MY HEROES HAVE ALL BEEN COWBOYS

The telling and retelling of the big cattle drives and gunfights out west have given us a long list of "heroes". Some of these "heroes" were rough characters that were cleaned up in the telling and retelling. The "Bat" Masterson story is a prime example. William Barclay Masterson an immigrant from Canada got his start as a buffalo skinner, a "mule skinner" and a buffalo hunter. The sad part of this story is that the buffalo hunters of the day were assassins paid by the railroads. In the attempt to avoid Indian trouble, the railroads paid to have tens of thousands of buffalo's killed. The killing was far in excess of any need for meat. The hides were purchased, partly just to make the enterprise of killing off the food of the Indians look legit.

After skinning as many as 20 buffalo a day, Masterson worked his way up to a "mule skinner". In other words he was a wagon driver. As such, his occupation was once listed as a teamster. After skinning and hauling a lot of buffalo, many of which were killed by Wyatt Earp, Bat acquired good excellent shooting skills with a "Shapes Buffalo Cannon". He also regularly practiced his 6-gun drawing skills and become a "fast draw". While still a young man, he got into a gun fight over a saloon girl. His opponent and the saloon girl was killed and Bat was shot in the pelvis. From that point forward he carried his famous cane.

Bat's list of jobs is long because he moved from one to the next. Because he felt mistreated by a US Marshall, he ran for sheriff of Ford county. He actually did catch a few bank robbers, before mishandling other matters and losing the next election. Bat was in Tombstone a few days before the famous gunfight at the OK Corral. Later, when the state of Arizona tried to extradite Doc Holliday it may have been Bat who had the idea to arrest Doc on a number of trumped up charges, let him out on bale and then to constantly postpone the local trial. Doc was never extradited because he was never tried on the local charges.

After his time as sheriff, Bat wandered from town to town while making his living as a gambler and Faro dealer. In 1889 he was involved in an election ballot box stuffing scandal and soon after he purchased a theater and married the beautiful lead actress. As a theater owner, he got involved in promoting boxing matches and traveled from territory to territory as a promoter. He was successful partly because he developed skills as a sport writer. He had a knack for making a small story into a huge tail. In one famous case, in order to hold a boxing match in Texas, he influenced Judge Roy Bean to hold the match just across the border in Mexico.

Bat got to know Teddy Roosevelt and was appointed a political patronage position that lasted from 1908 to 1912. He spent the remaining years as a writer for the New York Telegraph where the legends of the west were raised to new levels.

Can you picture Gene Barry as a buffalo skinner, teamster, or buffalo "hunter"? If you have watched the TV show, you have undoubtedly gotten a false impression of "the man". Bat drank liquor like a fish in water and was known to stagger down the street after a late poker game. You can read all about Bat on several web sites, including the Wikipedia site. A quote you will find on a number of them is, "it was Bat's art of self promotion more than any actual accomplishments that likely added to his notoriety".

Again, while it was true that he had a "fast" gun, he is known to have killed just the one man in a bar fight over the girl. The speculation over where he got his "big" money includes his connection with the railroads. Some stories indicate that he was one of the first Pinkerton railroad agents but this was at most a very short period of time in his life.

AMERICANS LOVE BIG HEROES

Between now and the election Ben Bernanke is likely to be promoted as the latest "Great American Hero". After holding his foot on the brake so long that the economic engine ran out of gas, Ben was slow to react and allowed a relatively minor problem escalate into a crisis. All during the "crash" Ben ignored the law that allows the FOMC to open the discount window to the broker dealers. Only after Bear Sterns was in deep do did Ben act and when he did he flung open the window to JP Morgan so that it could gobble up assets at pennies on the dollar. The cut throat competition between the "big boys" goes back for centuries and old man JP would be proud to know that Jamie Diamond was able to follow in his foot steeps, "stealing the assets of the competition".

Big Ben comes off as the savior of the US economy. By the time the election rolls around, a number of voters will decide to support republicans because of the risk that a democratic president might shuck Ben for another "new" fed chairman.

It is difficult to speak out against a hero. It is easy to come across as a naysayer or even a crack pot. As all good investors know, investors run in crowds or herds. The old Candid Camera elevator gag is a good illustration. Candid Camera put 8 people on an elevator facing the back. When the elevator stopped at the next floor, where one person was waiting to get on, the pressure on the new person proved to be incredible. If he faced the front, one or two of the others would give him ugly looks over their shoulders. The "stooge" often faced the back immediately or after one of the ugly looks. If not by then, at the next stop one or two more people would get on and fact the back. In almost all cases, the stooge would turn to the back.

