Putting the Toothpaste Back into the Tube

Andy Kessler does a great job of laying out the current problem the Federal Reserve has with the printing of so much money - how do you unprint it or "Once the toothpaste is out of the tube, how do you put it back in". If you don't put it back in you get Inflation, potentially the hyper sort, but putting it back in the wrong way could ruin the economy. Its a tightrope and Kessler explains this tightrope, his conclusion is that Bernanke (Fed chairman) should be transparent and tell the world in advance his plans.

Scott Dauenhauer CFP, MSFP, AIF

Foreclosures Up 24% in 1st quarter

Banks have been busy foreclosing and it won't be over for a long time. They waited for the administration to come out with its program, which turned out to be a nice hand-out to the "servicers" but nothing that could actually stem the wave of foreclosures that must happen in order for markets to get back to normal. 2010 will bring with it the foreclosures that should have happened in 2008 and 2009 along with the foreclosures related to Option ARMs that will have to be dealt with in 2010 and 2011.

The governments PPIP plan will have little affect on this.

Believe it or not as bad as this is, its also a good sign - the market needs to be purged of homes that can't be paid for by borrowers, however the process that is set up now is not good. There are homes that should not go into foreclosure for purely economic reasons that will go into foreclosure and make a bad market worse.

As for the stock market, there is no way to know the effect, it could be bad or the market may react to other news - with the amount of money being pumped into the economy we'll have to see some recovery, even if its not built on something that can last.

Scott Dauenhauer CFP, MSFP, AIF

Barrons: How Not To Price Toxic Bonds

Excellent piece in Barrons about why the current Obama/Geithner/Summers PPIP plan won't work.

Scott Dauenhauer CFP, MSFP, AIF
949-916-6238
www.meridianwealth.com

Hussman: 35 - 40% Decline Possible

"Still, given sufficient evidence of broad improvement in market action (which we take as a measure of risk tolerance and economic expectations), we wouldn't fight the combination of roughly fair values and a willingness of investors to bear risk. We've been carrying small “contingent” call option positions for a good portion of the recent advance. This helped to compensate for our low weightings in financials, homebuilders and other low-quality sectors that have enjoyed frantic short-covering. Still, with only about 1% of assets currently in those calls, our stance is still characterized as defensive here, as we are otherwise fully hedged. Again, we won't fight a broad improvement if it continues sufficiently, but if I were to make a guess, it would be that the potential downside in the S&P 500 from these levels could approach 30-40%. That is not a typo, and it is not a possibility that should be ruled out."

Read the full weekly commentary by clicking the link above, basically a continuation and recap of his commentary last week.

Hussman, as do I, believes the Geithner PPIP plan is irresponsible and doesn't solve any of the underlying issues. Hussman has gotten a lot of media attention as the media has finally noticed that taxpayers have been bailing out financial bondholders and counterparties despite the fact that the bondholder knew the risks they faced. The FDIC will foot the bill, without congressional approval.

I'm not sure I think stocks will go down 40%, but nothing can be ruled out these days (including a further rally).

Scott Dauenhauer CFP, MSFP, AIF

Meridian Wealth Management
949-916-6238

The Crisis of Credit....Visualized

The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

Hat tip to Gregg.

Not a bad visual representation of what happened, not perfect, but easy to understand and worth your time.

Scott Dauenhauer CFP, MSFP, AIF