june 30

Well Congress has again displayed why it is not ALL George Bush's fault. They can't agree on anything and maybe they should all resign. Lets start over.

The money they did pass was passed for the Financial Industry to buy up toxic paper. That would restore confidence of lenders in each other, one knowing that if the other had crap on their balance sheet it could be underwritten by the Gov. and they wouldn't suffer a liquidity driven failure. Paulsen has not been able to get that done and the housing crisis still looms.

What do we know?
1. Housing is the backbone of wealth for the average American.
2. They have been abusing the golden goose by using their home as a personal ATM machine.
3. It is pay back time. The check for the sumptuous meal has arrived. We may all be doing dishes for a long time.
4. Until the housing problem is resolved, we can't spend freely.
5. The US economy is between 60 -70% driven by the consumer.
6. Consumer restrained, an awful lot of jobs go away.
7. Loss of jobs=higher unemployment (not a tough one to grasp).
8. Higher unemployment =less consumer spending (see where this is going?)
9. Auto industry can't sell cars, running out of money to pay people to sit around doing nothing.
10. Government asked to give them money so they can pay people to sit around doing nothing (isn't that what unemployment does?)
11. Money spent to help automakers isn't available to help the housing issue. It doesn't solve the problem. It is like taking Ibuprofen when you've a broken arm. It helps the pain but does nothing to set the arm and promote healing.
12. Congress couldn't agree on wording. They want to assure that the car companies are going to do the right things for the future. But they can't agree amongst themselves what the right things are.

Results: The market will continue to wind its way down until the temptation is too great for investors to ignore and they begin to buy up companies at what are surely bargain prices in anticipation of the recovery that will come eventually. The point of temptation is different for every investor and every company. Overall I think the market could go as low as 5800 (the approximate book value of the 30 companies in the DOW). I don't think the investment community is patient enough to wait that long, but 7200 is a real possibility in my mind.