Short rally to fizzle soon...
While I had hoped that the economy was in the early stages of stablization, it appears that there is another leg down to come. In looking at my weekend edition of FT and grazing stratfor.com it is pretty evident that the equity markets don't stand a chance for a sustained rally and will chop along probably for a couple more years at least. I had hoped the worst was behind us. It's not.
Even though the G20 did the right thing in funding the IMF, the bad asset clean up and fixing of regulation in the financial industry is painfully slow and not good.
With the way that the toxic asset clean up is constructed, corporate debt issuance going forward for the next year or two is going to be very expensive as the government's plan squeezes new debt issuers. So while poorly run banks are being bailed out, good companies will go under. The end result will be a lot of business failures and even more unemployment. I'm sadly surprised that Geitner doesn't realize this. Put me on board with calling for his head. He doesn't understand economics.
Here I'll offer again a solution to bad debt I brought up six months ago. The govt should immediately sanction a market for credit default swaps and other bad debts, should have kept mark to market and made banks handle their problem. The govt could still do some open market buying which would be good for all. As it stands, there will be cherry picking and people who don't deserve support will receive it in the name of "systemic risk." Folks, the systemic risk is in killing good companies at the expense of bad, not in what will happen if bad banks go down.
I'll be selling a lot of equity holdings into whatever rally is left and picking up some currency shares in commodity rich financially strong countries- you can count them on one hand even if you are feeling a little loony. On Caps, I've decided to start playing for score when I have time. I had been using this just as a watch list and some minor playtime trading- which already has me above 99. As I reposition my real assets, I'll treat this as if it were a global asset allocation fund that is allowed to go short.