Friday, October 24, 2008


Money Will Buy Time, Not Cure

So what's the deal? Severe recession or just your run-of-the-mill one?

As we end another week of wild swings, swinging to this conclusion: Tough times are coming. The only tough? And that's pretty much the focus right now.

Not whether the financial rescue works but whether it will do anything at all to help the economy. Two words: probably not.

But even the bailout's most severe critics say the sheer size of all that government spending will stave off what could have been a far worse recession. I don't know about can buy you time, it doesn't buy you cures.

But I do know about this: Certainly all this contraction in stocks will contract the economy......

Warren Buffett says we should all buy stocks. He also says the people who lost money buying equities in the 20th century were those who only bought when they were comfortable doing so, which he says is a clear sign of their failings as investors.

The conventional wisdom is that we should at the very least give Buffett the benefit of the doubt where investing advice is concerned. Many small investors and retirement savers will probably enthusiastically cheer what he says.

But Buffett's plea, printed in the New York Times on last week, seems somewhat superfluous. We are all buying stocks now, whether we want to or not. As taxpayers we own huge chunks of the country's financial system. Our central bank has put itself, and by extension the rest of us, in the business of lending to companies. And in any case, most of us with jobs that offer market-based retirement accounts buy stocks each pay cycle. Since most of us work for companies where pensions are not an option, we don't necessarily have very much choice about how we go about trying to build a retirement nest egg.

Looking Ahead: More Stimulus?

So thanks Mr. Buffett, for your insight and your advice, but it's a little unclear where many retirement savers will get the money to buy more U.S. equities at this point. After all, the 401(k) statements that will soon be arriving in the mail are unlikely to inspire confidence, or show that we have the money to buy equities even as the economy tanks.

A short-sighted argument? Perhaps, but as people around the country rethink retirement, or put off collecting Social Security in the hope of getting bigger checks later, the advice of a billionaire who has profited mightily during this downturn sticks in the craw. Just a little.

If you think about it, the money they used for the bailout would have given every adult over the age of 21 the ability to pay off their debts and invest wisely to the tune of perhaps $100,000 a piece.

Europe Focuses on Earnings

After a mad week of trading, U.S. stocks ended well above where they started the week. Not much of an accomplishment, given current market levels, but it's better than more losses.

Building up the banks

Treasury Secretary Henry Paulson announced an extraordinary investment by the federal government in the U.S. banking system this week, laying out an unprecedented plan to give $250 billion to banks to repair the faltering financial system and get lending started again. Only a few weeks ago, Paulson said that giving banks capital would be a sign of failure, but he changed his mind after global stock markets crashed and stress in the financial system rose to previously unimaginable levels.

A helping hand for UBS

The Swiss government became the first to take troubled assets off a bank's balance sheet, reaching a deal with UBS to absorb up to $60 billion in mostly mortgage-related assets. In addition, the government is taking a 9% stake in UBS (UBS) (002489948) in return for an injection of 6 billion Swiss francs ($5.25 billion) into the world's largest asset manager.

More profit declines

J.P. Morgan Chase (JPM) said its third-quarter net income fell 84% amid the worst banking environment in 70 years, and the firm cautioned that earnings would remain weak for several quarters to come. The results included $3.6 billion of write-downs, as well as $640 million of losses linked with the Washington Mutual takeover.

Slowing sales

U.S. retail sales fell 1.2% in September, the worst drop in three years and the third decline in a row, a further sign that the economy has sunk into a recession led by an exhausted consumer. The 1.2% decline reported by the Commerce Department on was worse than the 0.8% drop forecast by economists surveyed by 360. Sales in July and August were revised marginally lower, signaling that real consumer spending likely fell in the quarter for the first time in 17 years.

Apocalypse now? Maybe not

At times like these, where new records are set daily and 500- and 600-point days in either direction are regarded as more of the same, it's easy to suspend reality and indulge in talk of new eras, ends of Wall Street and capitalism, and collapsing of empires. But a quick look at history shows that very often these grand statements and feelings are nothing but just that - statements and feelings. In reality, not much really changes.

Growing unemployment lines

More than 750,000 jobs have disappeared from the U.S. economy this year, and workers face the prospect of more layoffs ahead. The good news is that workers can look for red flags. After all, experts say that knowing that a job loss is coming is a first step to getting back on your feet.

Making sense of a deal

Give Microsoft Corp. (MSFT) Chief Executive Steve Ballmer a platform, and the odds are good that he'll use it to express his opinion about something. At the Gartner ITXpo, Ballmer let it be known what he thinks of the possibility that Microsoft might still try to acquire Yahoo (YHOO).

More M&A talks

Skeptics may question the upside of a merger between two of America's struggling car giants, but Wall Street clearly backed the concept Monday as shares of General Motors Corp. (GM) and Ford Motor Co. (F) mounted stunning rallies. With the credit crisis in full swing and car sales plunging to levels not seen in 15 years, GM has lost 74% year to date and Ford is down 64%. But reports over the weekend of a possible merger between GM and privately held Chrysler and of prior discussions between GM and Ford apparently gave investors some hope that consolidation could help cure the ailing industry.

Signs of stress

Chip giant Intel Corp. (INTC) reported better-than-expected results this week, while warning that the global financial crisis has led to "signs of stress" and market uncertainty. The tech giant posted a 12% jump in third-quarter net profit, but came out with a cautious outlook for the fourth quarter, confirming what many analysts already believe is a weakening tech market. Read the full story.

Google tops estimates

Shares of Google Inc. (GOOG) jumped last Friday, a day after the Internet giant's third-quarter profit bested Wall Street's expectations despite uncertainty about the health of the online advertising market and a strengthening dollar. Chief Executive Eric Schmidt said during a conference call with analysts that in addition to keeping tight control on costs, the company also benefited from advertisers seeking out more targeted search advertisements on Google in order to trim their budgets.


Sources: Wall Street Journal, Various Wire Reports


Seven Star Hand said...

Hello Walter,

So, why should all of humanity be forced to suffer and struggle any longer, now that the entire global financial system has been exposed as a mind-boggling deception, within many other deceptions? No one in their right mind would continue to be enslaved by a proven deception, which is also proven to be undeniable slavery-by-proxy !!!

The derivatives scams alone have grown to more than 10-times the entire global GDP (at last counting) and are now failing because the scam/pyramid scheme broke and exposed the deception for all to see. A significant portion of global wealth and power was created and propped-up using these and other now-proven smoke and mirrors and house of cards illusions and delusions.

These deceptions have grown many times larger than the rest of the entire world economy. Consequently, there is no way that all of the world's governments combined, who themselves borrow so-called "money" from other central-bank smoke and mirror deceptions, can solve this debacle, by using more smoke and mirrors money scams. The only solutions they are offering will take centuries to repay, if ever.

Here is Wisdom...

Lisa_Lisa said...

Hi Seven Star Hand,

Thanks for the comment. Since I am answering not just for Walter but for 360 Degrees as well, I should point out that you posed the same question and opinion to Jennifer Martin at
So, my thought is to refer you to my post from this morning.