Roubini: Banks will be Nationalized

N. Roubini is getting on my nerves, because he's been pessimistic forever. When the market dived in 2008, suddenly everyone anointed him a guru--even though he was bringing the same negative shtick for over a decade. Now, he's made a prediction I think will be proven false:

And how long will it be before the administration goes in formally for nationalization? “I think that we’re going to see the policy adopted in the next few months . . . in six months or so.”

Set your calendars. If by August 22, 2009, Bank of America (BAC) and Citigroup (C) are still private entities, Roubini will be wrong. In fact, it looks like he's already wrong--the White House has publicly announced it will not nationalize banks and has taken action to prop up Citigroup.

Bonus: I've never heard of a Jim Morrison market, but apparently it's when "The future's uncertain and the end is always near." Check out this pessimistic Barron's article.

I would have preferred the more optimistic "Take it as it Comes" instead:

Go real slow
You'll like it more and more
Take it as it comes

In other words, slow down, Mr. Roubini.

California's Budget Crisis

The WSJ had a scathing op-ed on California's budget crisis:

http://online.wsj.com/article/SB123491737158404543.html

Oh, the lack of accountability.

Buy and Hold Wins over the Long Term

My Money Blog had a great article about what happens when investors try to time the market. I hedge my bets by trading actively in my regular accounts, and buying/holding in my retirement accounts. Right now, actively trading is working out better than buying and holding. At the same time, my regular account balances fluctuate wildly, so I've had to develop an iron stomach. Who would have thought trading "blue chips" like General Electric (GE) and Wells Fargo (WFC) would be akin to high stakes gambling?

Bank Market Caps

Barry Ritholtz almost always has great stuff on his blog, The Big Picture. Here's one particularly interesting post, showing how much banks have declined in value:

http://www.ritholtz.com/blog/2009/02/bank-market-caps-then-now/

Oh, the lack of prudence.

Middle Class Dream: Large Cities v. Small Cities

A new study shows that smaller cities tend to provide better opportunities for the middle class:

http://www.nycfuture.org/images_pdfs/pdfs/CityOfAspiration.pdf [Warning: PDF file]

http://www.nycfuture.org/content/articles/article_view.cfm?article_id=1233&article_type=0

Credit goes to Escape Brooklyn for the links.

Police Kill 350 People Annually

The SF Chronicle recently had an interesting story about police officers killing others in the line of duty. According to the SF Chronicle, police officers kill 350 people annually and tend to get acquitted of murder charges. Full story here.

In contrast, fifty-seven (57) law enforcement officers were feloniously killed in 2007. See FBI chart here. Another chart indicates that eighty-three (83) officers were accidentally killed in 2007, mainly because of traffic accidents.

Officers appear to die at a rate of 140 per year, while killing 350 people per year. Do law enforcement officer have safer jobs than most people think?

Update: I finally researched my theory about whether police officers have relatively safe jobs. My findings are HERE.

[Note: this post has been edited since its publication.]

Helicopter Ben vs. Commander Pessimism

I am shocked by the pessimism I see all around me. GE is around 11 dollars a share. Wells Fargo is around 16 dollars a share. Both are blue chip companies that will definitely survive, especially after the recent bailout; yet, they are being priced as if bankruptcy is imminent.

The problem with Mr. Market is that he tends to swing wildly in both directions. From 2004 to 2007, he swung too high, and now, he is swinging far too low. CNBC and other media channels mimic or just forward information given to them. Their constant repetition of bad news creates a self-fulfilling loop that leads consumers to believe the sky is falling. In reality, every major country in the world is working together to ensure more money is pumped into the economy. To be bearish now is to bet against every major country in the world. Even if you believe you are smarter than every major government, once the stimulus money gets into the hands of consumers, you will also be betting against worldwide consumers. The key issue is getting the stimulus money into the hands of consumers that will spend it, i.e., the middle class and poor. The current stimulus package, while imperfect, accomplishes that task by spreading its largess across multiple and diverse fronts, from high-tech workers to construction laborers. I would have preferred that the government give tax credits of 1,500 dollars to everyone who made less than 75,000 dollars AGI in 2008 and tell banks accepting taxpayer money to lower all monthly mortgage payments by 25%, but I'm not an elected official.

Will inflation eventually occur because America is printing trillions of dollars? Yes, and inflation is terrible for consumers in ordinary times. But these are not ordinary times. in an era where housing prices--the primary source of most Americans' wealth--have deflated, inflation is not an imminent threat. Focusing on inflation now is like a commander refusing to send tanks and planes against invading ground forces because he is reserving them to fight a distant, advancing Navy--yes, fighting the Navy will be important, but allowing ground troops to invade now is unacceptable, because failing to properly combat them will result in immediate defeat.

I own and am long General Electric (GE) and Wells Fargo (WFC). By mid-2009, the market should begin swinging back to normalcy as stimulus money reaches consumers. If you can time the exact moment that Mr. Market will moderate himself, good luck to you. For those of us not blessed with prescience, we can only buy now and hold for the long term. Mr. Market will regain his optimism at some point--trillions of dollars are enough to make even the most depressed person happy, at least over the short term.

Disclaimer: under no circumstances do any statements here represent a recommendation to buy or sell securities or make any kind of an investment. You are responsible for your own due diligence. To summarize, I do not provide investment advice, nor do I make any claims or promises that any information here will lead to a profit, loss, or any other result.