Two scary but real facts investors must face: the current stock market action is very similar to that which occurred before the Great Depression; and ...
Two scary but real facts investors must face: the current stock market action is very similar to that which occurred before the Great Depression; and the actions of our government in this crisis are very similar to the actions taken by the Japanese government during its "lost decade" of the 1990s.
The U.S. government has come out with its wallet open,
bailing out banks and companies that, in the opinion of the government, are too big to fail. These banks and companies made terrible management mistakes and now American taxpayers are footing the bill.
Japan did the same thing in the 1990s. It poured trillions into troubled banks in an effort to get credit to consumers flowing again. (Of course, the banks were in trouble because they made real estate loans they shouldn't have, just like the American banks did.) The money the Japanese government poured into the banks didn't loosen up credit, just like it is not loosening up credit here in America during this crisis.
At a certain point, Japanese citizens started to protest the bailouts, because they saw good money chasing bad money. Public outcry at the government's trillion-yen bailouts put pressure on the government to stop bailing out banks that were teetering on the brink of bankruptcy. The government also eventually saw that the bailouts were not working.
The public outcry to stop the government bailouts is starting in America now and it is starting strong. The U.S. government has put $170 billion of taxpayer money in AIG. The public is learning that $200 million of that has gone or is going to AIG employee bonuses. Hence, while Americans struggle to pay their bills, keep their job if they have one, two hundred million dollars in bonuses is going out to employees of a company that has received substantial government bailout money.
The public outcry is a good thing for the politicians. Maybe they'll finally get the fact that the public doesn't care about the mistakes large corporations have made. If the typical citizen is on his or her own, shouldn't these companies be on their own? More importantly, hopefully the public outcry that is starting over the bailouts will pressure politicians to stop the bailouts altogether...enabling the system to flush itself out, which will help us get to the bottom of the recession a lot quicker.
Michael's Personal Thoughts:
I've been receiving more and more requests from our customers for a service from me with specific stock market recommendations, in particular my favorite stock selections. I do write a couple of monthly newsletters where I make specific picks of stocks to either buy or short. But the requests I'm getting from customers is for a more frequent service, a daily or a weekly service. My schedule is very full these days writing PROFIT CONFIDENTIAL, studying the stock market and economy, and running my businesses, but we are tossing some ideas around here at the office on an e-letter, something like PROFIT CONFIDENTIAL -- maybe a weekly -- in which I'll make specific stock selections for the more active investor. We'll keep you posted.
Where the Market Stands:
Stocks rallied again yesterday. As you know, I've been writing that the current rally in stock prices that we are experiencing, which is capable of recouping all the stock market's losses for 2009, is a bear market trap. The Dow Jones Industrial Average was up 178.73 points yesterday, bringing the Dow Jones' loss for 2009 to a shrinking 16%. Soon, the bear will have everyone thinking the bottom is in for stocks...just what it wants us to believe.
What He Said:
"Many of today's consumers have purchased properties with very little down payment. They've been enticed by nothing-down, interest-only, second and third mortgages. Bottom line: the reduced interest rate environment sucked consumers into the housing market big-time. And that will eventually cause us all problems.” Michael Lombardi in PROFIT CONFIDENTIAL, June 22, 2005. Michael started warning about the crisis coming in the U.S. real estate market right at the peak of the boom, now widely believed to be 2005.
Profit Confidential
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