Sushi Money

What can you say after weeks of stock market losses?  It’s sad, awful, ridiculous and downright scary for a lot of folks.  And if you’re like most people these days, you’ve just stopped looking at it.  Why bother, right?  Maybe you’re a long term investor, and nothing that happens now really matters over the short term anyway.  Or maybe the words “long term investor” don’t mean very much right now.  Or maybe after feeling stressed from watching days of hundred point losses, it just doesn’t make sense anymore.

So is there anything we can really do about it?   Not unless it bothers you so much that you can’t sleep and your life’s a wreck.  Most people in that situation have already sold out long ago.   Me?  I’m just watching in rapt amazement at the carnage wrought by institutional selling.  Hedge funds, private investors, mutual fund redemptions, tax loss selling- all are putting relentless downward pressure on stocks, dropping indexes  to levels not seen in over 5-10 years.

“The Standard & Poor’s 500 index fell 6.7 percent to its lowest close since April 1997. The Dow Jones industrial average, meanwhile, fell 445 points, or 5.6 percent, to its lowest close since March 2003. The decline brings the Dow’s two-day drop to 873 points, or 10.6 percent, its worst two-day percentage loss since October 1987.”

I don’t know what the market or the economy is going to do in the weeks and months ahead.  If I had some extra cash laying around that I didn’t need for 5 years or more, there are some incredibly cheap stocks out there.  But we are where we are… and like most of you I’m just along for the ride at this point.

So… what did I do today?  I went shopping.  A local grocery chain had a great sale going on and I picked up a 20 pound turkey at .67 cents a pound- almost half price.   Then I filled up the car.  Gas was around $1.69 per gallon.  Is that amazing or what?  And wouldn’t it be nice if gas prices stayed low for a while?   There’ll be a lot of drivers on the road next summer if gas prices stay low- especially with airline fees through the roof.   And since we’re in a cash crunch and consumers have cut back on spending, the stores are also offering all kinds of deals right now.

I’m not advocating spending money you don’t have, or investing in the market in stocks you don’t know.  But if you’re in the market for a house or a car or you like a particular company as an investment, is there a better time to buy?  It’s a buyer’s market out there folks.  How long it stays that way is the real question.

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How does a well educated middle-aged registered nurse end up losing $400,000 to scam artists?  For the life of me I can hardly understand how this is possible, especially because it’s such a well known internet scam and involves the red-flag word “Nigeria”.   This otherwise intelligent (maybe not) woman emptied her husband’s retirement account, and took out loans on their house and car all to continue sending money to thieves half way across the world.

“It turned out to be a lot of money up front, but it started with just $100.  The scammers ran Spears through the whole program. They said President Bush and FBI Director “Robert Muller” (their spelling) were in on the deal and needed her help.“

Ahem… well, you see Presidents and FBI Directors don’t ask regular people for help.  Unless they’re behind in the polls for re-election perhaps… But important people have, you know- other people to do that kind of stuff for them?

“They sent official-looking documents and certificates from the Bank of Nigeria and even from the United Nations. Her payment was “guaranteed.”  Then the amount she would get jumped up to $26.6 million – if she would just send $8,300. Spears sent the money.”

“More promises and teases of multi-millions followed, with each one dependent on her sending yet more money. Most of the missives were rife with misspellings.”

Okay, I guess if someone’s going to give me a lot of money I won’t hold their spelling problems against them. 

“When Spears began to doubt the scam, she got letters from the President of Nigeria, FBI Director Mueller, and President Bush. Terrorists could get the money if she did not help, Bush’s letter said. Spears continued to send funds. All the letters were fake, of course.”

Oh boy.  Even worse, she was told it was a scam by relatives, friends and other professionals, and was advised to stop- and still she kept sending money.  No offense Ma’am, but I hope your nursing judgement is better than your everyday, ah, money handling judgement.  

