I would like to add some thoughts to the conversations we have had over the last weeks about the wild markets.
1. If you were to ask me for my personal opinion this is it: I don't know if Friday was the bottom but there is a good chance it was and I think the market could go back to 10,000 in a flash. Take a look at JNJ below, which is typical of the blue chips classic charting bottom during Friday's whipsaw. These kinds of bargains will not last for long, and once we have bottomed these falsely low prices will be replaced by a strong recovery.
2. For me, the idea that we would go into a steep economic decline is just not valid. As a student of economics what I have witnessed is a classic market panic, a once in generation kind of thing and something that tends to come back quickly once confidence is restored. Panics do have roots in real things; here the de-leveraging of banks bloated and risky balance sheets, but for me, their losses are just the retaking of their false profits. Using the example of JNJ above, major blue chips like this actually spent the last few years raising cash and buying back shares?the exact opposite of what the financial firms and hedge funds did. So JNJ has about 10B in cash and over 40B in equity with little debt.
3. I like what the Treasury has proposed: instead of using the 700B to just buy and prop up troubled assets, they will instead use this to buy into and re-equitize the banking system. Together with taking interest rates to near zero, this will have a bank capital ratio multiplier effect that turns the 700B into a far greater and perhaps multi-trillion dollar credit rebound.
4. In times like this our Financial 911 Americans are responding by pulling together. This is refreshing after years of credit greed and overspending by bankers, hedge fund managers, and petro-billionaires. This spirit was evident Friday when wild cheers erupted on the trading floor when the market finally surged off its lows. And to fully energize Americans for a quick recovery, three weeks from now I believe the right man for our times will be elected president in a Reagan style landslide with a recovery mandate.
I have attached a synopsis of my last live Bloomberg Television report, where along with describing the extraordinary trading conditions, I called for a rally of a least 1000 points! And finally, again I will be talking with each of you as we look for opportunities to strengthen and to capitalize on the inevitable rebound in the markets.
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