Mission Control

Investment Research for Online Investors

by John Dalt

02/17/09

The market opened under pressure this morning from sell offs in overseas markets. Concerns about the GM, Chrysler, financials, and the stimulus plan drove the market down through support. This is not a happy day. We made another recommendation on a great company in the Long-Term Portfolio today. Oil dropped, gold took off and the funk hung over market like a fog. I think the reality of OH! Bama and his merry men in congress is starting to settle in on Wall Street. Chris Dodd stuck a payroll limit on TARP bankers in the stimulus bill that was greeted with a sigh of resignation. The top 25 bankers at each of these institutions may face claw backs on bonuses paid last year!

Financial Times reported last week that the U.S. Mint sold 92,000 ounces of gold in the form of ‘American Eagle’ coins last month.  That is four times the quantity sold a year ago. 

As you may recall I sold my position in financials last week at a loss because I had lost confidence in the Treasury’s intentions. I surmised that they were either incompetent or the true intentions were to cynically destroy the markets for their own political reasons. The New York Times had an article last week about this same time along these same lines. I found it this weekend. Geithner prevailed over “top administration aides who wanted to replace bank executives and wipe out shareholders at institutions receiving aid.” The ‘top administration aide referred to is David Axelrod, he was OH! Bama’s top campaign strategist during the election. Now he is trying to dictate wiping out shareholders if the bank gets treasury guarantees. The surprise is I agree with him, but for different reasons. 

TARP should never have been done four months ago.  Citi, B of A and others should have gone into bankruptcy, along with GM and Chrysler.  The shareholders should have been wiped out, good companies would have moved in to take their market share, make good loans, build cars, hired their people that were on the unemployed.  Once you start the propping up, when do you stop?  These companies are like walking dead.  The government continues them for political purposes; continued employment for union members, dictating loan terms and write-downs on mortgages.  This nationalizing of failure is a way to shift the cost of their political aims to the states and areas that did not participate  

in the stupidity of the real estate bubble.  Would you like to read how to spend 792 billion? You can read all the gory details here, get a hot chocolate.

Would you like to hear a Democrat apologize for failure? In testimony before the House Ways and Means Committee, “We have tried spending money, we are spending more than we have ever spent before and it does not work. I say after eight years of this administration, we have just as much unemployment as when we started….and an enormous debt to boot.” Don’t you wish OH! Bama would read the testimony of Henry Morgenthau, Jr. Treasury Secretary for FDR? This testimony was in May 1939, unemployment was above 20%, six years after the NEW DEAL’s inception.

GM and Chrysler have to present their survivability plans today to the government. The UAW walked out of talks this weekend, and bondholders do not want to take thirty cents on the dollar. It seems everyone is playing chicken. I do not see OH! Bama letting them slip into bankruptcy since it would kill the unions, judges could throw out contracts and void retirement contributions. His administration may talk tough, but this would be a slap the unions would not forget. Moreover, not a very good advertisement for unions if card check is approved. I can see the ads now, vote for a union so we can all lose our jobs and retirement!

The market closed with the Dow at November’s lows and SP500 through support and 40 points from the low set on November 20 With the equity market falling, investors rushed back to bonds, dropping the interest rates. If you are a trader, hold on. If you are an investor, get ‘em while they are on sale, the first whiff of a recovery and we will have to call mission control. 

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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