Why It's Time to Just Let the Market Do Its Thing

All this volatility in the stock market is part of a long, difficult bottoming out process that will take most of this year to settle. A lot of bad news and a lot of bad expectations are now priced into stocks. Barring any new major shocks to the economy or unexpected geopolitical events, I think we're in for a long consolidation period for stocks, which is a natural occurrence before a recovery.

I don't think that we can get a long-lasting new bull market in stocks without a recovery in the housing market. The stock market doesn't need to see any major acceleration in housing prices, only enough demand to take up the excess supply in the system and a stabilization of the main real estate markets around the country. If we get a new inflationary period over the next few years, then real property values should improve.

I think it's time now for policy makers to move away from government bailouts and let the bad companies fail. It's a tough pill to swallow for politicians, but it doesn't make any sense to me to send good money after bad. It's time for the economy to be allowed to correct itself. Fundamentally, a free market economy will correct itself anyway, so why prolong the pain? Why let poorly managed businesses use taxpayer dollars to justify their continued existence? It's not business as usual anymore.

If there's one thing I've learned over the years, it's that the U.S. economy is very good at correcting itself after a bubble. The marketplace accepts its responsibility, corrects itself, and out of the ashes come stronger, wiser businesses.

Everyone was caught off guard by the swiftness and severity of the credit crunch and the collapse of the subprime mortgage market. I think there is a real case to be made that individuals should have access to some form of government assistance, but not big corporations. Sure, AIG couldn't have anticipated that the mortgage-backed securities it insured would mostly all collapse. But this is not the fault of the taxpayer. Company management didn't plan for the eventuality and therefore they must take responsibility for their choices. The same applies to the banks.

If we don't let the marketplace correct itself, all we'll do is prolong the recession and the bear market in stocks. And, we'll have spent a lot of borrowed money in doing so.

Profit Confidential

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