Tuesday, October 21, 2008

Ron Paul Fox Business Oct 14 2008

Another Stimulus? Who Would Benefit?

The markets rallied yesterday after news that Federal Reserve Chairman Ben Bernanke was in favor of a second economic stimulus bill. A bill that has been introduced by Democratic leadership. Who would benefit here? Bernanke is clearly trying to keep his job as we move into a new administration, and it will help him if he starts agreeing with Democrats. The problem with allowing Washington to spend taxpayer money, they'll continue to do it. And that's what we're seeing. First, the government sponsored loans to prevent Bear Stearns from collapse, than the seizure of Fannie Mae and Freddie Mac, then the huge bailout bill, then the buying of equity stakes in banks, and I could go on. It won't stop either. That is the problem with going down this path.

Its time that we wake up and realize that these bailouts aren't going to help us in the long run. The economy goes through cycles. Excess risk and poor management leads to bankruptcies. If you don't allow the bad companies and their management to fail, they will only repeat the process in the next business cycle, making it worse. I agreed with securing people's bank deposits. Beyond that, I'm not in favor of additional government action.

Friday, October 17, 2008

Buffett is Buying, But Should We Be Buying?

Warren Buffett confirmed that he is indeed buying more US equities during this crazy period of volatility. The question though, is is it a good time for you and I to buy US equities? The answer is yes. And no. And maybe. Does that help? Here's the thing. Many stocks are at their cheapest level in years. Sentiment in the market is near all time lows, and much of the bad news is already out. This typically signals a good time to buy some stocks. But it depends on your situation. Are you dealing with money that you won't be needed to touch in the next couple of years? Because that's the kind of money that should be moving into the market now. If you're not retiring for many years, or are willing to hold through more periods of volatility and uncertainty, than yes, its a good time to buy.

But if you're looking at a shorter time period, or are looking for a quick trade, its not a good time to buy. There are too many factors working against you. Hedge funds and mutual funds are under great stress right now, as they are facing investor redemptions and margin calls. This forces them to dump large amounts of stock which is contributing to these wild swings. I read earlier this week that hedge fund king Steven Cohen is moving largely to cash. He's holding billions in investor's money. So it could be a bumpy ride as much of the economy is soft, and we still haven't seen the end of the banking crisis.

But to someone like Buffett, who holds stocks for decades while knowing he won't need the cash in the meantime, its a great time to buy. He can wait it all out knowing he got a good deal on his current buys. He's betting on history, and that says that the US markets will come back.

For me personally, I'm looking to buy some stocks and index funds with my retirement money (which I won't need for many years), and am not buying in my cash accounts.

There's my two cents worth. Have a great weekend!

Monday, October 6, 2008

Where to Go From Here

This is disheartening for Americans. We were talked into this bailout bill hoping that it would stop the bleeding in the markets. It doesn't appear that this is the case. I can understand if you've moved to cash with your investments. Its no time to take extra risk. But we have to do our best to think contrary to the crowd in these cases. A lot of stocks are cheap. I know its the same old argument, and I'm not buying into it yet. But sentiment is in the gutter, and the volatility index has reached levels where reversals in the market usually take place. So, if you want to buy, stick with companies that don't rely on borrowing money to finance operations. I'd also look at companies dealing globally. Every country's situation is different, and even though a global recession seems imminent, some countries are sitting better than others.

So, keep plenty of cash on hand, and if you're buying, take your time.