This type of “Nigerian” scam is a called “advance-fee fraud” and it has been around for a long time.  Even worse, it’s reaching an epidemic level and people keep falling for it!   What’s the best way to avoid it?  Just don’t reply to any email or letter than has anything do with Nigeria for one…  more importantly think about these words from the Federal Trade Commission:

If You Receive an Offer

• If you’re tempted to respond to an offer, the FTC suggests you stop and ask yourself two important questions: Why would a perfect stranger pick you — also a perfect stranger — to share a fortune with, and why would you share your personal or business information, including your bank account numbers or your company letterhead, with someone you don’t know?
• And the U.S. Department of State cautions against traveling to the destination mentioned in the letters. According to State Department reports, people who have responded to these “advance-fee” solicitations have been beaten, subjected to threats and extortion, and in some cases, murdered.
• If you receive an offer via email from someone claiming to need your help getting money out of Nigeria — or any other country, for that matter — forward it to the FTC at spam@uce.gov.
• If you have lost money to one of these schemes, call your local Secret Service field office. Local field offices are listed in the Blue Pages of your telephone directory.(I never knew that!?).

Admittedly some people get involved in a scam and it becomes an obsession to fix it, get their money back or it becomes some type of self-denial.  That’s such a shame, and it must border on psychological issues sometimes.  But apparently the woman in the article above would like other people to know her story so maybe it can prevent someone else from falling into this trap.  Good for you lady, and thanks for sharing it.  It’s too bad you couldn’t have done so earlier without losing so much money.   

It also upsets me that our government, and the governments of Nigeria or other countries cannot do something to prevent or remedy this type of situation.   It’s bad enough when we’ve lost 36% over the course of a year in the markets- but to just give our life savings away to scam artists?   Don’t fall for it!

For More Information

More information about Nigerian Advance-Fee Loan scams is available from the U.S. Secret Service (www.secretservice.gov/alert419.shtml).

The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint or to get free information on consumer issues, visit ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters consumer complaints into the Consumer Sentinel Network, a secure online database and investigative tool used by hundreds of civil and criminal law enforcement agencies in the U.S. and abroad. 

Well then.  A day to be in the markets.  Nearly an 11% gain in one day, after losing 18% last week. 

Last week was the worst week ever for the Dow… and Today was the best day ever for the Dow. 

It almost presents some zen-like Yin and Yang investing paradox as we struggle to understand how it affects us.

So what’s it mean really?  Does this mean we’ve hit a bottom?  Is the pain over?  Does our retirement portfolio head back in the other direction?   Questions many of us want to know.  But the market is funny that way.  Not funny “ha ha” but funny as in fickle:  There really are few definitive answers.  As much as we would like to know that it’s time to start investing again, we look the other way and the market has taken off somewhere else. 

So was last week the value investors opportunity of a liftetime?  Or was today really just a bear market rally?

My humble opinion:  Last week was a bottom for the short term.  Much easier calling in retrospect, huh? We may take off on a bumpy ride toward 10,000 or 11,000 on the Dow.  But let’s be realistic- the market was extremely oversold last week, and many companys’ stocks were selling for less than they were worth.   We were due for a rally… BUT!  Does that mean the credit crisis has changed?  No.  The U.S. and other countries throughout the world face many economic challenges ahead.  The landscape has changed just enough to provide hope and encouragement over the short term.  Meanwhile we watch the housing and mortgage markets, the jobs reports and the earnings reports, and we know that we may struggle through a recession or other challenges ahead.

We obviously don’t know what tomorrow brings. But here is an excellent article that shows how Keeping Your Money in the Market is a long term strategy for success.  Stocks have not been this cheap in several decades.  

But knowing that we don’t know what’s ahead, many people have figured out that they are not willing to risk their money in the stock market anymore.  Lots of folks have flocked to CD’s for a safe and sure return.  Nothing wrong with that at all, especially with a 4%-5% yield over 5 years.   

Are you that risk averse?  If investing bothers you that much, then you need to sit down with your advisor or planner and figure out a more conservative asset allocation.  If you’re handling your investments yourself, maybe sitting down with a financial planner can help as well anyway.  A year ago I talked about risk tolerance in the context of real estate investing.  It’s worth examining a little more closely, and better late than never.

The time to decide you are not comfortable losing money in a particular market investment choice is ideally before you put money there! But most of us learn things a little harder, through experience. Knowing our risk tolerance is not hard, but making decisions appropriate to our risk tolerance often is.

Risk tolerance is a very personal thing, and there are few right answers. What is right for you may not be right for me. What is right for your spouse may not be right for you, so you will need to strike a balance or an agreement for your investing goals and allocation. Risk tolerance is also tied to the time horizon for your investment goals.

