Another Day of Water Torture

The DOW dropped another 4.3% today while the S&P declined 4.6%. Although the carnage was broad, total panic didn't seem to be anywhere. This slow and steady drip is likely to keep the majority of investors on the sidelines until we get the unemployment report on Friday. This piece of economic news will give the markets a better sense of the state of the economy.

Investors headed the warnings of Warren Buffett while also feeling the pain of an additional bailout for AIG. The government has invested a significant amount of capital into financial institutions since the fall but nothing has seemed to help. The Obama administration and Congress have had no problem criticizing Hank Paulson's use of Tarp funds but now reality is upon them.

Our financial system is in uncharted territory. The Federal Reserve and the Treasury in 2008 seemed to move from one forest fire to another on a daily basis. Many decisions were made to prevent a financial system collapse. Some were probably good and others were poor but in those times of crisis, it wasn't easy to always think through the negative ramifications of decisions that needed to be made at a moments notice. Saving Bear was good but letting Lehman fail was bad. Was the structure of the AIG deal good? How about the Citi bailouts? We can go on and on but the most experienced financial professionals can't get all these decisions right in such a short period of time.

It is about 45 days into the new administration and their results are no better than Paulson's attempts. Mr. Geithner needs to take charge and make some quick decisions. The financial system is still crumbling and the markets have no confidence that the tide will turn anytime soon. Tomorrow we will get some details about the public/private partnership to buy distressed assets and it appears that the structure will incorporate some of the ideas we wrote about on February 12th. This outline may not prop up the markets tomorrow but a well thought out detailed plan is what investors are waiting for.

Hopefully tomorrow the markets will get a little bounce but unless some good news is on the way, expect to see stocks go lower.