"You know what the news is-- in a minute, you're going to hear the rest of the story"- Paul Harvey
Does the financial media have you scared yet? I have to admit, I enjoyed yesterday's sell-off, and I particularly enjoyed all of the glum faces on CNBC this morning. I'm not saying this to be snide, but this is the type of market I have been waiting for since the beginning of 2007.
Yesterday, after the market closed, I went to the gym and watched the financial channels while I was torturing myself on the stair-climber. As I watched numerous TV screens, CNBC's Fast-Money gang was debating the 500 point drop, and on Fox, Neal Cavuto played video clips of the Great Depression.
While the media was scaring investors, Bank of America went on buying spree by purchasing Merrill Lynch . It reminds of the movie "It's a Wonderful Life". Remember Mr. Potter?
BAC is Mr. Potter, and Potter isn't selling, Potter is buying!
Frankly, I feel like a kid in a candy store. As I watched my quote monitor yesterday, I was saying to myself, "Oooh that looks nice , I'll have one of those, Give me some of that". The market is getting into a range where each new purchase excites me again. This hasn't happened since 2001-2002.
The key to not being disappointed in markets such as these is to make purchases in incremental stages between now and the end of the year.
In my opinion, Wall Street is finally taking the beating that they long deserved. They created the current mess, and now they are reaping what they sowed. Alert investors read the handwriting on the wall three years ago when;
1) The Bankruptcy Laws were Changed (October 2005): While consumers were up to their eyeballs in debt, the financial lobby convinced congress to pass "The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005."
On May 31, 2006, I said;
If you don't believe the consumer is in financial trouble, all you have to do is remember the "Lending Tree" commercial where a guy mowing his lawn says he has all of these possessions because I'm in debt up to my eyeballs."
I don't know how all of this is going to shakeout, but its not going to be a pretty picture. In the months ahead, many real estate speculators are going to have to go to closing on their real estate speculations. From what I am hearing, many expected to flip their properties before the closing date, but the buyers have suddenly dried up.
Stay tuned, things could get very interesting in the months ahead.
2) The Repeal of Glass Stegall: The main culprits for the Sub-prime Crisis were Congress and Bill Clinton when they repealed the Glass-Stegall Act in 1999. Glass-Stegall was enacted in 1933 to separate commercial banking from the securities business.
President Bill Clinton, and the members of Congress, were responsible for Glass-Stegal's demise and were repeatedly warned by General Accounting Office (GAO) that banks need to build up adequate capital levels before being allowed to enter the securities business.
Glass-Steagall prevented securities speculation from destroying bank capital, but since its repeal, look what has happened. All of the people responsible for the repeal of Glass-Steagall should be held responsible for their actions.
But, and this is the sad part, none of these people will be.
So, where do we go from here?
All of the turmoil in the markets will eventually end. The strong will survive, and the weak will disappear. This is the way it should be.
Take for example Bank of America (BAC), and Wells Fargo (WFC). BAC has scooped up Countrywide, and Merrill Lynch at bargain prices. One day these assets will payoff handsomely. And, Wells Fargo has gone through the recent market decline virtually unscathed.
With the demise of Bear Stearns, and Lehman, Goldman Sachs (GS) will have very little competition in investment banking. I heard Nouriel Roubini's comments about GS and Morgan Stanley, but I believe Goldman has enough strength and political influences to do well on their own.
Goldman influence should not be underestimated. It's former employees have gone on to high levels of government as Cabinet officials, agency analysts, advisory board members and even U.S. lawmakers.
Here are a few examples;
New Jersey Gov. Jon Corzine
White House Chief of Staff Joshua Bolten
Former Treasury Secretary Robert Rubin
Deputy Secretary of State Robert Zoellick
Former president and chairman of the Export-Import Bank of the United States, Kenneth D. Brody
Former director of the National Economic Council, Stephen Friedman
Former Deputy Secretary of State, John C. Whitehead
Former Assistant Secretary of State for Economic and Business Affairs, Robert Hormats
Treasury Secretary, Henry Paulsen
The best approach for the average investor is to dollar cost average into a high quality, low cost index fund like the Vanguard S&P 500, or the Vanguard Total Stock Market Index Fund. More sophisticated investors can buy stocks.