If you’re saving for a down payment on home, your risk tolerance should necessarily be very low and your assets should be in a savings or money market account. If you’re examining risk tolerance in terms of retirement in 20 years, that presents a whole new perspective. The ancient Greek saying “Know Thyself” is very appropriate. We are trying to work with a level of risk that is appropriate to our goals, time horizon and personal level of comfort.

Many studies have been done to investigate consumer risk tolerance, and basically the studies show that people are normally far more conservative than they think. In other words, we often think we are willing to handle degrees of risk, but when it comes to losing money, we are not prepared for risk at all. Here are some tools you can use to analyze your own tolerance for risk:

• MSN/Money Online Risk Tolerance Quiz: A quick online assessment of risk tolerance.

The following are printable .pdf files:

• Investment Risk Tolerance Quiz: An excellent risk tolerance quiz courtesy of North Dakota State University, by J.E. Grable and R.H. Lytton.
• Risk Tolerance Quiz: This is a useful risk tolerance questionnaire from Richard D. Margarian. Use your answer choice as the points for each question, then total them up at the end.
• Retirement Risk Tolerance: A short analysis form that looks at risk from a retirement goal perspective.

There’s also few things better than a good second opinion. If you want objective advice and a closer examination of risk and asset allocation, find a professional Certified Financial Planner in your area using the Financial Planning Association’s search tool.

And one other note:  If like many people, you’re just not looking at it anymore… well that’s called “The Ostrich Method of Investing.”  Might be okay if you’ve established some long term goals for 10-20 years from now, but it doesn’t always work out the way you might think!   Especially if you need money over the short term. 

For those who really believe the future is pretty bleak for the next 10-15 years, then maybe you do want to find a safe place to keep your money.  But I’m not going to bet against America, or the ingenuity of a whole bunch of folks that love business and capitalism. 

Besides, too many people like finding ways to make money. Greed is a heck of a motivator.  And from my perspective, the stock market is a pretty good long term proxy for the success of our free market economy. 

The past week was the worst ever for stocks in the Dow’s 112 year history with the index falling almost 21% over seven days.  Friday was the eighth down day for the market, unprecedented in scope and duration.   Almost everything has fallen, and there were few refuges for those seeking safety, apart from cash.

“…Until now, the Dow’s worst week was in 1933. Total trading volume of stocks listed on the New York Stock Exchange also hit a record, 11.16 billion shares.”

“The damage has been devastating both to households and to major investment institutions. Investors’ paper losses on U.S. stocks now total $8.4 trillion since the market peak one year ago, based on the value of the Dow Jones Wilshire 5000 index, which includes almost all U.S.-based companies.”

“The blue-chip average is down 40% from last October’s record, its biggest decline since 1974.”

 And that’s the hard part for so many people to understand.  Retirement funds in 401(k)’s and IRA’s are taking an enormous hit, and some folks are throwing up their hands and selling everything.  Think you’re safe with gold?  Not yesterday as gold prices fell Friday after weeks of gains.  

“Gold for December delivery fell $27.50, or 3.1 percent, to settle at $859 an ounce on the New York Mercantile Exchange earlier falling as low as $829. The metal has dropped for two straight sessions, at least temporarily halting a big move upward as investors shifted funds into gold and silver to take advantage of their perceived safe-haven appeal.”

“But as U.S. stocks continue to slide, large institutional investors have been forced to sell gold and other commodities to meet margin calls and other requirements, said Jon Nadler, analyst with Kitco Bullion Dealers Montreal. In a margin call, investors who borrowed money to buy stocks are forced to repay the loans.”

“If stock markets continue their current trend, then there is little doubt that margin call liquidations will continue to negatively impact gold and oil,” Nadler said.

With the wholesale liquidation of stocks and commodities in the market, it also looks like the oil bubble has finally popped.  What does that tell us?  Was there truly so much demand that less than a year ago the price of oil was $147 per barrel with many predicting $200 oil?   And is there really so little demand now that oil is less than $82 per barrel and falling?  

Some are calling it “demand destruction” citing rapidly falling demand for oil by consumers and businesses in recent months.  But the credit crisis has exacerbated the impact of corporations and traders who would borrow money to purchase oil contracts.  However you look at it, speculation and the unwinding of large financial institutional bets in the commodities sectors have played a large role as well.  Have you seen the prices for corn or soybeans?  All down sharply.  

