But first . . .


SG: ‘I have to say the screw-up with delegates and lack of ability of the Democrats to hold the Party together does not inspire confidence in either their unity or organizational ability.’

☞ Will Rogers notwithstanding (‘I don’t belong to an organized political party – I’m a Democrat’), the truth is, first, that a spirited contest between primary candidates is very democratic, with a small d – and most of us, on some level, do favor democracy.

And while I join you in rolling my eyes at the process, it is actually following an organized, agreed-upon set of rules – even as there are, unquestionably, differing views on how good the rules are, how they might be changed for next time, and how to deal with the special circumstances in Florida and Michigan (and how a superdelegate ought to fulfill his or her responsibility).

The main thing to say is that whichever of our two superb candidates gets the nomination – and it will likely be apparent in June, well before the Convention – there is good reason to think, and every reason to hope, the Party will unite behind that candidate.

SG continues: ‘The scrabbling to change the rules in favor of me or you smells of the same sleaziness we have come to expect of our elected officials, now, before they’re even elected!’

☞ Again, I disagree. I can totally see why each side feels as it does. What’s sleazy about thinking Florida democrats should not be disenfranchised because of something the Republican Governor and Legislature forced on them? What’s sleazy about thinking the superdelegates should follow the will of the people?

SG: ‘I will, of course, vote Demo even if they put up Smokey the Bear.’

☞ The last thing we need these days is a bear in office.

And now . . .


George Hamlett: ‘After the Alice-in-Wonderland political comments, a return to the economic crisis. This commentary from John Mauldin yesterday [click ‘next,’ at bottom right once there, to see it] is the best explanation, and defense, of the Fed’s action on Bear Stearns that I’ve seen.’

☞ For those who lack the time to read it, the nub:

It is precisely because the Fed is willing to take such actions that I am modestly optimistic that we will ‘only’ go through a rather longish recession and slow recovery and not the soft depression that would happen otherwise. . . . No one who owned Bear stock was protected. This was to protect the small guys who don’t even realize they were at risk. To decry this deal means you just don’t get how dire a mess we were almost in.

☞ Mauldin, in this and other comments I’ve read, is spot on. Don’t miss last week’s mega-comment, either.

In small part:

‘We should not be surprised at the lack of liquidity in the credit markets. We have essentially vaporized 60% of the buyers of debt in the last six months. The various alphabet of SIVs, CLOs, CDO, ABS, CMBS, and their kin that were the real shadow banking system are either gone or on life support. It took decades to build these structures and it is not realistic to think we can replace them in six months. This is going to take some time.

And time is what the Fed has bought this week by offering to take AAA mortgage paper and swap it for T-bills. They will start with $200 billion on offer. Remember you read it here first that that number will be increased and increased again. From the market’s initial euphoric response, you would think the problems have been solved and banks will once again start lending. Sadly, this is probably not true.

. . .

So, where are today’s P/E ratios? Let’s go to the data provided by Standard and Poor’s for the S&P 500. In January of 2007, S&P estimated that earnings for 2007 would be $89. Earnings for 2007 were actually $71.56, down about 20%. Last year about this time S&P estimated that earnings for 2008 would be $92. Today they estimate 71.20 for 2008. Lately every time new estimates come out they are down. But that is typical in a recession. Analysts are generally behind the curve.

. . . We are now at P/E ratios that are back up over 20, and going to 22 by the middle of the summer. That would suggest that total returns are going to be under pressure for the next few years at a minimum and maybe for a decade. That does not bode well for retirees who are expecting the stock market to compound at 8-10% annually in order for them to be able to retire in the style to which the want to be accustomed. Real (inflation adjusted) returns of between 0 and 4% are more likely based on historical returns from today’s valuations.

☞ Live beneath your means, keep your transaction costs low, diversify, and don’t be fooled by 400-point rallies into thinking this is over. But don’t despair, either. (Look how much better things are today than, say, in 1929 – we have air conditioning! we have cell phones! we have TV and Google and antibiotics!) America has a lot of repair work to do to get back on track and forge ahead. But there’s every reason to think we will.

Especially if we choose a President with a progressive vision of the future.


Saber Thaxton: ‘You say the right resolution was to bail out Bear Stearns – how so? Bear Stearns is NOT a bank. Please tell me without the MBA/Financial analyst babble talk (if possible) how Bear deserves to be floated any more than Enron did? That is Las Vegas without any consequence. When you win, you win; when you lose, we give you tax money and you still win.’

☞ In fact, the guys at Bear Stearns did not win. A junior employee with ‘only’ $5 million in Bear stock a year ago now has maybe $65,000 worth. A senior guy who had $200 million in Bear stock now has maybe $3 million. And as John Mauldin explains, over time, we taxpayers might even make a profit on the money we’ve fronted for this rescue.


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