Monday, December 1, 2008
(Cont'd from above)...

Jim (cont'd):    Yeah, we got some genuine positives... I know, down 680... like someone should even come out here and say a positive...

But it's a new position for me... I actually think that the government's doing something right... and it's aided by the fact that everyone is now negative... I mean, so look... after a day like today, it takes your breath away right?... And, if everyone's negative, it makes me a tad uncomfortable to be the biggest bear in town...

Let's see what happened since we were last at these levels... The government finally started buying Fannie Mae debt and Freddie Mac... causing mortgage rates to plummet, and refinance rates to jump... The Federal Reserve is buying $500 billion worth of mortgages from Fannie and Freddie... Hey, that was a plan that I actually suggested almost a year ago... They scoffed at me. They ain't scoffing now.

The government's also giving guarantees to people taking some risk to buy asset-backed bonds... like those made up of credit card debt and student loans and all that other stuff... And also, they're backing some debt issued by solid banks and brokers...

Best of all though... Boy, I never thought I'd say this, but I'm about to say it... was the government's investment in Citigroup... the first time we've taken the right approach in the financials, by not trying to be too punitive, and too Draconian...

Of course, we should expect vicious profit-taking... like we had today, after the biggest... Come on, it was the biggest weekly gain we've had in thirty years!... Virtually a 20% move overnight... however, I think when we get back to the Dow 7000s... guess what... uh huh... we've got to do some buying...

What makes this thing better this time, if we have to get that low?...

You've heard over and over that the government's already spent trillions of dollars on bailouts and guarantees... all to no good effect... That's the accepted narrative... and I find that narrative a joke, as well as a canard... The truth is that, so far with a couple of exceptions, there have been no bailouts...

No bailouts?... Have I lost my mind... again?...

How about TARP? What about all the loan guarantees? What about all the money the Fed has poured into the system?... What about $4 trillion in investments and loan guarantees made by our government?... Do you know that none of these things have been genuine bailouts?... In fact, the government's fear of being accused of bailing out firms has been the largest obstacle to fixing this financial crisis...

Now, the press wants to call all of these "bailouts"... good in the headlines... but let's think about it, just for a second... give me a second here... What's the definition of a real bailout?... It's something where the U.S. government is supposed to lose, and private enterprises with bogus business models who don't deserve anything, get to win. A bailout is when you give money to companies that we all know will lose tens of billions of our dollars... like I'm betting will happen when the auto companies get their big dough without any big givebacks by the unions... That's a bailout!

Virtually everything we've done so far is the exact opposite...

Mark my words... The U.S. government and we the taxpayers will make money on virtually everything that's been done so far. I'm the only person in North America who says that... I mean this...

That's why Bank of America and Wells Fargo had to be strong-armed into taking TARP money... because the terms were too Draconian for them, and too good for the government...

This is the great untold story of the last three months. With the exception of the money we've thrown into the rogue outfit known as AIG, we've done nothing that qualifies as a bailout. The closest we've come aside from AIG, is actually get this... I'm about to say this... well thought out investment in Citigroup, where we actually did something benign and positive for investors who poured money into this company, and decided not to punish the shareholders. We, for once, left room for upside, so it made sense to invest...

But, looking back, it's clear our government has been so afraid of being accused of bailing out anyone... so terrified of moral hazard... that it's done more harm than help. Before Citigroup, we were seeing shutouts, not bailouts... The Feds were so worried about no one winning, that they made it impossible to invest in any of the financials, for fear of it being called a bailout... which were in fact heavy-handed confiscations of your wealth... That's right, confiscations of the wealth of investors who'd really done nothing wrong at all... Look at the record, will ya?...

The government wiped out the Fannie Mae and the Freddie Mac preferreds... their first big mistake... because preferreds are the principle way banks raise capital... It's not like it's a bailout to you... then it blasted Lehman out of the water, saying it had no authority to save it... Oh... they wanted to avoid moral hazard, even as their actions caused more and more systemic risk. Letting Lehman fail was the equivalent of saying, "We're willing to have another Great Depression to teach people a lesson"... the same Laissez Faire anti-interventionist attitude the British took toward the Irish potato famine in 1847.

Of course, Bernanke again today claimed he had no authority to save Lehman... then, the next day, they saved AIG... where they had no authority whatsoever... unless the law changed overnight, which it didn't. They have done so much without authority that this alibi is simply laughable.

They pressured Washington Mutual and Wachovia to sell, trying to cancel most of Wachovia's preferreds... the failed merger with Citigroup... As it turned out, Wachovia was solvent. Wells bought it without any government money or the cancellation of any preferreds...

Does this look like a government that's in a bailout mode to you? It sure doesn't look like it to me...

Finally, after all of these mistakes, these inconsistent reactions that roiled the market and made the financials untouchable, they did the right thing with Citigroup... so that, if you invested along with the government, you actually made money for the first time.

Here's the bottom line...

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The Bottom Line!:     Look, I'm not saying that, if you prick the bankers, do they not bleed... if you poison them, do they not die... but the bottom line is, today's selloff is a buying opportunity to purchase defensive stocks and the accidental high-yielders you should have sold last week... as we go back to levels near the lows of two weeks ago, because our government has finally stopped confiscating shareholders' wealth... your wealth... and is, instead, allowing you to invest profitably alongside with them.

[verbatim recap]

Read Jim's next Segment here