I Told You So & I Also Changed My Mind

First for the “I told you so.” At the end of August I told everyone that September is perennially a horrendous month for the Stock Market and in this already down year September would be the time to buy. But who knew that we would be facing the most severe economic downturn since The Great Depression? Any investments you might have made last month (especially late in the month) will no doubt be worth many times its purchase price in the years and decades to come. When you buy in a crater of this depth and breadth there is no way you can go wrong as long as the companies you invest in have solid balance sheets.

Case in point GE. GE is one of only 11 companies to have a AAA bond rating (two others are Microsoft and Berkshire Hathaway). GE is the bluest of blue chip stocks. It sold for over $42 a share only one year ago. It closed today at $21.57! If this isn’t a value I don’t know what is? GE pays a dividend yield of 5.75% so it’s also the gift that keeps on giving. It’s a long-term keeper that you might even want to pass down to your kids. In fact, it’s such a solid company at such a good price right now that Warren Buffett just bought $3 billion of shares… Which segues nicely into why I changed my mind about the bail-out package.

I have great respect for Warren Buffett. Depending on the day he is the wealthiest man to ever live, yet he has always managed to remain humble. What he had to say yesterday in Forbes really scared the hell out of me. His words prompted me to conduct a bit of research into the causes of Black Tuesday, that fateful day in 1929 when the Market totally collapsed and the ensuing bank runs that happened a couple of years later, and the ensuing out of control unemployment that was allowed to run rampant by The Hoover Administration’s laissez faire policies. After reading about this I think that we definitely needed to do something quickly to avert another economic catastrophe. It should be noted that back in 1929 as well as today, lending was to blame for the crisis. No loan should be given or taken lightly because bad things can and do happen. Anyway, The kind of decision our lawmakers had to make was a monumental one, a decision that required time for thoughtful and careful consideration.

Sadly, the Senate loaded the Bill with pork. It is no longer a $700b package, it is now a $810b package. It has some good and some bad, but any way you slice it it adds another $110b to our debt. I don’t believe that this plan was the best way to fix the problem, but I am certain that something had to be done pronto… And now, for better or worse it’s law… Which brings me to my next issue.

It is my understanding that the way The United States Government works is that a Bill is voted on in The House of Representatives, where it is either passed or killed and that’s that. I don’t think it was legal for the Senate to amend the dead Bill and send it back to the House for a re-vote. That isn’t how the system is supposed to work. I have never seen this happen before, nor do I know of any other instance of this kind of upside down procedural issue regarding our legislature.

Am I off base on this? Anyone… Anyone… Bueller?

(Update)

There is a post over at Reddit that has a comment that explains how the Senate sent a Bill to the House. Apparently the Senate attached the bail-out to another Bill (which is SOP) and then sent it back to the House for approval. So, in essence we had this tiny unrelated Bill to which the Senate attached $700b of pork.

Oink!

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~ by Woeful on October 3, 2008.

4 Responses to “I Told You So & I Also Changed My Mind”

  1. I’m tired of reading about how the bailout is a deal with the devil that we have to make. It’s like a horrible traffic accident that I can’t take my eyes off of.

    I have a longstanding policy of never following financial advice that gleaned off the internet, but you consistently make so much sense that I may have to rethink that.

  2. All I know man is that the Market always goes up (otherwise we would still be in the Depression). I know this because history shows this to be the case. In fact, historically the Market makes HUGE gains right after a crash.

    Personally, I can’t imagine a better time to buy than right now… Assuming you’re investing for the long-term. There are some awesome buying opportunities out there right now that I wish I could jump on alas I have done all I can do with the money at my disposal.

    Here are some great companies with awesome asset values:
    Accenture closed at $35.19
    Johnson & Johnson at $66.16
    Diageo at $64.96
    Pfizer at $19.00

    These prices are CRAZY! They are crazy because these companies are strong like bull. They are well managed, and some pay fantastic dividends (like Pfizer). Their prices might continue to sink, but history also demonstrates that you have to jump in before the recovery or you miss out.

    Anyway, the deal We made was not the best deal we could have made, but time was of the essence and a deal needed to be made or I’m certain the big bad was about to engulf us… And I really don’t want to ever see what a bread line is like. It’s just too bad that our government allowed it to get to this point.

  3. The Stuff about Hoover being a lassiez faire leader is a myth. Hoover pushed through several “protectionist” policies,including increasing farm subsidies, the Reconstruction Finance Corporation (RFC) and Federal Emergency Relief Agency, and the Smoot-Hawley tarrif bill. It wasn’t that Hoover did nothing, as popular wisdom has us believe; it’s that Hoover did the wrong things.

    In fact, Hoover rejected the advice of Secretary of Treasury Andrew Mellon to let the problem work itself out. It’s amazing how quickly history can be re-written.

  4. Not according to this new book and many others…

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