Sorry I will not have a chance to answer email till the weekend I’m really pressed for time.

No Armageddon

AIG, the world’s largest insurance company got bailed out by the Federal Government (you the taxpayer) last night. You are loaning them 85 billion dollars for a 80% preferred stake in the company. You get 80% of AIG. Full story here at NYT -Link

The Good news

1 )Stocks should rally today.
2) Financial Armageddon is averted – Stock across the world would have dropped far more than 10% if AIG went bankrupt.
3) Message to market is you will get bailed out if you are too big to fail. Psychologically investors may/will look at this as a bottom.

The Bad News

1) If you own stock in AIG – you’re screwed – The government’s 80% stake comes first. The value of your stock diminishes significantly.
2) AIG was an international company – why is just our Fed putting up the $ for a bailout. and not other countries?
3) $20 billion was the bailout figure last Saturday and by waiting it rose to $85 billion because the situation so rapidly deteriorated.
4) Short sellers could force other major companies out of business knowing the gov’t will back them up.
5) Banks did not have the capital or ability to value assets to bail out Lehman or AIG. Sovereign funds have got burned by their bailouts. This is pretty scary when your country is so far in debt and the only one left to bail out trouble companies.

The Ugly

1) The same guys at AIG that created the mess are still running the show. Who is looking over their shoulders is unknown.
2) There are obviously other institutions out there that could fail – Giant Washington Mutual and a whole lot of mid size banks. – However, this does buy them some time.
3) The credit/transparency crisis is far larger than than anyone expected. We have turned to basic socialism as a solution. Socialism (your tax dollar) is coming to the rescue of the free market.
4) People in Singapore were/are lining up to withdraw their $ from AIG. Are foreigners loosing confidence in AIG & USA? One bailout too many?

Why this is a Gold Mojo Moment for Obama

Economic is the #1 issue of this campaign. All these bailout are going to cost you and your kids hundreds of billions of dollars. The root of this problems is that almost all Republicans and Wall Street want deregulation and to leave the "free market" alone. Almost all Democrats want stricter regulations. Stronger regulations/transparency on Wall Street are what is needed.

Some of the following comes from an editorial in a Philly paper by Dick Polman – Link listed below and Obama and allies should be hammering away at this.

1) McCain been is the Senate a quarter century and until this week has never called/voted for stronger regulations on companies. Obama 19 months ago included stronger regulations in his initial platform.

2) Republicans created this mess and the #1 culprit is Republican Senator Phil Graham who lead the deregulation effort.(Chaired Banking Committee) McCain chaired Graham’s run for President in 96 and Graham was the initial co chair/top economic advisor of McCain’s run for President. You should remember Graham – he call American’s "a nation of whiners" and McCain too blundered in ailing the "US economy fundamentally sound."
Adds tying Bush/McCain and Graham should flood the air.

3) McCain quickly put out an add saying he would go after Wall Street and said we should do it the old fashion Washington way by setting up a commission. "This is rich" since for 25 years he and his buddy Graham have been championing deregulation. McCain in the WSJ stated earlier this year "I’m always for less regulation"

4) McCain tax plan (make the Bush plan permanent) continues to reward the rich who benefit most from deregulation. Obama’s tax plan gives more money back to everyone earning under $250,000, and slams the rich Wall Street CEO types earning over 250,000k. Obama has done a poor job of selling this. McCain may talk tough, but he is giving the folks who got us into this trouble another juicy tax break.

Obama’s Problem

Obama needs an injection of Buba (aka Bill Clinton) He needs to show he feels the pain of independent voters. His roots, Broken family poverty should help. He needs to tell independent voters he understand them and how his tax plan will help them. Other’s should focus on how priviliged "not knowing how many houses" and how out of touch McCain is. The lefty blogs should be giving out Obama’s tax plan and solutions daily instead of wasting more time on Palin.


Index % Change Volume

Dow +1.30% big
NASDQ +1.28% big
S&P500 +1.75% big
Russell2000 +3.03% –

US Markets

Caution – This AIG bailout averts Armageddon, but also show how very weak the whole financial structure is. The big Question IS THIS BAILOUT ENOUGH MONEY FOR A WEEK OR FOREVER?

Chart of the benchmark S&P 500

Chart of the Russell 2000

Chart of the NASDQ

Chart of the Dow

These two factors combined make a case for investing some funds at the end of October.


Oil prices are moving up – Sorry I don’t know why – Oil futures up over 3%. Best guess is that investors realize that the US economy is really weak and they think the dollar will fall. Since most oil is traded in dollars oil prices will therefore rise to compensate. The Saudi’s (OPEC) have also called for a floor of $85.00.

Chart of oil (WTIC)


Technically, the VIX worked like a charm. It went to 33 and then the buying began. Above 30+ on the VIX (measures fear/volatility) is usually a peak of fear and a turning point for markets

Chart of VIX

Short Term Outlook – Washington Mutual is the next in line for failure. If the largest Savings Bank goes under will it create a panic on all banks? We’ve bought some time for WaMu

It is still a short term players market. Buy the dips and sell the the rallies. Investors are trading on volatility instead of value.

No one still has any idea of how big the problem is. AIG ,obviously had no idea how bad it was until it was too late.


Bottom Line

Long Term Outlook Bearish

Technicals – The bullish trend of the summer rally has been broken.
Fundamentals – financial mortgage transparency problem is far bigger than anyone thought, looming global recession vs the shop till I drop US consumer and lower gas prices
(Caution – this “Outlook” is based on US equities and while US markets greatly influence other markets it is not necessarily the outlook for recommended sectors.)

The question for Wall Street is not whether there will be a recession or not, but how long will it last and when will it spread to the rest of the world People feel like we are in a recession, the actual strict definition – 2 quarters of negative GDP growth has not occurred.

Asset Allocation/Recommended Sectors (long term)

* 85% to 100%% Cash

* 15% US Index Funds
UWM 2x what Russell 2000 does SSO 2x what S&P 500 does & QLD (2X what the NASDQ does) ( short term plays only on dips)

Chief Strategy – Buy the dips of trending sector Nothing is immune in a true Bear market. Therefore this is not a time for investors to buy. Shorter term traders and risk takers can always find something to buy-
Changes to Bottom Line Section Bolded

As Always Do Your Own Research Before Investing

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