Monday, November 17, 2008
(Cont'd from above)...

Jim (cont'd):    I wish I could tell you in good faith that buying is the right thing to do. I want to do the very bullish "cool jerk"... But the bad news keeps getting worse and, perversely, I see nothing but bulls everywhere... I don't see anyone coming on TV saying, you know, I'm really worried about it... it could go down a lot... There isn't a soul saying that! That's exactly the opposite of what we need to see before we can bottom.

So let's just look at some facts...

We've done a ton of bailouts, right?... This last one with the insurers buying little S&Ls (savings and loan companies) that no one's ever heard of, so they can qualify for TARP, is about as absurd as it gets.

And, by the way, the bears were all down there, giving Prudential (PRU), MetLife (MET), Hartford Financial (HIG) and Lincoln National (LNC) the business... All those bailouts seem to do was keep things from falling apart completely. The Treasury immediately backed away from the one thing that could actually help us... going after the mortgage problem root and branch, by buying the mortgages and then refinancing them... That's something we have yet to do.

If you look at private equity, mortgage-backed bonds, credit cards, commercial real estate, big mortgage bonds, we've accomplished nothing.   

Oh, by the way, I don't think we've created a single job...

We've made zero effort to unwind the mortgages and the CDOs (i.e., collateralized debt obligations)... that was part of the plan. That represents about 80% of the bailouts, because nobody in government is willing to tackle that problem from the ground up... except for maybe the FDIC, but they've been shut down...

I hear all the time about the big, so-called "tax cut"... that comes from cheaper gasoline prices... I paid $2.12 this weekend... But, when I see dismal retail sales numbers, I know that the consumer isn't spending...

Then I start to worry that, well, who the heck will lend to the retailers? Who will give them money to hold down Christmas inventory? We need evidence the economy, which started falling off a cliff in August and then really plummeted in October, has actually somewhat bottomed out... even if it means that it's the kind of bottom out that you get like this (sound of a man jumping out a window)... splat! Yeah, slams through the floor... and stops going down.

Now, everyone knows that General Motors (GM) will likely run out of cash by the end of the year and, if we let it go, well, it could break the market... it could be another Lehman... Although, if we get a real bailout for the autos, that is something that would indeed make me more positive, although I'm still not going to do the (bull dance)...

The litany of the parade of horribles goes on...

Fannie and Freddie have now been revealed to be ultimate loss making machines... None of the homebuilders has gone out of business yet... they've said they keep pumping out homes, making things even worse... AIG (AIG), which has become a $100 billion plus black hole for taking taxpayer money, sending it to hedge funds, among others, by making bogus CDO mortgage trusts... We're still haunted by the specter of Lehman... but, other than Lehman, we're still have no major bankruptcies yet... The homebuilders... are still building homes! That's what we need (sarcastic)...

We've yet to find a real resolution to the credit crisis and, to top everything off, now we've got shanty towns... call them Bernanke-villes... just like I said would happen from Portland to Fresno to Chattanooga...

The bulls keep getting discredited but, because the futures rally and rally hard, as they did this afternoon, we're supposed to be bullish, even though almost everytime we buy, we lose money?...

We need stocks to stop getting crushed on bad earnings. Okay, so we saw Lowe's (LOW) better on some bad news, but that's the first one I've seen.

So, am I too negative?... I don't think so.

Admittedly, stocks have fallen to levels that are, frankly, amazingly low... but there's no money out there for takeovers... Look, remember "merger Monday?"... There's no money to clean up the mess, so the fact that so many stocks have fallen so hard doesn't matter.

I wish I could see a bottom. I wish I could join in the bullish cacophony... I hear it everywhere... I want to be in it too. I want to participate in the land of a thousand bull dances! But I need more reason than the idea that we've tested the lows and they've held.

The negatives are too negative... too awful...

What could change my mind?...

How about big rate cuts from China?... European Central Bank?... Auto bailout?... These could help. But, without them, I don't see how you can look at the facts and still be a bull...

Here's the bottom line...

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The Bottom Line!:     Stick with the recession-resistant stocks... the accidental high yielders... and stocks that are trading at or near cash. Right now, it's more important to worry about not losing money, than about being too negative. By all means, keep me honest. Tell me the positives. But let's be realistic, just so we don't do a thousand bull dances without a note of fundamental music to accompany us.

[verbatim recap]

Read Jim's next Segment here