That would reward savers and bailout homeowners (for a change).
fleckensteincapital.com
Here's what Fleck said last night:
Memo to Hank
The rally that began here in America ricocheted around the world overnight, but U.S. stock-index futures sank on the news overnight, which was dreadful: World-class Seattle retailer Nordstrom reported ugly results and announced the suspension of its stock-repurchase program, now that the shares have plummeted by about two-thirds in two months. The retail sales data was also horrendous, though the Michigan confidence survey was slightly better than expected. Lastly, this morning saw a big preannouncement from Nokia. I suspect that extremely disappointing news on the earnings front will be a regular feature.
Minding One's Own Business, Not Stock Price
As for the suspension of Nordstrom's buyback program (and Applied Materials the night before), they and far too many other corporations have wasted billions of dollars trying to support their shares at ridiculous prices, in an effboxscoreort to offset the dilution created by stock options. In the "old" days, before Greenspan monkeyed with the business cycle so badly, companies used to keep cash and worry about their balance sheet, so they'd have some margin of safety or shock absorber for the bad times. Now, with much of that cash blown, they continue to buy their own stock when it gets cheap. And worse, we will see more layoffs rather than fewer -- just another example of the law of unintended consequences when government knuckleheads interfere with capitalism.
Capitalism, free enterprise, and free markets have all been given a bad name. Not because they are inherently the problem, but because of the people who meddle in them. Equally flawed is the call for more regulation. What helped get us into this mess was the failure to enforce the laws already in place. Had the Fed, the SEC, the OCC, and the Office of Thrift Supervision done their job, there's no way that all the financial institutions could have become so badly impaired and consumers would never have been allowed to borrow so much money. Again, we are where we are due to government intervention and a slew of folks not doing their job, rather than any inherent flaw in capitalism.
As for the action, NOK had tech under pressure, such that the Nasdaq was down 3% an hour into the session, with the other major indices lower by 1%. Once again the indices slid until about midday. On the lows we were lower by about 3.5%, plus or minus. We then spent the afternoon grinding higher and were slightly positive on the day, with about an hour to go. But then the rally completely disintegrated and we closed back on the day's lows. As has been the case recently, the volatility today was just extraordinary.
Away from stocks, the dollar was a bit weaker, as was oil. Treasurys regained a huge chunk of yesterday's losses. Precious metals were higher, with silver closing around $9.50 and gold around $745. There was quite a bit of confusion as to where these markets actually closed yesterday. My Bloomberg showed gold up about $40 on the day, when in fact it was only higher by about $15.
Support Intelligent Solutions, Not House Prices
Now for some thoughts on the bailout plans and why they won't work. Hank Paulson (despite his truly heroic efforts) and the government have not understood the root cause of so much of the financial turmoil, that being the size and scope of the housing bubble. They have the misguided notion that they need to prop up house prices in order to solve the underlying problem.
However, that is dead-wrong. As I have noted a few times lately, the problem is: House prices are still too high relative to folks' average income, and incomes generically. The price of housing needs to go down to where it can be supported by incomes, especially given the tightening of lending standards.
Thus, a more intelligent approach towards ameliorating the mess would be for the financial institutions and the government to try to figure out just where that level of house prices might be, and what the size of the losses would be. Then it could be decided how the losses might be shared between the government, the public, and the financial institutions. I've seen variations on some creative approaches, not least of which is trying to find a way to allow folks to stay in their homes, if possible.
Salute the Unsung Savers
In addition, something must be done for the people who behaved prudently. They should get some sort of reward, just as those who behaved imprudently for whatever reason are going to receive aid. Folks who've lived within their means should receive some amount of tax-free saving, which would help instill the right kind of attitude in consumers at large. That way, no one will feel like they're being taken advantage of. As it now stands, the government expects the prudent to bail out the reckless, which is completely unjust. I don't have any detailed thoughts yet about the framework of the idea I just shared. But it seems to me a far more sensible game plan than trying to prop up asset markets, which won't work and will lead to more problems. |
