Author: David S. White

While we were enjoying the Thanksgiving Holiday break, the markets had five consecutive ‘up’ days, by my count – three Obama press conferences; five ‘up’ Dow days in a row. Have we seen the Bottom or is this just a Bear Market Rally? Likely, it is the latter, but, the Bottom can only be confirmed when looking in the rear view mirror, and we are still weaving and bobbing so much to avoid all the roadkill of the last months that we cannot safely steal that glance yet.

A Bear Market Rally is that curious creature that inspires hope, only to dash that hope after a short time and confirm that this is indeed a deep Bear Market and the Bulls have not returned. The Bottom, on the other hand, is the absolute statistical low point as shown on graphs – usually a V or U shape, that we can look back at and say, there it is – that was the Bottom – now onward and upward. It also gives us bragging rights if we got lucky enough to actually buy something at the absolute statistical bottom. It can make a dabbler in investment sound like a true maven – enough to fool the uninitiated and those without any historical reference.

Watch out what you wish for, the old saying goes, because you just might get it. Are you (or someone you love) the consummate shopper who holds out for the best bargains and will shop, shop, shop till you either find the best bargain or drop? Well, your time may be coming. A friend whispers in my ear, over and over – ‘if you really want to buy something, just wait a month or two, everything is getting cheaper.’

That concept unfortunately holds both the problem and the solution in its grasp. Every day now we get new zinger economic news – we break records, set new marks, and upend the quant statistics counters. The Consumer Price Index fell 1 percent in October, according to the Labor Department – the biggest drop in the 61-year history of the consumer price index – Truman was President last time we had this kind of one-month slide.

“History is written by the victors.” –Winston Churchill

It is still too early to say who will be the “victors” or “winners,” if any, in the current economic crises that threaten to engulf the US and much of the developed world. Economic troubles are not strictly war and it was war that Churchill was talking about in his famous quote; but, it sure has felt like an economic war raging over the past months as we watched some venerable Humpty Dumpty’s of the financial world shatter, collapse and cease to exist, right there on the pages of the morning newspaper. If, as current predictions have it, we are in for deep, deep Recession, or even Depression, through all of 2009, it may be until 2010 or beyond before we emerge from this devastation.

What flavor of Capitalism will emerge? Free Market Capitalism is where mutually consenting sellers and buyers without coercion exchange property rights at prices reached by mutual consent without government interference. If you want to buy and I want to sell and we have a meeting of the minds as to price and other terms, we do the deal or we don’t do the deal – let the forces of nature rule.

Another titan nearly bit the dust last week the way so many others have. It’s stock closed at $3.77 Friday, leaving this financial Frankenstein monster worth a mere $20.5 Billion – chump change compared to its $244 Billion value a couple of years ago before things went so nuts.

Regulators, including Timothy F. Geithner, President of the Federal Reserve Bank of New York and the new Treasury Secretary appointee, wrestled all weekend in boardrooms with Citi’s Top Brass, like Robert E. Rubin, the former Treasury secretary (and an economic adviser in the Obama Transition Team) and an influential executive and director at Citigroup, and Vikram S. Pandit, Citigroup’s chief executive. What emerged was another bold Bail Out Plan involving US government backing of some $306 billion in loans and securities and a direct investment of $20 billion in the company, to add to the US government’s already diversified porfolio. Good night Free Market Capitalism, Rest In Peace.

Does this staggering behemoth deserve another $326 Billion of your and my tax dollars on top of the amounts totaling now in the trillions as the Fed acts like the great lifeguard of the financial rip tide, racing back, again and again, into the crashing waves to save, not some foundering child, but, like Citi, some enormous white whale in its death throes in the pounding surf?

In the exciting game of Musical Chairs starting in Washington with the changing of the guard from the outgoing to the soon incoming administration, there was a major development.  Rep. Waxman is in at the helm of the hugely powerful House Committee on Energy and Commerce, and, after nearly 28-years, Rep. Dingell, buddy pal of the Big Three US Automakers, is out.

We are hearing a fair share of reversals of position lately from federal government officials administering the Bail Out program we now so inelegantly call TARP – Troubled Assets Relief Program, like we could simply throw a big tarpaulin over the whole mess and be done with it.  Among other things, we now have an Op Ed piece by Treasury Secretary Paulsen in the November 18 NYT (‘Fighting the Financial Crisis, One Challenge at a Time’) and various testimony before Congress about what in the world is going on with all that money Congress appropriated during the hair-on-fire emergency mindset of last September.

The only monster that devours significant stretches of Southern California, and regularly comes back for more, was around again last weekend.  My heart goes out to those whose homes were lost, be they proud multi-million dollar castles, or humble manufactured housing.

The orange monster ate heartily right there on our TV screens, all day and all night.  Those eerie, night time videos of serpents of flame slithering along black mountain tops and ridges, sucking up and devouring all in its path, played all weekend like some sort of holiday marathon, preempting infomercials at 3am and regular programming all day.

That truly immortal description of the Santa Ana winds’ effect on Los Angeles and its environs echoes in my head whenever those devil winds blow:

Our Big three automakers: GM, Chrysler and Ford, are teetering. Does the government bail them out and save the US auto industry? Or, do we let them fail and move on past the idea that America makes American cars – and let the Honda’s and Toyota’s and BMW’s and Mercedes’ of the world do it.

GM’s stock is trading where it was 40 years ago although talk of a bailout has brought a speculative tiny bump. Chrysler – you couldn’t give it away when Daimler unwound it from the ill-fated merger a few years ago. Ford – well, the venerable epitome of the American car maker could not even keep Kirk Kerkorian, investor extraordinaire, interested in keeping his stock holdings. By the way, my Mustang GT Premium convertible is a wonderful car, but wonderful cars do not save a US auto maker. It gets better gas mileage than you might think, too.

This just in on the afternoon NYT feed: “Treasury Secretary Henry M. Paulson Jr. announced a major shift in the thrust of the $700 billion financial-rescue program on Wednesday.”

Remember back in September – I know, it seems like a long time ago – when we were breathlessly told that, if Congress didn’t pony up the $700 billion immediately (sometimes reported as $750 billion; sometimes $700 billion – a billion here, a billion there . . . pretty soon you’re talking about real money) – all hell would break loose, the world as we know it would end . . . and lots of bad stuff would happen?

Well, here it is November and I think the old shell game is being played. I first watched a friend get his clock cleaned – financially that is – on the streets of Berkeley in 1971 by an old man who looked like he couldn’t walk across the street. The old man had a board with a green felt cloth stapled to it and three shells and one pea. My friend swaggered up and took the old man’s bet because my friend was young and foolish and thought like the young that nothing could hurt him and he knew everything.

Youth is truly wasted on the young. Well, that old man kept taking $20 bills from my friend and that pea kept showing up under different shells and you would swear that it was magic.