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EMERGING TRADERS WEEKLY Buyer Beware There was a hearing in today with Bernanke, Paulson, and Bair appearing before the House Financial Services Committee on the financial rescue plan. A stand-out statement belongs to Paulson where he says the U.S. has turned a corner and that TARP has stabilized the financial system and prevented collapse. Somehow, I’m not convinced that there isn’t more pain waiting to be exposed. It’s easy to get jaded about what officials say when times are tough, although I like that there’s hesitation to cross the line between helping banks and helping everyone (Detroit). Still, it’s easy to accuse Paulson of favoring giving the money to banks to help his friends. Being debated across the street is whether or not yet another TARP plan should be composed, whether we can pay for the first one, whether or not increasing the deficit will cause further damage, whether or not another stimulus plan should be enacted, and most importantly, who exactly will be helped. Starting with whether or not we can pay for all the bailing-out in progress, the U.S. Treasury is in the process of auctioning roughly $1.5 Trillion in new issuance over the next year or so. Many fear that there is just not enough of a market left to absorb a number like that. So far, however, that has not been the case. Demand and supply for treasuries do not seem to be out of balance, as evidenced by the results of auctions thus far. As well as foreign flight-to-quality demand, there are enough people finding themselves looking for a safe haven after being battered by equity holdings. If we, the people, are actually in a movement towards saving, as was done with the last stimulus package, there will be demand for treasuries. This brings me to the other issue I dare address; whether or not there should be another stimulus package. The housing market collapse has spread the thought that consumer leveraging, which means spending money from home equity lines, credit cards, etc, is what causes pain to the consumer in the long run. The consumer has not saved enough and has spent money that wasn’t there yet, so he or she is at a double negative. Feeling the consequences, he or she is inspired to both save and pay off debts. A stimulus package check (which in essence, to stimulate the economy, needs to be spent) will likely not see a cash register. To take that one step further, however, once the consumer is allowed to feel confident that their finances are under control, they can resume spending at least somewhat. The stimulus package debate is another chicken or egg story. I don’t think it’s a waste, but I also don’t think trying to stimulate consumers to spend more money for the Holidays is fruitful in the long run. It pushes back the pain, rather than alleviating it. It can only help if it actually does bring the consumer back to health sooner than without it. Unfortunately, along with the increasing debt-to-income ratios is an accelerating unemployment rate. Jobs being lost means no wage increases, which means decreased spending power, which means worse consumer data on the follow-through. If another stimulus package is introduced, just how much will it do? To get back to my point, we have not seen our way through the volatility. Even if somehow we had, it will undoubtedly resurface. The nature of our economic environment is such that we cannot be unaccountable for anymore surprises. The type of trading that can survive this type of turmoil with a profit is one that exploits inefficiencies in short-term intervals. To the buy-and-hold believers looking for a buying opportunity, good luck. Kirsten L. O'Farrell Investment Analyst-Futures/Options Managed Capital Advisory Group Ltd. 846 Peach Lake Rd. North Salem New York 10560 Toll free: 877-777-7181 or 914-669-9820 Fax: 914 669-9819 Cell: 917 763-0590 Website: http://www.managedcap.com http://www.emergingtraders.com email: info@managedcap.com |