Yes, I am thankful that the FOMC has finally opened the discount window. I am also thankful that window borrowings are being "sterilized". In Fed Speak, "sterilized" means that the FOMC is not printing the money to loan. Instead, the FOMC is loaning money directly to the parties that are in the most need while buying back in the same amount of loans from those who are in better financial shape. In other words, extra high inflation is not going to be the outcome of the FOMC's current actions.

LOW INVENTORIES EQUAL HIGH INFLATION

Inflation is nothing more than a ratio of money to goods. The fear has been that the fed is printing to much money. The reality is that the short term fear of recession has caused businesses to hold off on production. The fear of business is that they will make a lot of goods that must be financially carried during a long down turn. By keeping inventories low, prices are pushed up. If you only have three widgets in stock, you are not willing to bargain much even if the widget is a high priced and high margined item.

There are two sides to the extra low level of inventories. On the one hand, short term inflation is created. On the other hand, the economy must expand rapidly to rebuild inventories. One exception is the housing industry but even here the level of new construction is now below the level of absorption. With the number of homes on the market gradually starting to go down, the pace of sales will jump when buyers realize that they must buy or miss the best bargains.

LAGGING, LAGGING, LAGGING

It is a critical point for investors to understand that inflation is a lagging indicator. The above epistle on low inventories is part of the dynamic involved. Inflation goes up as businesses pair back production in fear of recession. Once the fear goes away, the production of "extra goods" brings down the price.

PLENTY OF TIME - ANOTHER BLESSING AND CURSE

There is plenty of time to promote Ben as the "successful economic savior". The big cuts in interest rates, which were delayed until late January, happened in time to boost the economy about the same time that the $600 "helicopter dollars" will fall from the sky. The economy will be doing fine by the summer and extra fine by the fall. Incumbent democrat and republicans went along with the "helicopter dollars". The timing will be good for incumbents and perhaps good enough to give McCain all the boost he needs. If the economy is in "recovery" there will be a natural inclination to not "change horses in the middle of the stream".

Gene Barry, Bat Masterson and Ben Bernanke are "good guys". Bat was a colorful figure. TV nor movies can capture all the rich detail of a personality. Over then next few months, we will get the "TV" version of Ben Bernanke. The economy has been saved. Bush, Paulson, Bernanke and the congress will all share the credit. Investors who buy now will reap a portion of the financial benefit. The common investor has no chance to beat JP Morgan but we can all go along for the ride!

MANUFACTURING RECESSION--NO!

In times of trouble, we seem to be like the cowboy that knows there must be an Indian behind every rock. The question, since industrial production declined last month, does that not prove a recession is starting. NO, NOT NECESSARILY.

Brian Wesbury has answered this very question on his web site today. He notes that the 6 month change in production has dropped to a negative number 4 times since the last recession. The current decline is accompanied by a very low inventory to sales ratio. While it is clear that business managers are being very cautious, it is also clear that it would not take much of an attitude or much of a sales increase to cause businesses to attempt to crank up inventories. Once the turn is here, businesses might have to work hard just to stock up.

High tech equipment production grew by 17% last month! Many a business is spending to cut costs. Again, we come full circle to oil demand. In the USA, oil demand is off more than a million barrels per day from the peak in 2005. Companies and individuals are finding ways to reduce consumption. There are literally millions of projects underway in the USA to reduce consumption. There are millions of more projects underway in China, etc. Goods production is soaring if you focus on those goods that serve as substitutes for oil consumption.

THE POLITICAL QUESTION

The question remains as to what strategy will be used by the republican administration to hold the presidency. Success in Iraq could be the welcome advantage. Should the economy improve as a result of a settlement with Iran, the advantage would go to the republicans. In regard to the pressure from democrats to raise taxes, they will face an uphill fight if the economy stays weak. The fear of higher taxes is a part of the reason the economy is weak. We have a chicken or egg problem to solve.

The political bottom line is that citizens "vote their pocketbook". Therefore, it is in the administrations best interest for a clear turn to happen. One more big cut in interest rates, tomorrow, may be all that is needed to kill a few birds with one stone.

WHOLESALE GASOLINE DOWN 21 CENTS PER GALLON!

What do we make of the steep drop in oil per barrel and in cents per gallon today? Oil is down $5.50 per barrel and the wholesale price of gasoline is down $.21!

