This is huge folks. This is far greater government intervention that I ever imagined. I guess something great needed to be done and was done. What is supposed to happen when you flood the world with newly printed cash? Inflation is supposed to go up and Gold is supposed to go up? What happened today? Oil went down, gold went down. I think this is very disturbing news. Either the markets are predicting massive deflation or there is some serious manipulation going on.
Financials rallied huge today (on top of yesterday) and everything else sold off pretty hard. We effectively stamped out the possibility of massive bank failures today. However that doesn't mean any bank stock is good on a valuation basis nor does it means more profits for the banking sector. Financials must undergo a long bottoming process...due to the volatility it has been refusing to that and is looking wilder than the most wild roller coaster ride at Six Flags.
Why the heck did the Dow surge 400 points in the morning creating a massive surge in commodity stocks and tech? Why was it then followed by a vicious selloff in all sectors (the selloff in Commercial REITs were especially vicious) except for financials which closed at its high? It means that the shorts were jammed in financials, and as they began to lose huge amounts of money in that trade, they began to take profits in all their longs to cover.
This is the precise reason why I hate short jammings in financial stocks. It happened in January, March, July, September and now once again and the only thing that happens to the broad market is go lower. Most banks on a valuation basis is screaming expensive trading at 10-20x forward earnings, while everything else seems to be trading at 5x or so. What is precise healthy for the markets is for the financials to consolidate and the rest of the market to uptrend. Financial stocks are a cancer for the markets...when they go up the market goes down, when they go down the market goes down.
The federal government has indicated all things are on the table right now. We may see a bailout of GM, Ford or Chrysler and see possibly a forced merger with a Japanese counterpart soon. Boeing may need support soon as they machinist strike is killing them. Many retailers are on their last breath (Rite Aid, Circuit City, Blockbuster, Macy's and Sears [due to their extensive commercial reit exposure]).
I do feel it was necessary to help out the banks, but it shouldn't have been done in a way to reward shareholders and executives. When I saw them rally 50-120% in the past 2 days, I wasn't happy about it. I am pretty confident much of the capital injection will go straight to the pockets of Lloyd Blankfein, John Mack and Ken Lewises of the world and not one dime in loans to small businesses. We may not see another 75 million dollar year for Blankfein...but I will have my torch and pitchfork ready if he gets even half of that. Bald wall street fat cats should not be having a white christmas this year.
Retail investors need relief. I will be writing to my Senators about this proposal:
- Temporarily or permanently raise the maximum capital loss limit to $10,000. Professional traders, businesses and banks get to write off nearly all of their losses in a calendar year...why shouldn't individual investors have the same privilege? $3000 a year is a joke, it would take me 10 years to write off my losses at this rate.
- Ability for all individuals to mark to market their portfolios at the end of the year (currently only available to professionals prior to 4/15), this would reduce the inevitable tax loss selling at the end of the year.
- Allow individuals to "unqualify" the tax deferred status and write off 50% or all of their principal losses in their Roth IRAs. People invested after tax money on the premise to cash out gains tax free, not to cash out with hefty principal losses and no ability to write that off. The holdings can then be kept in an individual account, while they can get a fresh start on the Roth IRA contributions.
- Temproarily suspend all mandatory Required Minimum Distributions from IRAs, this would prevent individuals from having to redeem at fire sale prices.
- Eliminate the Roth IRA, I feel that I and most Americans have been scammed. 4 years of maximum contributions each year, and I don't even have half of what I put in. And worst of all, the losses aren't deductible. Starting next year, I may quit contribution to my IRA all together and start buying gold coins instead and say heck with this. I feel that IRAs are responsible for forcing people to invest in mutual funds, that never seem to gain anything over a 5-10 year period because fund managers are idiots. They buy when things are overpriced and sell when things are undervalued. Those who bought in 1998 probably had a loss come 2002. And those who bought in 2002 may have a loss today. And those who bought in 1998 are perhaps flat. We can't keep doing this over and over. We have had a completely dead 10 years in the stock market and 2 huge bubbles that bursted.
- Eliminate the tax loophole that allows hedge funds managers to make billions of dollars a year and only pay 15% capital gains tax, rather than ordinary income. Hedge funds are the worst type of investors. They always buy at the top, and when things go sour, they short viciously to make their money back. We were fine without them, let them go away as they and their private equity counterparts have been nothing but trouble. That should in itself reduce the volatility in the markets and increase tax revenue if they still choose to stay in business. All of these guys were buying oil and oil related stocks at $140, and at $80 they can't sell fast enough. Idiots.
- Put some CEOs in jail. I know this doesn't economically help anyone, but seeing Dick Fuld and Stan O'Neal in jail would make me feel better about losing money.
