Government to the Rescue Again

The government has stepped in again after a chain of bailouts that included companies like AIG, Fannie May, Freddie Mac, and others that totaled about $180 billion. This time a report has said that the federal government is going to create a government entity take on bad debt from banks . After this report broke the Dow rallied over 400 points. The market has been extremely volatile this past week as the Dow went down and up by hundreds of points, just the past two days down 400 points and up 400 points. Our markets are in crisis mode and it looks like the government needed to step in to settle things. The government has stepped in multiple times now and my question now is are we solving the fundamental flaws of our financial markets or just covering them up?

Here are my 2 cents on what’s going on:

• I really hope we’re not covering up these problems and expect the government to step in every time there’s a crisis. There’s a problem with the system that needs to be fixed.
• There’s going to be good and bad times but this may signal a great time to buy stocks. There are great stocks that have been beaten down for no reason other than fear that rules the market, like some tech stocks that don’t even work off credit for example.(aapl - 134.90, rimm - 98.18, msft -25.26)
• The world markets look to be slowing and I think the US market was ahead in the slow down so the US should be the first to come out of the slump. If world markets slow I can also see money flow into the US markets.
• There are great stocks out there and if you’re in it for the long term with a good company I think it will be ok.
• If the recent dramatic drops show anything it may be a sign of a possible bottom. I’m not picking a bottom, but I personally think if you pick some good companies and buy in small portions there may be some very nice returns.
• Energy prices have a gone down significantly that will help company expenses.
• It sucks if you recently pulled your money out earlier this week cause you’re probably going to lose a lot of missing the rally that’s going on now. It was bad this week after Lehman Bros. filed bankruptcy and AIG announced it needed restructuring. It was really bad this week and I didn’t know what to do and really thought my portfolio had a chance to go to 0, but I thought I had to wait for pop before I get out.(DOW - 11,019.69 | Nasdaq - 2199.10 | S&P 500 - 1206.51)

These are my personal opinions and I’m in no way giving advice to anyone. If I’m right and buying stocks now may be very rewarding, but there are still many problems looming from the housing market and finding the future of energy. At some point the housing market has to turn around, banks will be lending money again, and our economy will be flourishing again. I really trust that the government needed to step in to prevent a catastrophe, as much as I don’t agree with it because there were obviously problems that were just overlooked that brought us to this crisis. When we see people taking out 50 year mortgages when they’re like 40 years old, why didn’t we see this crisis coming? Let’s not get into a the cycle of letting problems get out of control then beg for a government bailout.

I’m Bearish

I don’t want to say it but I am bearish right now on the markets and economy. Right now there seems to be too many problems and unknowns.

I don’t think anyone likes the R word Recession, but we may already be in one. The most recent U.S. recession was from March 2001 - November 2001 defined by The National Bureau of Economic Research, or NBER. I don’t really have any memories of the effects of that recession, but if we do go into a recession I will be paying attention. As a business owner I am very interested on how it may affect me and my company. As an investor I don’t want to lose money in the stock market.

Reasons why I’m bearish:

• The housing market still hasn’t bottomed
  • I think foreclosures will still be on the rise because people bought houses that they just can’t afford even as rates get lowered.
  • Home values decline will equal less spending using home equity
• Credit problems still exist
  • It will still be hard to get credit
• In the 4th Quarter, the economy grew at a measly 0.6%

I’m bearish but I think we will be in a stagnant economy and stock market more than anything. The fed is actively cutting rates with the global growth story, and an U.S. government stimulus plan will counter act the slowing economy. That’s why I’m leaning towards bear or sideways market and economy. Until some of those problems above become more clear I will be bearish.

If we are in a bear market right now, it sucks, I had a decent return in 2007 and I’ve lost in all in a mere 3 weeks to start this year. Patiently and optimistically I plan to capitalize off the stocks that have been oversold in the next few months. I hope to do the same with real estate market as I keep watching it fall and it may just be perfect timing for me at this point in my life.

Hopes to stimulate the economy the government will be giving a tax rebate, which I don’t think does anything because it will only look good for a quarter. Anyways I’m looking forward to the getting my tax rebate, but I really don’t know what I’m going to spend it on. I may spend some and use some for my bills.

What are you going to do with your tax rebate check?