Big 3 Bailout: The Trade vs. The Debate...
The bailout debate is very complex and most people have
strong emotional opinions about it. And it's something
that can, and will, be debated endlessly.
Sadly, there's no easy solution, but doing nothing
is no longer an option.
I believe that they WILL get bailed out, if only because
the cost of the bailout, will be far less than the cost
of not bailing them out.
And that's THE trade right here - right now.
Bailout, or no bailout.
The market spoke volumes today...
biz.yahoo.com
A Big 3 bankruptcy will not happen in a vacuum. There will
be a huge domino effect on everything from the bond markets,
to the supplier chain, to the retail dealer network, and
local banks and leasing companies. Not to mention the effect
on many local, and state economies that are levered to auto
manufacturing.
A Big 3 bankruptcy will also have a massive negative impact
on corporate spending... we'll see a huge contraction in
cap ex spending, banks will tighten... unemployment will
explode, and consumer sentiment and spending will be crushed,
right as we enter the critical holiday shopping season.
A Big 3 bankruptcy could not happen at a more inopportune
time than right now.
If we were not in the midst of an unprecedented economic
crisis, a pre-packaged bankruptcy would be appropriate.
But, not here.
The cost of a bridge loan, and the value of just buying
time pales in comparison to the costs of not doing so.
And "buying time" may actually be money well spent.
Because what this economy and market needs more than
anything else is time... and a breather.
We need time for the banking system to stabilize.
We need time for the US stock market to stabilize.
We need time for the G-20 and G-7's coordinated action
to take effect, and for emerging markets to be stabilized.
We need time for the 2-step Obama stimulus plan to be
instituted.
And we need time for the US consumer to recover from shell shock,
as they've been hit from all sides by falling housing prices,
a collapsing stock market, ramping unemployment, and falling
rates of return on their savings.
Consumer spending is 67% of US GDP... and consumer sentiment
will be crushed by the aftermath of a Big 3 bankruptcy, and
the cost of a bailout, even if temporary, will pale in
comparison to the costs of doing nothing.
We just gave Wall Street $750 Billion and bailed out the
very people that created the collapse in the economy that
is now crushing the Big 3... so how can you say no to
$25 Billion for Main Street now?
The S&P 500's market cap is about $10 Trillion, and
it lost -6%, or $600 Billion Dollars today alone.
What's $25 billion compared to that, let alone another
10%-20% drop in the markets, or relative the already
committed $750 Billion Dollar TARP?
Here's your final question:
Do you really want to cut off your moral hazard nose,
to spite your capitalist face?
And as far as a trade?
If you don't think they'll get bailed out - short everything.
If you think they'll get bailed out -- buy, buy, buy.
SOTB |
