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Happy Thanksgiving

Just a quick note for the  day as I'm off with family.

Yesterday was great and we ended up 60:40 bullish as we held our levels (surprising all of us) and we have more evidence that the rally is real as international markets are up across the board despite a terrible terrorist attack in India (that market is closed today for the emergency) that has left 100 people dead and hundreds more injured.  It's been a while since terror was our top concern but it's a stark reminder that, even at the best of times, we need some disaster protection in our virtual portfolio.

The VIX came down hard, breaking below the 50 dma and that's what we like to see accompanying an up move in the markets.  We still have a long way to go to get to "normal" volatility levels, around half of where we are now but we can certainly be thankful for this week's market move, which seems to have done a lot to restore investor confidence.  Whether this is a real bottom or simply a bear market bounce remains to be seen but we just had a 20% up move in the S&P off Friday's low – that is close to 3 normal years worth of growth!  Of course that is small comfort to people who's virtual portfolios were ravaged by the downturn but we need to keep things in perspective and manage our expectations.

My expectations were that you can't spend $7.8 Trillion (that's $7,800,000,000,000) without somewhat stimulating a $13Tn economy and here's a great chart that shows how your tax dollars (and it's over $70,000 per taxpayer) are being spent.  To be fair, it's not really "spent," just committed, as the government is: 

  • Insuring $3.1Tn in bank debt (like C's $306Bn of loans and securities), money market funds, FDIC accounts and up to $200Bn of FRE/FNM losses.
  • Lending $1.7Tn under the TAF program (low interest, short-term loans) and TALF (aimed at business investors) as well as through the discount window.
  • Investing $3Tn, half of which is in the commercial paper market plus the infamous TARP with "only" $600Bn used to buy mortgage-backed securities.  This is, of course, the stuff NOBODY wants and the government is buying the dregs of the dregs.

It is kind of amazing when you consider that there are less than $20Tn in total mortgages in the United States and the sum of all those mortgage payments is $1.5Tn per year and less than $300Bn of those are even behind on their payments – let alone in actual default.  Logically, if the government took the same $7.8Tn and just paid off everyone's mortgage for the next 5 years – none of this other stuff would be necessary.

There is still time to change the direction of these bailouts.  "Only" $2Tn of the money has actually been committed.  If the government would just step in and reduce everyone's mortgage by 50% for 5 years ($3.75Bn) and pick up 100% of the loans that are in default ($300Bn a year) while they work people out of the homes they can't afford and put people who can afford the mortgage (with the 50% reduction) into the homes, we could then raise the mortgage rates 10% a year for the next 6 years until the American homeowners are back to paying their full mortgage.  The total cost of that plan would be $6.4Tn, even assuming we pick up the full $300Bn of delinquent accounts for 3 years.  That would give America 10 full years for the housing market to turn around at a cost of $640Bn a year and that's a bailout package we could all be thankful for!

I know Obama is looking for a Housing Secretary… Put me in charge and I'll have this whole thing sorted out by next Christmas!  Meanwhile, enjoy your holiday and let's remember how great it is to live in a world where so many good things are possible.  When the people are willing and the leaders are capable, we can accomplish great things and I have faith that this crisis too shall pass.

Thanks to all of you for being here during this difficult year.  As Abraham Lincoln said: "The better part of one's life consists of his friendships" so let's keep that in mind along with the old chestnut "You can choose your friends, but not your family," which will be appropos as we sit down this evening to give thanks for both!

Have a very happy Thanksgiving,

- Phil

 


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  1. Phil
    Happy Thanksgiving.
    Any ideas for commercial real estate shorts?   Or commercial properties?

    Gobble Gobble


  2. so the people who decided to rent during the housing bust, what happens to them in your mortgage bailout plan? Since we are just giving money away, why don’t we give every man, woman and child the exact same amount and let them spend it where they will (think of it as a reverse flat tax).
    Don’t get too rosy on the economy – keep in mind how long homeowners were cashing in on their "increasing" home value through re-fi’s and other malfeasance that they then used to elevate unsustainlable levels of spending. Add summer $75 gas fill-ups and your average consumer has basically followed the BDI over a cliff, and we are just seeing the very begininng of this.
    Coming on top of this is an unprecedented fiscal financial dump by the fed, with "trillion" being thrown around like errant swings at a pinata without one damn good explanation of how this is going to be paid for, and what some of the potentially ugly downside scenarios might be. Like the Iraq war – it’s another "keep you mouth shut because we know what’s good for the country and you’re not a Patriot(R) if you question your civilian elected leaders" type moment – except Iraq only cost half a trillion and this is now 14 times that. And if you thought a $10T national debt was a big deal in the end of September, I have bad news for you now ….
    Don’t even consider that this country pissed away 10 good years of super cheap black gold that could’ve been spent making 70-MPG diesel hybrids and laying dedicated rail along freeways to make way for a truly remarkable 300 kph rail system that could pick up the slack of, say, $4-5 gas prices, which were unforseen by everyone. Well at least everyone who’s goes to work and gets paid to forsee such things – the rest of us call this inevitability. No, the last 8 years was spent trying to figure out how to create larger and more-outsized margins on bigger and cheaper crap that people spent more of their fake re-fi money, like Hummer H3′s and particle-board mega-mansions. Ari Fleisher summed up the Bush administrations take on a little self control and pre-emptive, predictive action, that so succintly defines the heart and soul of the reasons for the existance of the exact disaster we are no facing: "That’s a big no"


  3. I liken the money being thrown around to the same kind recklesness that got us into this mess.  Greed on Wall St. that ‘trickled down’ to Main St.  Everyone wanted more without thinking of the consequences.  Same thing now.  No one wants to feel any pain.  And they think if they just throw enough money at it they can limit the downturn.  I don’t buy it.  And I also don’t think we can get out of this mess by throwing more credit at people. It’s not the lack of credit, it’s the lack of credit worthy people who want to spend.  We consume too much.  We don’t export enough.  It’s an unstainable course.  Why is this not evident to more?  The thought of having $70,000 per taxpayer commited to try and forestall the inevitable makes my blood boil and my stomach sick.  I am a fiscal conservative.   I live well below my means.  Until there are more people like me in this country… we aren’t going anywhere.  The party is over.  Quit bankrupting my country to save some rich people’s asses.  The fox is guarding the hen house.  And we’re in trouble.  This is the bearest of a bear market rally and not even close to the bottom.

    All that being said, I am grateful for what I have and only want the best for my country.  That’s why I feel so sick about it.  We have turned into a bunch of p*ssies and can’t take bear the thought of sacrifice anymore.  We want a pill to take care of our pain and maladies.  We couldn’t manage our personal debt.  And we can’t manage our Federal budget.  We need to reinstate the Stiegel Act.  And learn to live within our means.  Only until then will righteousness return to America.  And with righteousness, prosperity will follow. 

    ..ok, no more wine for me.  hiccup.