For the first time the Federal Reserve, the U.S. Treasury Department and both sides of the political aisle took steps to put out the fire on Wall Street that was rapidly spreading to Main Street by eliminating short-sales on more than 700 financial services firms until at least October 2nd and seriously considering a Resolution Trust type Corporation like the one that was set up during the early 1990s to bail out the savings and loans in an effort to “put in a box” the bad mortgage loans until it can sell them off at a better price. The government is also considering providing FDIC-type insurance to money market funds.
Bottom line, the Federal Government is taking a howitzer to the financial mess rather than a b-b gun in an attempt to correct the systemic risk. This is a big step toward correcting the mess, but will not bring the inventory that exists in housing down from eleven months to where it has historically been, six months. That will take time. We continue to hold cash and will continue to buy on weakness . As we have noted time and time again, the risk over the next twelve to twenty-four months continues to be being out of the stock market rather than in.
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