"We have met the enemy and he is us."

Pogo nailed it. In the last two decades, I've never seen so much activity over so little data. Oh sure, we have much to read and more to hear from the folks whose paychecks are dependent on you listening to them. But the words being spread are so innaccurate the authors are teetering with irresponsible reporting. 

The financial sector has a liquidity problem. Interestingly there are few other problems. Interest rates are low, unemployment (while rising) is historically quite low and much lower than the global average. Mortgage default rates are higher but not necessarilly "high". Well under 3% of mortgages have been foreclosed. But such a low number is boring so reports use words like millions and 40% increase to give listeners something to "ooh" about. And I suppose it would be too much to ask to hear a little about the billions in profits that are being booked shortly after purchases of these so-called "toxic" assets. I wish I would get an offer from my mortgage holder letting me purchase my own mortgage for how little they are potentially selling it for. One report had a private equity fund paying 22 cents on the dollar for mortgages from struggling banks. That sort of fire sale covers the buyer if 75% of the loans are worthless. The financial crisis is an accounting issue more than a fiscal issue. We've created an environment where according to regulations assets (loans to you and me) are being sold for prices based on prior recent sales rather than standard present value calculations. If a bank can't sell a performing loan package for a present value of the loan, what's the point of selling it at all? If they can't sell loans they don't have the cash to make future loans and the credit cycle clogs up. BUT NONE OF THIS IS BEING REPORTED! So, the market takes an emotional plunge because the Congress won't pass a liquidity bill. It isn't a bailout or a rescue. It's probably profitable to the taxpayer over time and I don't particularly like it because Congress has no business on Wall Street anyhow. 

OK, so I've vented on the ignorance of the people we're supposed to be getting our guidance from. Now, what to do about it. Well, some say I'll lose my shirt but I'm buying XLF (the S & P Financial Index) at anything under $18.50 because it's a bargain. Then I'll sell some covered calls to make some short term gains, probably in excess of 10%. Oh yeah, and if that doesn't work I'll pocket the premium and teh 4% dividend while I'm waiting for the recovery. If you can hold your hand steady, there is a lot of money to made right now. 

Ignore the press, check your emotions, and go with the math...