It was announced today that AIG is getting yet another bailout. This is the fourth time the government has stepped in to try and save the company. Does it worry anybody else that this the fourth time they are going back? One thing I learned early on in my career is that when you have to deliver bad news, you do it exactly once. You course correct and you give yourself enough room that even in a worse case scenario, you do not have to go back to the well. Going back again just makes you lose credibility. This clearly is not being done with any of the bailout plans. People keep coming back for more. AIG is back, GM and Chrysler are coming back, and more banks will come back.
You take this news along side the Dow breaking below 7000 and you have to wonder if there is any causation. The market is behaving so badly because nobody has any confidence that we can get out of this. Markets bounce back because people do not want to miss out on the potential upside. But with the rules changing so rapidly and it being impossible to tell who will will and who will fail, there is nobody to buy stocks. Just looking at volumes in trading, it does not seem to me to be an overabundance of sellers. There just are no buyers. In any market you need both. So while I do not think sellers are rushing for the doors, you are most definitely not getting people who have any desire to get in.
At this point, I do not think Dow 6000 is that far fetched. You would not have gotten me to say that a week ago but this is how quickly things have changed. Lucky for me, I'm still mostly in cash and have not made any moves to get more long other than to get less short. I am not sure I would get short from here but I also am pretty damn sure I will not be getting long either.
I was watching a debate and one of the speakers asked "Are the bailouts only for banks or institutions that are reckless with their money or are very close to filing bankruptcy?" It made me laugh a little. The plan to help out these drowning companies needs to be more than just helping them out temporarily. The bailout should be used for banks with actual potential to turn around. It's like that old saying "Don't throw good money after bad." Giving AIG yet another check is very scary. Is there a plan on this company's turn around? What is the metric? What is the time frame (It should not be "whenever"). Who's monitoring how the money is spent and what progress has been made using the money?ReplyDelete