The Day of Reckoning is Approaching

On November 6, 2008 we wrote a story titled "Should the Government Bailout the Auto Companies?" and we followed that blog up on December 19th with a piece called "The Government to the Rescue." Both stories discussed why General Motors needs to go through a prepackaged bankruptcy and now the Obama administration has finally come to the same conclusion. The markets cratered yesterday as this news seemed to put a bleak tone on stocks but in the long run a true restructuring of GM and Chrysler will make them competitive globally while improving the U. S economic outlook.

Stocks also took a drubbing as Mr. Geithner made some negative comments about the banking system. He expressed the reality that a bunch of banks will need more financial help. This apparently gave investors a chill as positive GDP growth is contingent on a healthy financial system.

The markets continue to be in a bottoming process but nobody said it will happen over night. The consumer is weakened, the housing market has a few positive signs, commercial real estate is teetering, and consumer credit default rates are rising. Stocks need to digest these realities and conclude that the economy is not going to turn up in 2009. At that point, we can begin to see some positive momentum in stocks and properly discount the future tea leaves.