to do exactly THIS.

Second fascinating point about this story. For years now, any time someone suggested doing anything for the public the answer is always "no money." Doesn't matter how small or how big of a thing, if it involves any sort of possible benefit to people, the pols rush out and scream, "There's NO MONEY! Who's going to PAY for this??" BUT.....when any private corporation, such as Bear Stearns or now Fred and Fannie, need perhaps TRILLIONS of dollars, there isn't even a QUESTION about where is the money. The money is handed over before anyone can even ask the question!! Billions at a time. Gee, where'd the money come from?

This is something we agree on as far as privatizing profits and having the public pick up the losses. I'll differ with you on the bolded sentences. There has been quite a lot spent on public benefits, and the amounts have increased at historically high levels. What was the price tag they agreed was the cost for medicare/medicaid (???) prescription coverage? Whatever it was, it dwarfs this bail-out issue. Still, your point is well-taken.

[oldtimer]

That last line strikes a chord. If they did indeed stick to their guidelines (I used to be a mortgage loan officer a long time ago) then those loans should be as sound as they always were. The problem is the sub-prime market dragging everything down with it because the securities involving them were rated way above their true risk, meaning they were over priced. The complicated packaging and repackaging of loans with different risk tied the whole market together, fueled a real estate boom, and when defaults started rolling in on over priced securities, took everything down with it at once. This has affected home prices to the point where even soundly made loans might be under water. How these people handle that situation will either help or exacerbate the issue.

What needs to be made clear is that this borrowed tax payer money must be repaid. Accountablility must be enforced. Chrysler paid us back. So must they.

[artto]

Paulson is now asking for a blank check for the Freddie/Fannie bailout. "Blank", as in unlimited, unchecked, limitless, unaccountable taxpayer dollars. Here's a riveting exchange between Paulson and Sen. Bunning yesterday.

“When I picked up my newspaper yesterday, I thought I woke up in France,” Senator Jim Bunning, Republican of Kentucky, said at the hearing. “But no, it turns out socialism is alive and well in America.”

Mr. Bunning complained that Mr. Paulson would be gone in January, while most lawmakers “will be sitting at the table” left paying the bill.

“You want an unlimited amount and some of us at this table don’t like an unlimited amount of federal dollars,” Mr. Bunning said in a particularly testy exchange. “Do you really think we can believe exactly what you are saying, Secretary Paulson?”

“I believe everything I say,” Mr. Paulson replied. “I’ve been around markets for a long time.”

“So have I,” Mr. Bunning angrily responded. “Where will the money come from if, in fact, we have to use the backstop?”

After Mr. Paulson replied that he did not think any money would be needed, Mr. Bunning said, “That doesn’t answer my question. Where is the money going to come from?”

“From the government,” Mr. Paulson said.

“And who is the government?” Mr. Bunning asked.

“The taxpayer,” Mr. Paulson said.

Mr. Paulson suggested that if Mr. Bunning did not like the plan, he should vote against it.

“I will do everything I can to stop it,” Mr. Bunning said, referring to the Treasury’s plan.

“And maybe you can come up with a better plan,” Mr. Paulson tartly replied.

Senator Chuck Hagel, Republican of Nebraska, asked why the companies’ management should not be held accountable.

Mr. Paulson responded that since the companies were in one line of business and had not been lax in their lending standards, there was no reason to take it out on the executives. "

I saw that whole Bunning/Paulson thing on CNBSC (pun intended) yesterday. It was hilarious. I was ROTFLMAO. What was even funnier is that from some camera angles, Bernake was in the background with an expression of either a "OH No Hank, don't say that, not to Bunning", or "Come on Henry, SAY SOMETHING ~ ANYTHING!!!

[Colin]

there are plenty of federal compnaies, like the TVA and the Fed, these two were created to make a market in housing finance, kinda of supply side effort to support public housing through home ownership, while on the demand side, the feds give all home owners a tax deduction, but I don't see anybody complaining about that.

