That old adage has never been truer than now. Fearful hysteria overrode fundamentals this past 2-3 months - especially last 2 weeks - driving prices to the bargain basement. Governments world-wide pledged $3.3 TRILLION to remedy the worst financial crisis in decades.
Making History: If you blinked twice last week, you likely missed this history in the making. 9 largest US banks were NATIONALIZED on Oct. 14 when Henry Paulsen, US Treasurer, did a fast U-turn & handed their CEO's a 1-page agreement that required each bank to sell the US government preferred stock plus warrants to buy common for a $25 billion capital infusion whether they needed it or not. Objecting & grumbling, the CEO's did as they were told after Paulsen gave them an ultimatum: take the deal or we'll raise the ante on your banks (translation: raise capital requirements).
The Treasury - on behalf of taxpaying citizens - received preferred shares paying 5% dividends (increasing to 9% w/in 5 yr.); plus warrants to buy common equal to 15% of the initial investment, which would not be voting shares. The rising dividends & warrants are intended to give banks an incentive to buy back the shares. Supposedly, Paulsen basically demanded from the banks what Warren Buffett demanded from Goldman Sachs - only the banks got a slightly better deal.
Henry Paulsen took a page out of Warren Buffett's "HARD BARGAIN" play book... or maybe it was bridge - Warren's favorit game. (Heh! Heh!)
Pay attention now & don't blink when I tell you Warren Buffett is Obama's chief economic advisor & will likely be sitting at his Cabinet table should Obama win this election. Make you feel better about SOCIALISTIC moves the Bush Administration put on those US banks? Good ~ now that you KNOW the sky isn't falling, can we get on with figuring out whether our pensions & 401k's will head back into better territory??
Now global credit is starting to kick in and, while volatile, stocks & bonds should solidify the bottom of the markets this coming week. If you've been sitting on cash, now is the time to start buying back in - but on a $-cost weekly basis until Thanksgiving. Don't overlook investment-grade bonds (w/i-rate spreads are at historical highs) - of companies that are sitting on $640 billion of cash. Stocks will rise along w/these corp bonds. We'll be seeing a wobbly u-turn in the markets to match 1988, but 5 years from now you'll be glad you were in the market!
World stocks are bouncing up as confidence in credit begins to grow. This Monday morning S&P 500 futures rose 17.10 points and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures climbed 147 points, and Nasdaq 100 futures added 22 points. Also short-term lending rates are beginning to narrow. Indications that markets are getting back to normal.
Warren Buffett gave his thumbs up on Friday in a NY Times Op-Ed. Stating with his usual Midwestern wisdom ("So, if you wait for the robins, spring will be over.")& utmost confidence, Warren said he's moving from 100% US government bonds to 100% American stocks in his personal account:
"A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now."Today the world's biggest investors - managers of the largest asset management companies sitting on cash - followed Buffett & gave their collective thumbs up, too. Cautiously, of course...
Hoo-wee!! Time for a GROUP HUG!! ~ MomsHugs
~ An informed electorate is necessary for a strong nation. ~