Monday 11 January 2010

The sad reality behind last Friday Non Farm Payroll Number

I was reading through today an excellent article from John Mauldin, from Thoughts From the Frontline. You can subscribe for free on the following link:

The article relates to John's prediction for 2010 and it is a good read:

In his article John writes the following:
"we will find we have not fixed the causes of the last one. We still have banks too big to fail, we have not put the credit default swaps on an exchange, we have not reinstated Glass-Steagall, Barney Frank's bill (which was not the one that came out of committee) now makes it exceedingly more difficult to short stocks, we keep in power the same people who missed the problems the last time, and the list of bad policies bought (typo intended) to you by bank lobbyists grows ever longer. If the current bill looks like it was written by the bank lobby, that's because it was. But it means we will have to face the same problems all over again. But that is another story for another day."

I agree with his analysis. We have not resolved any issues, we are in fact compounding them. Glass-Steagall act should be re-instated and CDS like other vanilla derivatives should be cleared and traded on an exchange.

Adding insult to injury, the debt cap ceiling on the two Government agencies, Fannie and Freddie have been removed and it has been decided without consulting the US Congress. The US taxpayers will have to pick up an even larger tab by the end of the day.

Basically you can expect the equity rally to last a little bit longer given current level of inventories and activity picking up.

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