[oldtimer]

Excellent colin. Even if you pay off your house, or other real estate, you get a break on state and local taxes on schedule a. A true flat/fair tax would change the fundamentals of the economy. This includes no difference in taxation for any type of capital gains, and no special municipal bonds either. That would be true capitalism and competition in the marketplace, which scares a lot of vested interests. The implications are revolutionary and staggering. Why tax land (real estate) at all? If you could make assets work for you, and only income was taxed, would you not still have the same personal incentive to acquire income produciing assets? After all, it beats working.

[Colin]

Personally, I favor phasing in a flat 15% tax over the next decade, although it initially provides an enormous windfall for the rich (but slashing their tax brackets), by slowly wiping out one IRS schedule after another. It will never happen of course, because too many doctors, lawyers, accountants, politicians, unions, corporations, lobbies, mothers and babies benefit from the existing loopholes, incentives and deductions.

[Colin]

so, I am up 40 and 50% on FRE and FNM in 2 days, keeping my fingers crossed that they don't suspend the dividend, probably won't buy more if they crash by issueing mroe stock

[Colin]

Gee, I must think the bottom is near for equities and the Obama is not even elected yet! Bought NPSP small pharma and HCKT for short term growth, and BAC, CZN and PFE for high yield now and long term growth. Although I am only playing with chump change, for a middle aged man, I have way too much in cash when so many S&P firms are paying high dividends…

[Colin]

Since March, Wall Street firms have borrowed a total of $275 billion in overnight loans from the window, but the borrowing was heaviest in the spring and has dwindled to almost nothing. The fact that it's still available, however, is what is keeping another major financial institution from going bust.

http://www.forbes.com/business/2008/07/30/fed-bernanke-banking-biz-wall-cx_lm_0730fed.html

[Colin]

this is how fools lose their money: didn’t take profits when my position doubled in 3 days, now Freddie Mac slashed their $.25 dividend to a fifth of its previous size, resulting 1% yield for me, guess I won’t be holding this stock indefinitely for its income; it is suddenly a short term growth play, hell, might even have to think about stop loss

[Colin]

I think the Fed and other bankers knew how badly FRE was hurting, even as their touted how much capital they had on hand. I forgot how much insider information plays a role in the stock market.

[Colin]

The stock market seems to finding a bottom here in the next few months, so what to ****** up now for higher values later? How about stocks that pay a good interest rate?

Actually, there are very few high yield/low PE stocks worth billions on the S&P Index that are not dragged down by the recession – weak stocks get keep getting weaker. But there are a few. Reynolds tobacco (RAI) and McDonalds (MCD) pay you a nice dividend to own them and they are either holding their own or bucking the current side-ways trend. Here are a few more to tuck away until the sun shines on the stock armlet again (after the election):

LEG, PCL, PM, BMS (Bemis, not Bristol Myers Squibb), SRE, PEP (Pepsi), MKG, RTN and BF.B (brown Forman b shares)

[oldtimer]

I would hazard a guess that that chart would be accurate for ownership of most anything mark. Believe it or not, but to get in the top ten percent the threshold is around 90 to 100 thousand dollars per household yearly income.

[Colin]

so the rich own stocks, duh, owning things and companies is called capitalism, it is how people get rich, if the rich and push stocks higher that is fine with puny ole me

[oldtimer]

Don't jive us colin you must be in the top ten percent eh? Mark's point was the same rich (and this would be the top 1 percent) can just as easily manipulate stocks down. It is truly the top 1 percent which is amazing to me, but since when has it been any different?

[oldtimer]

I beg to differ Mark. Since recorded history the top 1 percent has ruled, owned, and otherwise controlled.

[Colin]

OK, I am getting hammered on FRE and FNM, maybe I should have bought their preferred stock: “Freddie's 5.57 percent perpetual preferred shares are trading at $9.37 to yield 15.3 percent, compared with $17.99 and a yield of 7.77 percent on June 30 before the crisis erupted. Fannie's 5.5 percent preferred shares yield 16.4 percent, up from 7.83 percent on June 30.”

[johnyholiday]

Bill Gross of PIMCO "at 3.25 & 4.50 you now own a perpetual option, that could go to zero on a goverment bail out"

[oldtimer]

I can't believe you still hold'em colin. By a previous post I figured you were getting out.