What's Changed?

Friday morning when I wrote “the rules have changed,” I was stunned by the brute force used by Paulson and Bernanke to exert their will over the market. I responded like many to what I deemed to be an unstoppable freight train of pure executive branch power. The rules changed. Billions dispersed. The greatest short-squeeze in history, and two men in decisive control. Was this Wall Street style Martial law, or was this the re-visitation to when Ronald Regan was shot, and former Secretary of State Alexander Haig said to the press: “I’m in control.”

Make no mistake, we enter a period of history which is a watershed moment, but for reasons other than the obvious. The piece of legislation being proposed has a section tucked away that says “Decisions by the Secretary pursuant to the authority of this Act, are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

This puts the Treasury’s action beyond the rule of law. This is a financial coup with no financial limitations. The proposal gave the Treasury the authority to buy toxic mortgage paper. However, as with all government plans, others wanted to benefit, and so the lobbyist went to work. House and Senate versions written overnight now include language broadening the type of assets for sale under the plan from “mortgage-related” to “troubled assets.” Hello auto finance companies, student loan lenders, and credit card lenders. Why doesn’t the government just buy everything? Right, comrade?

I thought that the plan, though totally contrary to my beliefs, would carry the market dramatically higher over the next several weeks, and it’s still possible. Let’s be clear. In the short-term, that’s minute-by-minute, the uncertainty is so great that large pools of guaranteed cash and assets non-correlated to the market maybe the order of the day. Doing nothing isn’t bad.

My macro-trend belief still tells me that the trouble continues to work ahead, and the long-term fundamentals and long-term technical’s are so bad that the best play for stock market money is a negative bias, with some upside hedge. The uncertainty of the government’s uncertainty IS the uncertainty.

Regardless of my opinion, my job to like or not to like doesn’t matter. My job is to make money, and protect assets, and that is a job that I will continue to do twenty-four hours a day, and seven days a week.

Till next time,

Bill

P.S. – Long EEV, MZZ, SDP, SKF, and SPY.


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