For a number of months, I have suggested that commodities have been in a bubble. I suggested that at some point a flood of money would pull out of commodities and that this money would make its way into high tech stocks. One problem has been that oil has been propped up by the geopolitical risk that the feud between Iran and the US might result in a cut off of oil flow from Iran or even from the middle east. As a result of this fear, China, the USA and other countries have been actively filling strategic oil reserves even at the cost of $110 per barrel.

Last week, we saw a significant move that suggest that Iran wants to come to the bargaining table with the USA. The price of oil hardly budged. This week, there is great fear that a significant recession is at hand, the price of oil is falling hard.

While I still believe that the geopolitical question has a strong influence, the actual demand for oil is trumping the demand for "protection against events". The total amounts being added to strategic reserves are small relative to usage. Never-the-less, the total amounts in reserve have become significant. An oil embargo would be no fun but, during a recession, total demand could decline enough to significantly reduce the risk from embargo. It is estimated that there is about 3 million barrels per day of excess capacity now. This is less than the net amount of oil exported by Iran. An economic slow down could easily push excess capacity up to 8 or even 10 million barrels per day. As of last week, gasoline inventories in the USA sat at a 16 year high, going back to just after the recession of 1990-91. The big decline today suggests that the market believes there will be an additional jump in gasoline inventories announced Wednesday.

The most recent retail sales report showed a steep decline in gasoline sales. It is clear that the current price is destructing demand.

SKIPPING OVER THE INTERSTATE HIGHWAY SYSTEM

I think it is significant that Vietnam has launched its own communications satellite, long before traditional infrastructure has been built. The developing world is learning quickly that the way to grow an economy in today's market is to grow the communications (Internet) network. Around the world, lessons are being taught and meetings are being held via communications terminals. At current prices, all companies and all individuals must ask the question, "Do I really need to be there"?

The irony has been and will continue to be that global communications make it all the more necessary for international travel to occur. The demand for international travel continues to show up in the revenue and earnings report of international airlines. At the same time, the fuel price crunch has dictated that planes must be flown at full capacity.

RECESSION?

The sentiment indicates that we are already in the middle of a tough recession and the swoon in stocks supports that belief. On the other hand, the economic numbers still show world wide growth and even growth in the USA. The majority of market observers now believe that we are in a recession but I believe John Maynard Keynes was correct that in economic matters the majority is always wrong.

IS THE TURN HERE?

As expressed many times, I see signs of the big turn all around. The problem in seeing the turn is that it begins as a turn of relative performance. If big pharma goes down in price, the turn has started if wage intensive health care providers goes down in price more. If small banks go down in price, the turn has already started if investment bankers go down more. If tech stocks go down in price, the turn is already here if energy stocks go down more. The turn is here is if US stocks go down less than international stocks.

The most obvious example of the "reverse turn" I can give is when tech stocks were hitting outrageous prices in 1999 while oil stocks were dragged along the bottom. When the market fell sharply in 2000, oil stocks went down but nothing at all like the high tech stocks. By the time the public, who sold out in droves, came back to the market, the oil stocks were already soaring and they looked too expensive to buy.

FED CUT

Some folk believe the FOMC will cut as much as 100 points tomorrow. This is another one of those no one knows questions. What is easy to surmise is that what ever the size of the cut, interest rate will have come a long way down from the 5.25% level of just a few months ago. A cut from 3% to 2% is a huge cut. It is enough to encourage a lot of small businessmen to take a chance. Small business is where the "rubber meets the road". A lot of people are in a depressed state of mind right now. However, there are a large number of small business owners who are enjoying the benefits of the low dollar. NC is one of the states that has come full circle. A state in which textiles and furniture production was hit hard by competition. NC is back high on the list of exporting states. Our export growth is very strong. I can't find my notes at this moment but as I recall, NC exports more value than all but 4 other states. The price of a home in NC is cheap compared with prices in many northern states and NC is enjoying strong migration. Business is expanding in NC.

Since 1960, the growth in number of employees engaged in manufacturing in the USA is almost zero. During this time, the production of goods has increase 450%. In this new world, automation allows us to do more with less. The USA has decreased its use of fuel in manufacturing. Our use of oil in the manufacturing process has gone down for 35 years or more. The example of Vietnam shows how other countries are not just following our lead but are jumping ahead. The successful person of the next generation will in all likelihood be a person who has embraced the Internet. The growing church will be the church that uses Internet technology. The successful business will also be likely to have embraced technology. In the case of a country, Internet communication will be a critical component of economic freedom and success.

