Daily Investment Interpretations

September 22, 2008

2008-9-21  My instincts, and what I'm reading suggest that Thursday's and Friday's stock market rallies may be ephemeral. One key video article states that a low-key, retail run on banks is already taking place: Top Economist: Americans Should Worry About Bank Deposits if Congress Doesn't Act - Tech Ticker, Yahoo! Finance. The quoted economist says that all will be well provided Congress increases the amount of money held by the FDIC to insure bank deposits. Right now, the FDIC (Federal Deposit Insurance Corporation) is down to about $50 billion in reserves, insuring $1 trillion in bank deposits. But undoubtedly, Congress will provide the necessary reserves. Of course, given the guarantee of adequate backup, no run on the banks will take place. (If you withdrew your money at the bank, where would you put it? It could make your mattress pretty lumpy, not to mention the fact that you would risk theft and loss by fire.) I think keeping a couple of weeks cash on hand is probably not a bad idea, although I think the chances of a financial meltdown going beyond the incipient phase is slim to none. And you could always use your credit card(s). Short-term, I don't think there's anything to worry about, although from an investment standpoint, I'm about 80% in cash, and I would have cashed in or hedged the remaining 20% of my mutual funds on Friday if we hadn't had a 2:30 appointment Friday afternoon. 
    Tomorrow, if the market should plunge, I'll buy enough shares in the Proshares ultrashort Nasdaq ETF, QID, or the Proshares ultrashort S&P ETF, SDS, to offset my U. S. mutual funds, and shares in the Proshares ultrashort MSCI Emerging Markets Fund, EEV to compensate for declines in my emerging markets funds. Of course, I'll only need to hold those ETFs until the end of the day, at which point, I can sell both my ETFs and my mutual funds. I think, given the alleged once-in-a-century character of the current financial upheaval, cash is the preferred state for the amateur investor.

    Here's a surprising forecast that suggests to me the advisability of being in cash: Fund Managers Brace for Global Recession
    Here are discussions of the recent federal bailouts.
Gov't bailouts common, but effectiveness debatable  - Yahoo
In Pictures: What Billionaires Say About the Wall Street Crisis  - Yahoo
Two Economists on the Recent Financial Upheavals  - Yahoo
Sure stocks look better, but what happened to the credit crisis?
Stocks brighten, but what about the credit crisis - MarketWatch
Uphill climb ahead for stocks  - Yahoo
Americans Get Ready for an Enormous Tax Bill Tech Ticker, Yahoo! Finance

     Here are articles that address the safety of our money.
Is My Money Really Safe?  - Yahoo
Investors flying to safety, but not panicking -- yet - MarketWatch
Unrest has investors questioning risk fundamentals Financial News - Yahoo! Finance

2008-9-21: 10 p. m. Update: It has just been announced that Goldman Sachs and Morgan Stanley will be converting to bank holding companies. This conversion will allow them to open branch offices as banks, enabling them to amass capital by taking in cash deposits. They will also be eligible for Fed bank loans, and will be given Fed bridge loans to keep them afloat until they can attract enough deposits.