http://www.cnbc.com/id/15840232?video=702433801&play=1
If you are a bull you have to be hoping for the Senator Dodd bill to pass. Unlike so much other government intervention that the market rallied on, I think this is actually something that is very bullish and would make a difference. It would also be about the only thing in the near term that would cause me to question my short exposure.
Bill Gross thinks it will happen.
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On the contrary, if that act is passed, the fiscal situation will deteriorate(the black hole is enormous, just think that between 2001-2007 the debt increased by 16trillion and the gdp by nearly 3 trillion). So how can a highly indebted country can get out of this mess? only saving, and that will cause a laggard economic growth. Lets say that although I think it doesnt make sense to bailout Wall Street and not households, if that happens I can pay my mortgage using my credit card and keep on living beyond my means, so in that instance all kind of debt will be bailed out. Maybe it will be bullish in the short term for equities, but it will also be bullish for gold for a longer horizon term. If the congress decides to bail out its citizens, who will bail out USA? The dollar depreciation cant do miracles.
Few things, I completely agree with you that long term it does create other problems for our country. I have owned agriculture futures for over a year and just recently on this latest dip have been buying gold. However, such a bailout over the next six to twelve months I think would be very bullish for U.S. stocks. How could I stay short Washington Mutual? How could I short, which I have not but been thinking of doing, Capital One? I can't and others probably would come to the same conclusion and stocks rebound as a result.
From an economic policy perspective, despite the ramifications of the debt and dollar, such a bailout may be the right course of action. Japan has much more government debt than the U.S. on a GDP basis. Why is that? One of the main reasons was because they were in a deflationary funk for over a decade. That is potenially what the U.S. is facing. That does not breed economic growth and hurts tax revenue. What if they would have had some sort of $500 billion bailout in 1990? As much as it is repugnent for me to say, they may have been much better off. They wouldn't have lost a decade of economic growth.
I have been in your camp for many months. The idea of a bailout makes me sick. I feel like I understand both arguments fairly well and not sure that the bailout camp doesn't have it right.
Let's keep in mind that any bailout could come out in a very different form than what is being proposed and try to reserve judgment until we see the final product.
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