RCM Editorial: Financial Stocks' Effect on the DOW, Obama & the Stimulus Package, Greenlight Cap. & Gold

Interesting thought: "Jim Bianco points out that if the remaining financials in the Dow were priced at zero, it would only lose another 300 points. So, they are rapidly running out of room to take the market lower."

While this thought has merit I would also point out that the financials will have an almost impossible time leading the market higher. I heard on the financial news networks yesterday the usual hysteria that accompanies any rally. Cheerleaders were blathering on about the rally led by the financials and pundits were picking the oft elusive bottom. What they fail to discuss is the simple fact that this group requires a dramatic infusion of capital. And whether or not this infusion will be government assisted or constant follow-on offerings, the result is the same: endless supply and dilution leading to weak or underperforming equity prices.

And another thing...

Why can't the Obama administration and Congress devise a stimulus package that will, you know ... stimulate the economy? Am I asking too much? Is this concept too difficult to comprehend? Instead of focusing their efforts on the crisis at hand this package appears to have the usual pork barrel spending and handouts to special interest groups. Someone please tell me why ACORN, a group whose activities (while it is not PC to say) are arguably one of the root causes of the banking crisis, is receiving funds from this stimulus bill? Does ACORN's involvement in the election process - an involvement that some have suggested amounts to voter fraud - have anything to do with this handout? So basically 'change' to the Obama team means changing which special interests get the handouts. How should we reconcile the situation? I guess we could say: "the more things change the more they stay the same."

Greenlight Founder Takes Grandfather’s Advice on Gold By Stewart Bailey and Saijel Kishan
Jan. 28 (Bloomberg) — Greenlight Capital Inc. founder David Einhorn is finally taking his grandfather’s advice. The $5.1 billion hedge fund is buying gold for the first time amid the threat of inflation from increased government spending. Since Einhorn was 10 years old, his grandfather has warned him that investing in bullion and gold-mining stocks was the only “sensible” thing to do given the threat of inflation and the risks of so-called fiat currencies, New York-based Greenlight said in a Jan. 20 letter to clients. The firm had never before considered buying bullion or mining-company shares.“To everyone’s dismay, we believe some of Grandpa Ben’s predictions are playing out,” Greenlight said in the letter, a copy of which was obtained by Bloomberg News. “The size of the Fed’s balance sheet is exploding, and the currency is being debased.”Greenlight is turning to the centuries-old currency to mitigate the effects of the economic collapse and government efforts to end it. Bullion gained for the eighth straight year in 2008 as governments in Europe and the U.S. rescued banks from collapse.

RCM Comment: David, I know of a good way for Greenlight to move assets into precious metals: Consider investing in the hedge fund Fortune's Favor Precious Metals. The fund was up 4.99% net in 2008 even with the collapse of the mining companies and an approximately 24% decline in the price of silver. Plus, I hear the managers have their own money in the Fund and are pretty cagey veterans.