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Thread: chart of the week - DOW versus bailout bill passage

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    Default chart of the week - DOW versus bailout bill passage

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    (snip)"This bill is so incredibly stupid, it has the potential to be the Smoot-Hawley equivalent of our times.

    Bailout Passes, Stocks Limp

    Minyanville Professor Kevin Depew is writing Five Things You Need to Know: Bailout Passes, Stocks Limp.


    How can this be? How can the passage of the Bailout Bill find stocks limping awkwardly into the close? Wasn't this supposed to be our finest hour? The desperate resolution to the year-long crisis? Well, the reality we have tried to reveal here in Minyanville is that the Bailout simply will not work.

    The credit markets have spoken. And they are saying - no, they have been saying all along - that the $700 billion Bailout Bill is nothing but a gnat attacking a buffalo. There has been an ongoing disconnect between stocks and credit markets for months now and even the action on Monday did little to correct it.

    There is only one thing necessary to understanding what is happening and it is this: no one at U.S. Banks, no one at the Federal Reserve and no one in politics can accept the reality that real estate assets in this country remain oversupplied, overpriced and overleveraged.

    It is that simple.

    TAF, TSLF, SuperSIV, TARP, none of that matters. No matter what acronym is created to disguise the fact that assets are overpriced, or what government intervention is created to prop up those asset prices, the market will inevitably overpower it. This time is not different. In fact, it is continuing to play out almost exactly as the Great Depression did. The bottom line is that despite the bailout, risk in owning stocks has increased, not decreased.
    So What Happens Now?

    My thoughts on this historic and unconstitutional moment (there is no constitutional authority for the government to bail out private enterprise at taxpayer expense), can be found in Bailout Bill Passed, So What Happens Now? If you have not yet done so, please take a look.



    Pyrrhic Victory

    President Bush, Treasury Secretary Paulson, House Speaker Nancy Pelosi, House Finance Chairman Barney Frank, ECB president Jean-Claude Trichet, UK Prime Minister Gordon Brown, CNBC, CNN, and Bloomberg were all cheerleading this fiasco.

    That is pretty tough competition. They won. History will be the judge as to who was correct.

    Mike "Mish" Shedlock
    "(snip)


    As usual, Mish isn't using any sugar coating !!!

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    Default Re: chart of the week - DOW versus bailout bill passage

    and here's the 'meat and potatoes' Mish was referring to ...



    (snip)"Bailout Bill Passed, So What Happens Now?

    Congress passed a $700 billion bailout package today. It was a total and complete waste of $700 billion. It further depletes the pool of real funding.

    Yes, the Fed has started a monetary printing campaign. Yes, the SEC will suspend mark to market accounting. So what happens now?

    Pretending Is Not Reality

    What happens now is that pretending does not alter reality. I can pretend all I want that Madame Merriweather's Mud Hut is worth $1 trillion and I can pretend my pet rock is worth the same. The reality (sorry Madame), is that neither is worth the book value I place on them.

    Suspension of the mark to market rules will accomplish nothing but further mistrust of banks and bank stocks. Everyone will know banks are lying. No one will know by how much. What we still know is that Citigroup alone holds $1 trillion in off balance sheet SIVs.

    Pretending those SIVs are worth $1 trillion will not make it so. Yes, $700 billion is a lot of money. But let's see just how fast it comes and let's see if all of it comes.

    The countless $trillions in total bank assets that are not marked to market and will not be purchased by the Treasury, are realistically still going to see credit contraction (on a marked to market basis, and that is what counts).

    Foolish Effort To Spur lending

    Bernanke and Paulson think that the Fed buying toxic garbage will spur institutions to start lending. It won't. Banks will still be holding more garbage than the Fed can possibly buy. The market will be able to smell that garbage, even if the rules allow banks to pretend that garbage is a rose.

    Banks have no reason to lend in a world of overcapacity, rising unemployment, and increasingly sour consumer attitudes. It was disingenuous at best to suggest this would free up lending for main street as it was packaged.

    Rescue The Market?

    All hopes were that action by Congress would "rescue the market". It can't and it won't. No jobs are being created by this bill, salaries are not going to rise, outsourcing is not going to stop, and foreclosures are going to rise.

    If there was a $700 billion jobs package was passed instead of this monstrosity, especially if Davis-Bacon was scrapped like I wanted, tens of thousands of jobs would have been created and at least the US taxpayer would have gotten something for their money. Note: I am not arguing for $700 billion for jobs per se, I am merely pointing out that we would have at least gotten something out of it.

    It was not to be. Stupidity won out as it usually does, but I am holding my head high for the effort that readers of this blog and others put in to kill this boondoggle.

    Will Printing Lead To Hyperinflation?

    Many have asked if the actions of the government would lead to hyperinflation. Others mockingly told me that it would. Nope. The answer is the same: Deflation.

    There has never been hyperinflation in history with falling home prices. And home prices will continue to fall. Wasting $700 billion will not do the stock market any good either. The bottom is not in. Today's close proved it. There are new lows on the S&P 500, the Nasdaq, and the Dow.

    Yes the Fed will print, but the money will sit, just as it did in Japan. Wasting $700 billion will only make things worse. Banks will still hoard cash.(snip)

    (snip)Proper Definitions of Inflation and Deflation

    Those who believe inflation is measured by the CPI, the PPI, or price increases of any kind desperately need to read Inflation: What the heck is it?, Interview with Paul Kasriel, and Deflation American Style.

    The definition of inflation I am using is "A net increase in money supply and credit". Deflation is the opposite "A net decrease in money supply and credit".

    Looking at deflation in terms of money supply (money that is actually lent) and credit (marked to market), the proper conclusion is the bailout bill does not change the picture, and that picture remains deflation.

    I have said many times the fed can print but it cannot force banks to lend or consumers and businesses to borrow. We are about to find out who is right.

    Mike "Mish" Shedlock
    "(snip)

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