ELASTIC DEMAND FOR OIL

We have long know that the demand for oil is "inflexible" in the short run and "flexible" in the long run. The answer to the question, will the price of an airline ticket be raised enough to offset the price increase of oil is a resounding yes over time. Knowing that a few monster oil fields are expected to come on line over the next several years, it is my belief that today's big fall in oil prices is the start of a long decline, but who can call short term moves?

By the way, in my area, retail gasoline is already depressed relative to the wholesale price. Should the normal spreads prevail, the 21 cent decline in wholesale prices will only convert to a 12 cents decline in retail prices. In other words, the wholesale price at $2.47 should give us an average retail price of $3.07, not good but since I just put $72 worth in my car at $3.18 per gallon, I am thankful for the decline and can only hope that it will continue.

READERS WANT TO KNOW

A number of readers who have been hit hard by this market are asking lots of questions. This is a scary time. Times have been worse but the old joke is true, that if your neighbor loses his job times are tough but if you lose your job there is a recession. The value of a lot of different asset classes have fallen in recent weeks. The big declines have cause a number of coiled springs to be pushed close to their limits. The eventual result will be a strong rebound. However, no one knows how long the springs will remain coiled.

One reader wants to verify that I believe JP Morgan-Chase is a good buy. I believe there are thousands of good buys available right now and JP Morgan is among them. However, I believe the normal rotation in finance will be to the small bank. Small banks should benefit greatly from the, once again, steep yield curve. By tomorrow, banks should be able to borrow for 2% while lending at much more than double that rate. With the current value of the US dollar extremely cheap, one can count on local and international businesses to expand in America. In my BMW example, where the company is laying off 7.5% of its German workforce while planning to increase its US workforce by 50% over 4 years, the key is that the new BMW presence will increase the number of parts and supplies purchased in America. Many companies will get a boost from the new business and many will need to borrow money to expand. Multiply this one transaction by tens of thousands and the result will be a booming business for small banks. Small banks generally have little or no exposure to the "sub-prime" mess.

Another reader wants to know about margin calls. The way the brokers report loan balances is confusing. The bottom line is that if you own $10,000 worth of stocks, the maximum loan you can have outstanding is $7,500. Most firms restrict lending a little more than allowed by law and only permit a maximum loan of $7,000. If the equity in the account falls below 30%, the broker demands a deposit to bring the equity balance back to the 30% level. If a deposit is not made, then shares of stock must be sold.

HIGH POWERED DOLLARS

At or near bottoms, margin dollars become very high powered dollars. With perfect knowledge, one would borrow and buy all one possibly could right at a market bottom and he would then leverage all the way to the market top. The total return on invested capital would be extremely high. Of course, the problem is that no one knows where the bottoms are.

Here again, we know that the market is as cheap or about as cheap as it has ever been by a number of measures. For example, the equity put to call ration was not at an extreme on October 10, 2002 right at the market bottom. Today, this measure is even more extreme than it was back then. Today, there are several measures that are at or beyond levels not even seen in the fall of 1982.

Knowing that the FOMC has released massive financing to banks and broker-dealers does not force these firms to purchase assets. However, with tons of assets selling at depressed prices, a lot of assets will be purchase in the belief that these are being bought at or near the bottom. As soon as a few assets are "just missed", after another firm makes the purchase, the fear of missing the best buys will over come the fear of buying only to see lower prices still.

HIGHER TICKET PRICES

If the latest round of fare hikes stick, the price of long haul domestic tickets will have increase by $120 since December 18, 2007. The concern of the market is that the higher ticket prices will cause travels to stay home. Of course, current oil prices have forced the airlines to act. One of the actions taken by some airlines has been to reduce the number of flights. CAL has been the exception. CAL has added to capacity while filling a high number of seats and while increasing the yield per seat.

The continued expansion of the "business" economy, means that demand remains firm in the airline business. This is obviously so or the $120 of fare increases could not have been pushed through. While the opening of the discount window by the FOMC has no direct effect on the airlines, the opening implies that the economy will be stronger in the near future. The airlines should benefit greatly because high usage rates implies that ticket prices will remain firm no matter what happens to the price of fuel. BUY, BUY, BUY!

Re: THE RICH GET RICHER AGAIN

On 3/17/08, Lamar Jones wrote:
Current events remind me of the 80's with the S&L crisis. I cannot forget the sweetheart deal BofA got in Texas. In fact that is what started the good ride for McColl and the old NCNB.