The good news, at least for now, is that gas and food prices should not be rising significantly over the near term, and many prices may fall.  I was looking at the price of three-dozen eggs at a big-box store the other day.  Last year the price rose from $2.99 to $5.99 presumably based on fuel costs.  The price is now down to a more reasonable $3.59 for those same three-dozen eggs.

Not only has the money flow dried up in many areas, consumers are also tigtening their wallets in response to the financial crisis.  All of this has a compounding effect, at least for a while.  My concern however is what happens next?  A few months down the road after this “unwinding” and liquidation of assets by the large institutions, will we face renewed pressure on the prices of goods and services? That’s the view of Jim Rogers and others, citing a pending “inflation holocaust.”  For the short term however, it would seem the threat of slower economic growth is of greater concern than the threat of inflation.

The more important question for many people right now is “What to do?”   That’s a question that every investor, or their financial advisor, must try to answer and to understand the longer term implications for their clients’ goals.  Many of us believe the government is making progress and that with time and increased capital, the markets will stabilize.  How soon that takes place is anyone’s guess.  

There are advisors recommending “sell” and others saying “stay put.”  A bold few are actually buying in the market, picking and choosing among beaten down stocks at bargain prices.   Personally I took the opportunity to sell some losing positions, and reallocate that money among some of those bargain stocks.   In my IRA I sold a portion of a conservative mutual fund to reallocate that money in a growth fund that had fallen sharply.  Am I early?  Maybe so.  We may yet see weeks more of losses, but it’s a bet I’m willing to take with money I won’t need for a decade or more.

I don’t believe the nation is headed towards depression-era times, but we obviously have many challenges ahead.  Some think it could get a lot worse, and it’s worth looking at What History Tells Us About the Market.   Reading that article is a sober wake-up call to how bad it was, and how bad it could be.  For now most of us are just watching, dazed and wondering when it will all turn around.

“The entire nation, it seems, is in the grip of what psychologists call “the disposition effect,” or an inability to confront financial losses. The natural way to palliate the pain of losing money is by refusing to recognize exactly how badly your portfolio has been damaged. A few weeks ago, investors were gasping; now, en masse, they seem to have gone numb.”

But amidst the financial carnage, we also hear what may be the siren song that the other side of crisis is opportunity.

“This collective stupor may very likely be the last stage before many investors finally let go — the phase of market psychology that veteran traders call “capitulation.” Stupor prevents rash action, keeping many long-term investors from bailing out near the bottom. When, however, it breaks and many investors finally do let go, the market will finally be ready to rise again. No one can spot capitulation before it sets in. But it may not be far off now. Investors who have, as Graham put it, either the enterprise or the money to invest now, somewhere near the bottom, are likely to prevail over those who wait for the bottom and miss it.”

History tells us that people tend to buy at the highs, and sell at the lows.  We may not be quite at the lows yet, but selling now is basically the same thing.  If we’ve learned anything in this market it’s that the word “risk” doesn’t mean what we thought it did.   We’ve now discovered how sensitive we are to seeing portfolio losses when the downside really hits.  Risk tolerance has changed for many of us, and a whole host of moderate and aggressive investors are now joining ranks with their conservative peers. 

If you’re dollar cost averaging with retirement funds, or 401(k) contributions, I would certainly continue to do that. The market may trend lower in the months ahead, and dollar cost averaging works in your favor. But my standing philosophy remains:  Cut spending, Pay down debt, and Increase savings.  Focusing on those three things is a prerequisite to financial stability.   If you’ve got those three things under control, then continuing to invest, or increasing investments is worth considering.

How long will it take until we see traction and more stability in the financial markets?  I think it will be weeks rather than months.  However long it takes, I am unapologetically optimistic about the nation’s future and the future of our free-market economy.   Hang in there, and have a good weekend.

***Update***  Prudential warned today stating third quarter earnings will be down on investments, and the company cancelled future planned stock buybacks.  The stock took a beating today, closing down over $10 per share.  But the company remains strong according to the CEO.   In today’s market climate however, investors are running for the exits in a “shoot first, ask questions later” approach to the financial sector.  

“While our results have been negatively affected by current financial market conditions, we are comfortable with our risk profile and believe that we are in a strong position to manage through the current environment,” said Chairman and Chief Executive John Strangfeld.”

