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Friday, October 3, 2008

How is "Main Street" affected by the "Rescue" Plan?

"Neither a borrower nor a lender be; For loan oft loses both itself and friend, and borrowing dulls the edge of husbandry". - Hamlet (Act I, Scene III).

Everyone is, and will be affected by the events in the financial markets. It doesn't matter if you are 18 years old, if your 36, or you are 70. I've said this for a while now. It's the ultimate Catch 22. And it's a Catch 22 that will affect everyone.

If the "Rescue Plan" does not go through? I forsee another day of capitulation. Massive selling on the stock market. The credit markets will continue to freeze. Which will put more pressure on the banks. Which is where everyone has their 401k's. Their savings accounts. Their retirements. Which will exacerbate the unemployment problems. Which will exacerbate the problems in the housing market. Rinse. Repeat.

If the "Rescue Plan" does go through? Then you may see a short term rally. And in a week or less, we'll be right back where we are now, and nothing will have been solved. The markets will have eaten this capital like a midnight snack.

How do I know this? Because I'm a trader. And I see the situation from a trading mindset. Which is a very accurate mindset to have right now.

I was telling Daryl Montgomery of "New York Investing Meetup" recently? That this entire process is like watching a losing trader who gets margin call, after margin call, after margin call - and is finally facing a forced liquidation. He's trying to bribe people from liquidating his positions - so that his uncle can come bail him out. Only we're all the 'uncle'.

Instead of just realizing it was a losing trade all along.

Instead of fixing the leverage on these contracts. Instead of moving the contracts to an exchange. Instead of creating transparency so that anyone and everyone can properly evaluate the situation? They're doing what they've done since March ...

Throw money at it, and hope the problem goes away.

So what about your 401k? Warren Buffett is buying into GE, so is it now time to buy? I talk about that in the following video ... (Video Included)

Tomorrow is the the "Week in Review" ...

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Note: This is not an investment or trading recommendation. The losses in trading can be very real, and depending on the investment vehicle, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. But I do have 12 years of experience in trading and investing in these markets. The Challenge accounts are run for the education of other traders who should make their own decisions based off their own research, and tolerance for risk.

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