Friday, September 19, 2008

Helter Skelter


“When I get to the bottom
I go back to the top of the slide
Where I stop and turn
and I go for a ride
Till I get to the bottom and I see you again”
- Helter Skelter (Lennon-McCartney)



One of my daughters just loves roller coasters, but I think even she would’ve been nauseous this past week. Some of us held our breath while the rest of us held our noses.

That smoke you smell is from the friction of the over-heated U.S. Treasury printing presses cranking at maximum capacity to keep up with the obligations assumed by our very own federal government.

Losses in private business are – once again – being socialized on the backs of the U.S. taxpayer. Remember the Savings and Loan disaster in the 80s? That was a mere pittance at $150B. This dwarfs that by a magnitude of oh, say, at least 10X. The Crowned Heads of Government Finance (Bernanke, Paulson et al) were – once again – check-mated into backing private business with taxpayer dollars. The U.S. financial markets had become so intertwined that “too big to fail” was quickly replaced with “too complex to fail”. They drew a line in the sand with Lehman Brothers, but the markets quickly erased it with the loss of confidence in insurer AIG whose participation in the unregulated market for Credit Default Swaps (CDS) threatened market stability all over the world. Even providing financing to AIG wasn’t enough and now they are trying a fire break to cleanse the banking system of bad debts in the hope that will stop the firestorm.

So now the U.S. Government owns (one way or another) Bear Stearns ($29B), Fannie Mae, Freddie Mac (combined $6T), AIG ($85B), ALL THE BAD MORTGAGE LOANS IN THE ENTIRE COUNTRY (“We’re talking hundreds of billions.” – Paulson) but wait, it gets better: ALL LOSSES IN MONEY MARKET FUNDS for the next 12 months ($50B to start).

My brain hurts. As Everett Dirksen is often quoted as saying: “A billion here, a billion there, pretty soon it adds up to real money.”

My 2 cents: They better well make damn sure the financial “institutions” share in the cost and they better make sure it hurts because I can tell you, our share is gonna hurt. WE CAN’T KEEP DOING THIS.

You can kiss any campaign promise tax decreases good bye and the hidden tax of rising inflation caused by printing money will only add to the pain.

In spite of the wild ride, the U.S. stock markets actually eked out a small gain for the week.

I repeat my mantra for investors: stay invested, stay diversified.

Questions? kimm@sweetwaterinv.com

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