*****

It’s a beautiful day outside… sunny and cool, blue skies and calm winds.  But the weather in the markets is still pretty stormy, and a lot of folks are stressed out. So many of us are immersed in our computers or day jobs, with noise and commotion all around us.  Or we sit at home, staring at the same screens, wondering “when” the markets or financial crisis will subside. 

This morning I took a break and went for a walk.  It was not only refreshing, but helped put things in perspective.  I don’t know where the markets or financial issues are headed, but I know there’s a lot of good folks working pretty hard to get it straightened out.  In the meantime I’ll just focus on taking care of business with work and home. 

An amazing stock story this morning was Prudential Financial (PRU).  I watched the stock open around $41 per share after getting hammered the past week.  Here’s a stock that was $60 per share just a few weeks ago.  And before my eyes today I watched it plummet over $16 dollars a share down below $26.   Incredible.  I’m thinking “either something really bad is going on with this company, or the shorts are having a field day.”  

Interesting that the shorting prohibitions against financial institutions were lifted by the SEC effective at midnight last night, October 8th.  Coincidence?  Sure, why not, but Prudential Financial was on the SEC’s short ban list until last night.

 I’m not going to examine the arguments for “market efficiencies” with shorting, but somehow it just doesn’t seem appropriate that in the name of free market capitalism we can allow huge pools of money to step in and destroy a stock over a period of days, or even intraday.   That’s the kind of market action that destroys any sense of the word “investment” for many people, and it makes you wonder how that degree of volatility happens.    

Of course I don’t really know the extent to which Prudential suffered a shorting attack on its shares today, but as I write this even before noon on Thursday, October 9th, Prudential’s share price is already back up to $39.  I’m sure the volatility will continue both ways. 

Admittedly, folks are afraid that the financial contagion might affect the insurers just like banks and other financial companies.  So that volatility is borne of panic and wholesale capitulation in certain areas.  But most of the insurance company stocks are very conservative companies with long term liabilities and strong balance sheets.  Maybe they do have some problems, but not to the extent to which the panic (and short selling) has gripped the markets and their share prices.

All I know is that if the insurers are truly at great risk of failure or default then we’re really in trouble.  These guys manage everything from life insurance to pension funds and annuities.  Their bread and butter is to manage risk very conservatively in case of the exact economic and other financial crisis that we’re seeing today.  Well perhaps the crisis of the past few weeks is indeed unprecedented, but could they have prepared for this?  Yes, to a great extent.  And no, with regard to collateral investments that may have gone south, and cross-party liabilities with companies such as Lehman Brothers.  They may even have to raise extra capital through stock offerings, or even borrow from the government. But my argument is that if the insurers can’t work through this mess, then who can?   Perhaps mom and pop with cash in the mattress… for a little while.

Having said all that I am reminded of a little family history.  My folks grew up through the Great Depression, and lived by and large quite frugally throughout their lives.  The lessons from that hard time were not lost on them.  One of my parents has a life insurance policy that was purchased by their parents.  The policy was called a “nickel policy” back then because each week the insurance representative would come by the house to collect .05 cents to pay for the insurance. 

I am told that on several occassions they didn’t even have a nickel to pay for the insurance, and my grandmother would hide in the house peeking out the window until the insurance rep went away.  One time my Mom, age 4 or 5, answered the door, with her Mom whispering in the background, “I’m not here!” and when asked by the insuance rep, “Honey, are your parents home?” she replied smiling, “Yes, Mommy’s behind the door!”   True story.  

That insurance policy was lost over the years after my grandmother passed away.  Mom didn’t really know about it.  But a few years ago she learned of its existence through a relative, where it was held in trust with a state government.  Lo and behold it was the same policy purchased by her Mom and paid on for many years at a very low price.  She was pleased to find that it was paid up, and worth over $5000 today, having grown in value from pennies to a respectable sum over the course of 70+ years.  What company was it from?  Prudential.  And when she spoke with the company, they assured her the policy was worth every penny.

It may be rough going for a while, but I suspect that if Prudential made it thorugh the Great Depression, the Second World War and many other turbulent times, that they’ll make it through these times as well.  Have a great day.