I must confess that the fear is very strong and every time we all ask, "Is this the next Great Depression?". I do not believe that is the situation but I can certainly not blame the weak of heart ( I was once a "professional" and remember the doom and gloom the day of the '87 crash....never forget it. It was also one of the best buying opportunities both short term and long term!)


BTW- did you not predict the current real estate mess?

My problem is that I predicted that there would be a mid cycle slow down, a rebound and then a great real estate mess. As we know, if this is only a mid cycle slow down it is one of the biggest on record.

This cycle has been "different" in that during the 2001 recession, real estate did not get slammed. Instead, real estate was super strong because excessive world wide savings pushed interest rates to historic lows. As expected, the 2001 recession was a manufacturing recession but normally manufacturing recession are tough enough to ultimately drag real estate into the same ditch.

With baby boomers still at prime buying ages, it has been difficult to determine how strong the rebound buying will become after the current crunch is over. The question on everyone's mind is, "IS THIS THE BIG ONE"? The fact is, with variable rate mortgages are about as cheap now as they have ever been, it is natural to assume that bargain hunters will clear the market. The sales prices are low enough to make buying to rent an attractive business model.

You are certainly right about the sweet NCNB deal. Big banks become super big when they buy competitors at deep discounts. As always, the government "goes along" with these deals to "save us all".

In regard to the aftermath of 1987, I was fortunate enough to be able to buy heavily in the days after the crash. The returns over the next year were fantastic, all the way up until the invasion at the start of the Gulf War. Like it has been said, "This too shall pass".

On Mon, Mar 17, 2008 at 7:36 AM, Jack Miller wrote:

In a deal reminiscent of the deals of old, JP Morgan - Chase just bought Bear Stearns for $2 per share. The purchase was made with a loan from the Fed! The Bear Stearns office building is worth $2 per share but Bear Stearns did not have what JP had, access to the Fed. This problem has been fixed but, as the saying goes, too little too late for Bear Stearns.

THE CALVARY TO THE RESCUE!

Sunday, the FOMC took the unusual action of flinging the discount window wide open. The rate was cut a quarter percent but the significant action was to open the window to firms like Bear Stearns. Of course, when Bear Stearns collapsed, the topic of discussion immediately become "who is next?". The rank smell of fear which has been in the air is suddenly suffocating. It can be seen on the face of small investor and large, but, would Bear Stearns have been sold if it had had the backing of the Fed? No way! The FOMC is now accepting all sorts of paper at the discount window. I have not studied the balance sheet of Bear and I do not have an inside view but I am confident that if Bear Stearns had been allowed to swap triple A paper for T-Bills at the window, the T-Bills would have provided Bear the liquidity to stay solvent long enough for the value of the triple A paper to recover enough. No, I don't know how much would have been enough for Bear but I know that there is much paper trading at deep discounts to par that will ultimately be paid off at par. I simply do not see a collapse coming in the housing market. With world wide unemployment rates near record low levels, the great majority of people are going to make the payments on their homes and foreclosed homes will be absorbed by the market. Indeed, there are plenty of indications that the worst of the housing crisis is over.

In the case of Bear Stearns, JP Morgan and the FOMC rode to the rescue. The FOMC provided the artillery to save the ranch from the Indians and then turned the keys over to JP. Again, this deal is reminiscent of the deals done by the old man JP Morgan, more than 100 years ago. THE RICH HAVE ONCE AGAIN SNARED A BIG CHUNK OF ASSETS AT CENTS ON THE DOLLAR. Shares in Bear Stearns traded at $150 not so long ago and for $60 in recent weeks.

SMART MONEY

The JP Morgan deal for Bear Stearns is one of three indications of SMART MONEY BUYING that I will mention here. The second is the Smart Money Index as reported by Hayes Advisory. The smart money buying index made a major bottom on or about January 21 at an index value of 3,400. It has since climbed to 5,200! in just two months time! The ratio of smart buying to emotional buying has jumped by a larger percentage as buying by the emotional public has collapsed. This is a classic situation near a market bottom, where the public sales at low prices and the smart money buys at low prices.

The third indicator is the Gambrill Insider Buying Index. This index is computed by studying the government required reports from 3,000 public companies. Purchases by executives and directors must be reported to the federal government. This indicator is "smoking". Executives at 3,000 firms are making a clear statement that they believe their stocks are cheap.

