Here Comes The Government

My mantra the last few weeks has basically been if the government gives us incentives to put our capital to work, the stock market will move higher.  On the other hand, when the government comes in and changes the rules and puts in more regulation, down we go.  Over the past few weeks, we’ve seen many banks come in and say “take your stinkin TARP money, we don’t want it.”  Various companies were rewarded because this showed how strong they were.  Last week though, Goldman Sachs did a stock offering which would be used to repay their TARP.  That kind of let the air out of my room at least.  I want companies to pay it back because they can afford to.  Goldman Sachs is simply dilluting their stock to do it.  Not the same. 

Today, we find out the government is telling the banks if you pay the TARP back, you can’t just pay it back.  You have to go through some tests.  This is exactly the type of government action that investors to run from stocks.  Changing the rules during the middle of the game.  Now, we are quite extended.  So, a pullback or sell off isn’t a big shocker.  But, it doesn’t help having the government imposing their will.  The market went down on the GM CEO replacement a few weeks ago.  On the other hand, it went up when the PPIP was announced because this was actually the government giving capital a reason to go to work.  Private money comes in and the government takes a lot of risk.  That’s the formula.  They don’t seem to get it.

So, we’re left to move to more cash today and potentially see the end of the rally we’ve enjoyed for over a month.  I’ve been pounding the table to not take anything for granted and that means sometimes selling when you don’t want to.  We never know what the government is going to do.  They obviously don’t mind changing the rules whenever they feel like it.  They have that prerogitave but that doesn’t mean stocks have to stay at these levels if they do.

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