Do you know why I’m upset with myself this morning?  Because I don’t have enough spare cash on the sidelines to invest in a few stocks I’ve been watching.   We don’t know how deeply the Bear will claw it’s way through the market in the weeks ahead, but there are some amazing valuations out there.   Look at Conoco-Phillips (COP) trading witha P/E just below 6, or Apple (AAPL) down around 90 with a P/E of 18.   Or YUM Brands (YUM) falling to a new 52 week low below 29 with a P/E around 15.   And eBay?  Holy cow… eBay once loved by so many (including me) has fallen to below 18 on earnings warnings, but sporting a too-hefty P/E that just won’t cut it in today’s markets.   But look at Goldman-Sachs (GS) or General Electric (GE) at an 11 year low, to follow Warren Buffet’s lead.

So is this it?  Is this Wall Street falling off the cliff? Are we so totally out of confidence, that there is no interest and no trust for investors to wade back in?   That’s what the bug-eyed folks are saying who are panicking.  And they’re proabably right, at least partly, and at least for the short term.

But if I had more cash to invest with, I would be looking for bargains.  If the market falls more?  I’d be looking for more bargains.  Yes this may be a very difficult investment climate for the next few years.  We may not see returns on money we put in for many years down the road.  But all I know is the “opportunity bells are ringing” loud and clear that if you have extra long-term cash available to invest, this is a great time to pick and choose those companies you’ve always wanted to invest in.

There are few times in our lives when markets offer such opportunity as they do now (and may offer even more tomorrow).  It involves Summoning the Courage to Buy Stocks.  We will long remember these days, as did many of those who came before us. 

“…investments everywhere are priced as if the whole solar system were going out of business. U.S. stocks have lost 24% since Jan. 1; foreign stocks are off 32%; emerging markets, nearly 40%; junk bonds are down 13%; even municipal bonds have fallen almost 10%. Money is pouring into U.S. Treasury debt — so much so that stocks now offer more income than bonds do. The dividend yield on the Dow Jones Industrial Average is currently at 3.14%, higher than the 2.68% yield on the five-year Treasury note.”

“With so many professional money managers afraid to act, with most of the public in the grip of fear and anger, you should put your cash and your courage to work. If you have no cash, use your courage: Rebalance by selling a little of anything that’s gone up and buying more of whatever’s gone down.”

“If you have both cash and courage, make a list of 10 stocks you’ve always wanted to own at “the right price.” Chances are, they are cheap. Better yet, think of an investment category you’ve long wanted to venture into, like emerging markets. Chances are, it is on sale. Just about everything is.”

But there is a catch.  You darn well better not be gambling with money you don’t have.  That’s money you’re going to need over the next 5 years for something else.  Medical bills, a house, a car, food…  Because this market will kill you.  It will slice you up in a heart beat if you’re not sure what you’re doing.  And even if you think you know what you’re doing.

I’ve got one investment down over 50% because I was too stubborn and not disciplined enough to sell.  And I’m not selling now, which means that money is dead for who-knows-how-long.    So you need to think long and hard about investing in this market, and be sure you pick a solid company with a strong balance sheet that can weather the storms ahead.   Because your stomach will be riding right along with it.

Aside from all of that, it’s a beautiful day today.  Hang in there.

So the first vote is “NO!” on the Bail Out emergency spending bill.  I would have liked to have seen a real bipartisan bill passed with thoughtful, considered measures on behalf of the American taxpayer.  But it is simply not there yet.  Over 66% of House Republicans, and 40% of House Democrats voted against this bill.  Yes, 90 + members of the Democrat party voted against the bill.  The bill failed 228 to 205.

What really bothers me: Speaker Nancy Pelosi (D-CA) spoke a partisan view at every turn, yesterday calling the Republicans “unpatriotic” for standing up for their principles and fighting for what they believe is best for the country and their constituents?  She continued today, before the vote, by blaming Republicans for the entire financial crisis?!   That upset so many Congressmen that they probably voted no because of it.  

But it’s simply unbelievable that Senator Pelosi would attack other Congress members during this crisis, especially in the context that these are people who are standing up for their conscience to work out a plan that protects taxpayers from what they view as excessive debt and spending.  And now Speaker Pelosi is blaming the GOP for the failure of this spending bill even though 90 Democrats also voted no.

With both sides blaming each other for the bail out failure, many Republicans expressed concern that this just was not the right legislation at the right time, some asking their peers to think hard about what they were voting for:

“Before the vote, many House Republicans expressed opposition to the bill, saying it departed from free-market principles. Republican congressional aides also said calls from constituents were running 10 to 1 against the legislation.”