DIGGING DEEP IS HARD

Like always, when the market seems to be in free fall, it is hard to dig deep into pockets to buy at low prices. Women shoppers do better than men at this game. Women love to buy bargains. When there is a "going out of business sale", most of us are pleased to pick up goods at deep discounts. Stock market sales occur when people are afraid that prices will go much lower still. At a going out of business sale, there is the temptation to wait until prices are marked down again; 70% off might be changed to 80% off tomorrow. Of course, the risk is that the item you have your eye on is taken by someone else. Those who miss the 70% off deal are inclined to look around for the next sale to start. Those who miss the last sale end up paying retail.

Think about what would happen at a going out of business sale if a bank were to offer 100% financing on the 70% off goods? The wholesale buyer would "take it all". In recent weeks, the "smart money" is snapping up bargains. Will the buying pace be stepped up now that the FOMC has offered virtually unlimited financing?

In the case of Bear Stearns, JP bought at 99% off the price of 60 days ago and did so with 100% financing. What a deal?

NOT A LEVEL PLAYING FIELD

No, you do not qualify for the JP Morgan deal. You simply cannot make the kind of money JP Morgan can make. Still, you can tag along for the ride. The insiders are buying, they are digging deep. They understand that "panics are short". With many goods available at 70% off, they are not waiting to find out if 80% off will be available. If they buy at 70% off and have to ride through 80% off, so be it.

ONCE AGAIN, THE RICH ARE GETTING RICHER. WILL YOU JOIN THEM? BUY, BUY, BUY!

STRONG MARKETS--PAUSE

The commercial real estate market is strong. This market is enjoying rising rents and decreasing vacancies; what is not to like? On the other hand, new construction has slowed. There are at least two reasons, one is to wait to see if there really is going to be a tough recession. The second is that with stock prices on sale, the pace of spending money on share buybacks has once again quickened. It is silly to build a new business if you can buy shares in your existing business at a "below the mean" price. Even so, high employment around the globe and the low dollar implies that US businesses should expand to meet high profit demand.

Share buy backs are strong and broker dealers and banks have just been granted expanded access to the Fed. To understand the situation, assume for a moment that the Fed chairman called you yesterday and said that he would give you cash at 3.25% in exchange for holding the deed to your house. Say your house is valued at $300,000 and you are aware of a foreclosure close down the street available at the deeply discounted price of $200,000. After using $200,000 of the cash to buy the home, you could then take the deed to the FOMC and get another $200,000 in cash. The aggressive person who had such a deal available would soon own a few dozen houses, 100% financed by the FOMC at 3.25%. A less aggressive person would buy one house at $200,000 and offer to resell it for a higher price at a higher interest rate. A lot of people might be attracted to a $300,000 house priced at $250,000 with 5% financing available. Again, once this less aggressive investor has "flipped" the first home, he would be in the market to submit the deed to raise the money to do another. This all sounds crazy but the FOMC has basically given banks and broker-dealers the power to buy a lot of $300,000 paper that is selling for only $200,000. Tomorrow, when the FOMC cuts the rate, say to 2.5%, the discounted paper will be even more attractive.

Those who are expecting a collapse in the housing market from here do not appreciate the power of the FOMC. The FOMC has been slow to act, it should have cut rates hard back in August or at least by last October. Instead, the FOMC played along with "taking out one of the big boys". Now the congress and the next president will have all the backing it needs for regulation reform of the banking and brokerage system. Between now and them, the market will clear. The FOMC has access to all the money needed to stop the forced selling of assets. As of yesterday, the FOMC made a huge chunk of money available to broker-dealers and banks. There are still a lot of hedge funds and others caught in the "sub-prime mess" but the banks and broker-dealers have the cash to buy out the weak ones.

The markets are still going to be volatile, but the situation is different today than it was on Friday. After the market crashed on October 19, 1987, the FOMC immediately flung open the discount window. Within a couple of weeks the market had not only stabilized but it had started its next big climb. The wall of worry has grown tall in this cycle. The market will climb this wall of worry, including the political and geo-political concerns. No one can call tops or bottoms, but many buy indicators are at levels seldom seen if ever.

My guess at GNP is about 1.5% this quarter and 4% by the third quarter. No recession. Tough markets. Fear. Confusion. World wide strength. Strong US exports. Strong commercial real estate. Temporary slow down.

Buy the Russel Small Cap Value Index. Small banks are once again enjoying a positive yield curve. The FOMC will probably cut short rates by at least 50 basis points tomorrow. Lending is once again a profitable business.