Sushi Money

It’s a good news, bad news kind of week.  Perhaps mostly negative on the financial front, but will we get a bailout recovery plan this week?  The debate has been heating up while members of both parties in Congress argue about what should be included.   One would think these folks could hammer something out more quickly.  Hard to say what they’re doing, but rather than focus on doing everything why not get some of it passed and move forward? 

Prediction:  If Congress takes too long, the President, Treasury Secretary and Federal Reserve Chairman will move independently to strengthen financial markets in the name of national (economic) security.  And do you know what?  That’s their job.  They’ve gone to Congress to sort out legislation, but if Congress stubbornly continues the political posturing I’m willing to bet the threat of action from the administration will help prod them along.  But any Executive action wouldn’t have the same degree of legislative strength, so that is not the best option.  Let’s hope the financial mess isn’t that bad.  While our political leaders haggle about the details, here’s a round-up of mixed news this week:

Good News:  The FBI has begun probing corruption and fraud at financial firms at the center of the financial meltdown.  The FBI is supposedly looking at 24 firms!  Why is this good news?  Because these businesses have almost destroyed the financial integrity of the nation, and sheer bad luck (or stupidity) cannot be responsible for this mess.   Was there widespread fraud or criminal behavior?  Maybe not.  But we’ve got to clean up the mess, and when any company risks the well-being of the nation and its citizens, they’re going to be looked at under a microscope for any wrongdoing.

Bad News:  Fed Chairman Ben Bernanke sees “grave threats” to the national economy if Congress doesn’t pass legislation quickly.  “Economic activity appears to have decelerated broadly,” Bernanke said today in remarks prepared for a congressional Joint Economic Committee hearing, downgrading the assessment of Fed officials when they met on Sept. 16. “Stabilization of our financial system is an essential precondition for economic recovery.”   He continues describing how recent financial risks ”will make lenders still more cautious about extending credit to households and businesses,” and that “The downside risks to growth thus remain a significant concern.”

Good News:   Billionaire Warren Buffet is investing $5 Billion dollars into Goldman Sachs, and indirectly into the financial markets, especially with GS new status as a bank holding company.  That money is going to be put to work. “I am to some effect betting on the fact that the government will do the rational thing and act properly,” Buffett, one of the world’s richest men and preeminent stock-pickers, told CNBC. “If I didn’t think the government was going to act I wouldn’t do anything this week.”

Bad News:   It looks like the Credit Default Swaps / derivatives markets may be partly (largely?) responsible for the credit crsis unfolding today.  These were bets by competing firms to hedge their risk in other companies and transactions, and they’ve effectively exaggerated risk concerns through a self-destructing downward  spiral.  So these institutions did it to themselves, and now the SEC is stepping in to regulate the mess.  And taxpayers will fund the recovery.

Good News:  Congress (aka the Democrats) are going to let the Offshore Drilling Ban expire!  Hooray!  Does this mean they concede defeat to an issue that most Americans want resolved?  And will it actually help lower oil and gas prices?  Probably not.  The Democrats plan new legislation to regulate any proposed drilling and the States can have their say as well.  It’s sure to be a long process and may not make much difference.  But it’s a start.

Bad News: Vice Presidential Candidate Joe Biden thinks Franklin D. Roosevelt was on television after the stock market crash of 1929.  Uh… television?  The moving picture thingy that few households even had until many years later?  And Roosevelt?  Well Joe Biden may only be 66 years old (6 years younger than Senator McCain), but how can you go on a network news program with pronouncements like that?! 

“When the stock market crashed, Franklin D. Roosevelt got on the television and didn’t just talk about the, you know, the princes of greed. He said, ‘Look, here’s what happened…”  Except, Republican Herbert Hoover was in office when the stock market crashed in October 1929. There also was no television at the time; TV wasn’t introduced to the public until a decade later, at the 1939 World’s Fair.

Good News:  What Franklin Roosevelt did do however was to help bring confidence back to the nation in a time of financial crisis and war.  He did this through his Fireside Chats during the Golden Age of Radio in the 1930’s and 40’s.  One of my favorites:

“After all, there is an element in the readjustment of our financial system more important than currency, more important than gold, and that is the confidence of the people.”

Franklin Delano Roosevelt - First Fireside Chat “On the Banking Crisis” - March 12th, 1933 

Which sounds very appropriate today, doesn’t it?   As we move forward there are ways to Summon the Courage to Continue Investing.  James Stewart at SmartMoney.com has written an excellent article describing our penchant to give in to fear versus a more rational approach to investing.  Keeping in mind of course, that you have money to invest for the long term, and an emergency fund set aside for 3-6 months of living expenses (6-12 if you can afford it).

“It is time for all of us to summon the courage to invest calmly and rationally and in doing so demonstrate our confidence in the potential of the global economy and in our fellow man.  What, in practice, does this mean?”

“It means continuing to accept and even embrace a prudent degree of risk. No investment is entirely risk-free and the mindless quest for safety is damaging not only to your likely returns but the system as a whole.”

“It means to continue following a disciplined approach to asset allocation and investments such as the one I have long advocated in this column. Despite last week’s wild swings, the market did not reach one of my buying thresholds, which is to buy on 10% dips. Had it done so, (2025 on the Nasdaq) I can assure you I would be buying.”

“It means to continue rebalancing your portfolio, taking profits when positions become overweighted, and adding to those that have fallen below your targets. I expect to continue my gradual additions of financial stocks in the belief that we will weather this crisis.”

“It means considering investment alternatives. I found myself this weekend looking at real estate listings…”

Hmmm… if I had the money to look at distressed real estate, I’d be doing pretty well right now.  But here’s hoping that Congress and the Administration work out a recovery program for the nation, that the news gets better over the next few months and that you have a good news kind of day!

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