Waiting For Solution

I didn't know that our Congress is so economically illiterate. And that they are so economically irresponsible. This is a question of going or maybe not going into Great Depression II. I mean, if some decision is made this week, we might, I repeat, might, avoid going into depression. If no decision from Congress, we are in it. Great Depression II, which might be lighter than original. I wouldn't bet on it though.

The bad thing though, is that we might not avoid depression even if Bernanke/Paulson plan is accepted in some form. The situation is way too bad. And this plan only solves a part of a problem: bad house loans. There are several other elephants in the room: credit default swaps, insurance, commodities. I don't know what would blow, but something will.

I'm holding my position in UUP, which is a play on a strong dollar. Whatever decision is (if) made, it isn't going to inject enough liquidity into the system to start things moving again fast enough. Deflation, or at least increase of dollar value, is in the cards.

Buffett invested in Goldman Sachs. Makes sense with his time horizon. I don't know, GS still holds huge long commodity positions. There was only one worldwide recession when commodity prices went up, during stagflation of 1970s. Not gonna happen now. Companies don't have pricing power. Workers, at least in US, don't have negotiating power. Never mind workers in China. So I'm staying away from all financials now. At least until Bernanke cuts rates again. My forecast of interest rate below 1% in the first quarter of 2009 stays.

Still thinking about increasing Altria position and buying Raytheon.

Full disclosure: at the time of publication author had long positions in MO and UUP and no positions in other stocks mentioned. Positions can change any time.

Disclaimer: This article is not intended as an investment advice. Every person should make her/his own investment decisions based on all available information and advice from her/his own financial advisor.