“The relevant test is, when you look at the good in the bill, when you look at the bad in the bill — does it take America in a direction that you believe America should go?” said Rep. Jeb Hensarling, a conservative Texas Republican, before the vote. “By that test, Madam Speaker, I will vote no on this legislation.

“I fear that ultimately it may not work. I fear that it is too much bailout and not enough work out. I fear that taxpayers may end up inheriting the mother of all debts,” he added.

Another Republican called on members to vote their conscience. “Ask yourselves why you came here and vote with courage and integrity to those principles. If, like me, you came here because you believe in limited government and the freedom of the American marketplace, I urge you vote in accordance with your convictions,” Rep. Mike Pence, R-Indiana, said.

“Stand up for limited government and economic freedom. Stand up for the American taxpayer. Reject this bailout and vote no on the emergency economic stabilization act,” he said.

Here’s something that really opens your eyes.  Representative Marcy Kaptur, a Democrat from Ohio speaks on how the Bail Out bill has been shoved down other Congressmen’s throats the past week.  This is an amazing video.

I normally try to take an objective viewpoint politically, and not to advocate for one party or another.  But today is a very sad day when the top leadership of our national Congress stands up and blames other members of Congress for not doing enough to solve what may be the greatest financial crisis in our nation’s history.   Both sides are certainly to blame here, and if they cared more about what is best for the nation instead of staying elected in office, then I think we’d be a lot further along.It’s amazing to watch and such a shame when we are so much better than this.   The real reason the bailout bill has not passed is that the Bail Out doesn’t do enough to protect American taxpayers from years of future debt and tax hikes!

Enough on that note.  Let’s hope we can move forward and get something functional put together. 

It looks like the financial bailout agreement is getting close.  But while we’ve been waiting for Congress to put the supposed rescue package together, they’ve also been busy creating other new legislation with a similar enormous pricetag.
The $634 billion economic spending package has been brewing for some time however, and provides legislative funding for everything from aid to hurricane victims along the gulf coast, to lifting the ban on offshore drilling (except for the oil-rich eastern Gulf of Mexico), loans for big U.S. automakers and funding for pentagon military operations and projects.  This whole thing happened this week in the background of the “financial crisis” we’re facing.

So now they’re also about to pass what may be a $700 Billion financial rescue package.  Even though it may be necessary, it’s worrisome because no one really knows how we’re going to pay for all of this.  What is the real cost down the road? Is there any way out besides what most Americans fear as tax increases?  How do we really benefit from this?

I’ve got to admit the last several weeks have been very disheartening in terms of the degree of bailout assistance and government intervention we have seen.  Some are decrying the death of the free market and believe the political leadership is deluded to be supporting such enormous government intervention without considering the economic impact on taxpayers.  The bailout seemingly provides the most help for the financial institutions that put us in this situation in the first place. 

And others are just upset and confused at the current state of economic affairs and worried about what it means.   The past week was amazing though.  On the one hand the government puts together an $85 Billion rescue package for AIG, but on the other the FDIC “takes over” Washington Mutual bank, one of the nation’s largest, and sells their assets to J.P. Morgan for pennies on the dollar. 

Shareholders of AIG may be pleased with the long term outlook compared to the alternative.  But shareholders of Washington Mutual are totally wiped out. Everyone from employees with 401(k) investments in Washington Mutual to everyday investors were left holding an empty bag.    Except for the CEO of course.  Washington Mutual’s CEO now stands to walk away with millions of dollars after being hired just several weeks ago.  Not bad, huh?

And J.P. Morgan?  Here’s a company that was practically handed the best of Washington Mutual’s properties and operations, and now stands to become one of the big winners of the financial crisis.  And here J.P. Morgan was only last week converted to a banking company, after being one of the top five investment institutions in the U.S.  One of the same investment institutions that created this financial mess in the first place, but perhaps managed their risk better than others.  Of course Washington Mutual helped create the mess as well, with poor lending practices and too much leverage… and the walls came tumbling down. 

It all doesn’t really make any sense. Which may tell us how difficult this situation is for the government, and the challenges that we face.  And what about the Fed and Congress making sure that excecutives and institutions don’t benefit too much from the bailout?  Well perhaps they mean “don’t benefit” after this.

