Monday, March 09, 2009

undervalued assets?

Dr. HousingBubble | The Modern Banking System is Like a Broken Dam: At 8% Annual Compounded Growth it would take us 11 years to reach the Peak of the S&P 500. Old Ideas and Prophets Falling Hard. The poorly planned Troubled Asset Relief Program (TARP) of 2008 has been a complete boondoggle. How have things gone in the stock market since the TARP came about? Well let us take a look:

Since TARP version 1.0 was signed into law on October 3rd, 2008 the S&P 500 is down approximately 38%. Think about this for a bit. We are talking about 5 months ago and the market has shed nearly 40% of its value. From the 2007 peak, we are now off by a mind boggling 56.4% putting us back to levels not seen since 1996.

People are now claiming that stocks are a bargain. These people were cheering the market on Wednesday only to get reamed on Thursday after Citigroup went into the penny stock territory and the survivability of GM is now in question. If you haven’t figured it out yet, the mainstream financial pundits really have very little knowledge regarding economics. What they are good at is hyperventilating like a hypochrondiac entering a hospital when the market is up or down.

I’ve constructed a chart showing some of the biggest TARP recipients. I’ve also included their stock price as of the day when the TARP was signed into law:

What a sigh of relief! If it weren’t for that wonderfully planned TARP, we might actually need 3 shiny quarters to buy one share of Citigroup but thanks to trillions of taxpayer bailouts, we can with a smile buy one share for one whole dollar! Just take a look at the above chart carefully. We have absolutely flushed money away into the broken dam known as our banking system and the plan isn’t to reform the system and root out the corrupt crony capitalist; no, instead our plan is to give these same institutions more money and believe that they will do well. What an absurdidty! We are giving banks money so they can then, not give it back to us!

I ran a quick calculation to see how long it would take the S&P 500 to reach its high of 1,576 from its current 682.55. Assuming a nice rate of 8% each year (heck, this is close to the Bernard Madoff rate) it would take us 11 years before we see those 2007 highs again! Do you really see 8% yearly gains for 11 straight years after the trillions we have dumped into bailing out failing banks and poorly managed institutions? Forget about a lost decade, we are now getting close to having two lost decades. Now tell me, what will you be doing in 2027?