SECOND GREAT DEPRESSION

VP Candidate Sarah Palin told CBS's Katie Couric that another Great Depression could happen. We have Hank Paulson and Ben Bernanke warning of terrible consequences of not passing the proposed Bailout Package. Google Trends is showing that the search for "Great Depression" has spiked in recent days.

This is all perfect political Kabuki. The fact of the matter is that before the Great Depression occurred, no one even knew what a "Great Depression" was. Sure they had some pretty awful downturns and recessions, but it was not called a "Depression". It only became a Depression because policy made it worse.

The fact that the Net has become abuzz with depression-talk tells me that we are in a hysterical phase. This is generally a good time to buy stocks.

So I am waiting for the Bailout to disappoint people, and then I will be a buyer of stocks.

HANK VS. OBAMA

What Hank "The Hammer" Paulson has accomplished this week is something that Barack Hussein "The One" Obama could never have even dreamed of: he has executed the most massive transfer of wealth that this world has ever seen. Hank has robbed from the rich and given to the poor without levying a single tax dollar or firing a single bullet!

Now, you say, "Hold on!" Hank has just saddled every man, woman, child, and unborn with thousands of dollars of taxes against future income, and he has unleashed some new horrific neo-socialistic order on the United States of America. But wait! What you are missing, and what the media is missing, and what BOTH Liberal and Conservative bloggers are missing is that Hank has just dropped napalm on the entire hedge fund industry in the name of jacking up the value of every 401K and restoring trust to banks and brokers so that Joe 401k Public does not put them out of business with a series of panic withdrawals.

Let me explain. Hedge funds make money using leverage and short-selling. If hedge funds merely bought stocks and bonds, they would be mutual funds. Also, hedge funds can only be owned by so called accredited investors which is a technical term for millionaires. If there is anyone benefiting from a falling stock market, it is the hedge fund operators. Hedge funds have grown to over $1 TRILLION in assets in just the past five years, and all those ultra-greedy and rich people who made money during this CREDIT BUBBLE plowed a good chunk of it right back into hedge funds. So by blowing up this HEDGE FUND BUBBLE, in effect, Hank Paulson is returning this wealth back to Joe 401K.

The only problem is that Joe 401K can only exploit this wealth transfer by SELLING STOCK. Even Jim Cramer is advising everyone to sell off 20% of their stock holdings.

GENIUS?

Barack Obama on the other hand wants to raise income taxes on the wealthy, raise capital gains taxes, and raise taxes on businesses large and small. The problem with this method of robbing the rich is that it gives the rich too much time to figure out ways NOT TO PAY THE GOVERNMENT. The rich are rich for a reason. They know how to not pay taxes. Under the Obama regime, income would DECREASE!. Jobs would become scarcer, pay would stagnate, and GDP would actually go down resulting is less wealth for Joe 401K both in investment gains and employment income.

The rich would simply figure out ways to collect income overseas, resulting in massive wealth transfers and a dramatically weaker dollar. They would also find ways to enrich themselves without declaring it as income. I don't know how they would do this, but with their armies of accountants and lawyers, they would find a way.

In other words, the Obama plan simply won't work, and will leave Joe 401K in a worse situation than where he began, even though he would receive $1000 in the mail from the Federal Government.

In conclusion, Hank "The Hammer" Paulson is my hero for accomplishing a massive redistribution of wealth from the ultra-greedy to the middle class, and establishing a plan that will ultimately benefit the entire country with little in the way of taxpayer liability. More on how this will work later.

Trojan Horse - 9/8/08

Yesterday's bail out of Fannie Mae and Freddie Mac by the Treasury was yet another TROJAN HORSE for the bears. One of the key observations of sentiment trading is that strong emotional patterns tend to repeat themselves. I see this as entirely behavioral in nature. For more on this, read Joseph Ledoux' The Emotional Brain.

So basically, on 9/2, we had a gift of oil cratering below $110. The market had been fixated on the meme that LOWER OIL, HIGHER STOCKS. The sell-off proved that this was just not true. The implication of the sell-off is that GLOBAL DEFLATION is the real problem. All you need to do is to look at the 5-year US treasury yield trading below 3.00% to get a sense of how threatening the deflation clouds are.

So, the point is that the TROJAN HORSE trade will be a feature in this new BEAR phase.