Regardless of the bailout, the U.S. economy - more importantly the nation as a whole - will face continued challenges.  This is just the beginning.  Let’s hope the political leadership  puts together a constructive package that helps the nation start on the road to recovery. 

For investors there’s a lot of financial hand-holding going on these days, and it’s quite understandable. Many of us are thinking about what we have, or what we really need to live on these days.  Rather than give in to fear, we need to sit down and take a look at the reality of our situation.  If you have an advisor or planner, then sit down to look at where you are, compare that to your original goals.  Has anything changed?  For some people the words “risk tolerance” have taken on new meaning.  That’s actually a good thing because it can help you tailor a portfolio allocation to a more appropriate structure over the long term.

If the bailout does nothing else in the short term, at least we can begin to put the current uncertainty behind us and return to more normal financial market functioning.

I don’t know what bothers me more: The fact that the President has made 4-5 appearances over the past couple of weeks to reassure the public and tell us that we’re going to solve our financial crisis, or the fact that the bailout package is an enormous point of contention within Congress, and they haven’t got anything done quite yet. 

I think many Americans saw the financial crisis as simply a bunch of noise, until this week.  Now we’re hearing daily about political argument, risks to the economy and the largest bank failure in the nation’s history.  

Even tonight’s first Presidential debate has taken a back seat to the financial crisis.  Which in my view is appropriate; I agree that McCain has his priorities in the right place by stepping outside campaigning and advertising and to help solve the financial crisis in whatever way he can.  Many folks see it as a political stunt however, but that’s not McCain’s style.  His motto of “Country First” is a heartfelt statement about who he is, and what he believes in. Right or wrong, his sense of honor and dedication to the nation means a lot, and I respect someone who risks his entire campaign and chance to become President by doing what he thinks is right.  I’m not too naive to realize that politics are part of the game as well.  But McCain has rolled up his sleeves to help work through this, and that seems appropriate.  It may backfire on him especially by staying out of the debate.  **Update: Based on bailout talks progress, McCain will now attend the scheduled debate.**

But what does the bailout itself really mean?  Apparently the crux of the disagreement between Republicans and Democrats has to do with how much government regulation should be included in the package.   But more important to the economy is how effective the bailout will be immediately, and then what are the longer term implications.   We have a chance for this package to help the economy return the nation to a path of growth.  The bailout package will not be a panacea that solves the nation’s economic problems.  It will simply help us return to more normal financial market operations, and grow out of this situation more effectively than we would otherwise. But it’s an expensive way to grow the economy, and we need to make sure this does not happen again.  Perhaps it’s a new economic paradigm, one that speaks to the government stepping in to save the economy from self-destruction by derivative-laced financial instruments.

CNNMoney explores What’s at Stake for the Bailout: 

“Federal Reserve Chairman Ben Bernanke spelled out the implications of this credit crisis earlier this week in front of Congress.  He talked of how small businesses would not be able to get the credit they need to operate, grow and hire workers. Consumers would have trouble getting mortgages to buy homes, further driving down prices. And tighter credit would mean lower sales of cars and other big ticket items, leading to more plant closings and layoffs.”

“Credit is the mother’s milk of the modern economy. The tighter the credit spigot closes, the worse the economy is going to be,” said Mark Zandi, chief economist of Moody’s Economy.com. “Businesses operate on credit. If they can’t raise money, then very soon they won’t be making payroll.”

“Economic pushback. Economists say that without a restoration of credit, unemployment would likely shoot up to over 10% from 6.1% today. And GDP could fall at an annual rate of between 2% and 4%.”

“Those unemployment and GDP readings would be the worst in more than 25 years. And many believe it would not be until at least 2010 before the economy starts to recover, which would make the current downturn the longest since the Great Depression.”

Most experts believe we won’t see anything like the Great Depression in terms of unemployment or credit problems.  But a lingering economic recession can still have far-reaching negative effects on the nation.   We need Congress to get their act together and figure this thing out.  Get it started. After all they’re legislators- they can pass laws.  If they don’t like something, change it.  If you want to make it better, do it. 

Today President Bush makes a lot of sense is showing real leadership saying that “Congress must rise to the occasion and approve a plan.” 

“There are disagreements over aspects of the rescue plan,” said President Bush, “but there is no disagreement that something substantial must be done. We are going to get a package passed.”

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!