A Loss of Confidence

*****So much for the silver lining talk. The Dow Industrials seem intent on testing recent lows. The low close came on October 27 at 8,175. The intra-day low came on October 10 at 7,773. 

I can’t say it’s a surprise. But it is disappointing. Earnings and unemployment are still significant issues. Now we can put the bailout plan, known as TARP, back on the worry list. 

As you probably know by now, Treasury Secretary Paulson spoke about the plan on Wednesday. And I can’t see how anyone can come away feeling encouraged by what Paulson had to say. 

Back at the end of September, after Lehman failed and the markets were starting to melt down, Paulson was adamant that something had to be done to get toxic mortgage loans off of banks balance sheets. Congress, amid much criticism, voted to give Paulson $700 billion to accomplish the goal. 

Well, apparently buying banks’ toxic loans is no longer the goal. He said this use wasn’t the most effective way to use the funds. Instead, he will probably look to use them for emergency loans to banks and other companies with exposure and to ease the burdens of consumer loans. 

*****By consumer loans, Paulson specifically mentioned student loans, car loans and credit cards. 

I’m probably not going to be the first to say it, and I hope I’m wrong, but this TARP program is starting to look like a complete fiasco. 

Paulson’s burned through nearly half the money buying stakes in banks. That was supposed to free them up to lend. It hasn’t. And that’s because Paulson refused to apply strict rules as to how the money would be used. 

Now, Paulson said he’s going to look at ways help the markets for asset backed securities. And he wants to encourage private investors to "…come back to this troubled market." 

I can see it now – a marketing campaign about the asset backed security market. Great. 

*****The one thing Paulson’s original TARP plan did was give investors some confidence that the problems were being dealt with. Now, it seems like he doesn’t know what to do. That’s pulling the rug out from under investors.    

Paulson just blew whatever confidence investors had in him and TARP. And you can see that plain as day on the Dow Industrial daily chart. The snowball started rolling downhill at exactly 1 pm. 

*****I said there would be 300,000 jobs lost if GM (NYSE: GM) went bust. But that was just for GM. Another estimate puts total jobs lost if the Big 3 auto makers go belly up at 3 million. Either way, failure is bad. 

That’s why some in Congress are pushing for TARP to help the auto industry. Others argue that Chapter 11 bankruptcy will give the automakers time to complete the restructuring that’s been ongoing for the last few years.  

Perhaps if the troubles in the banking sector were resolved, it would make some sense to help the auto makers. But given that the banking situation seems far from being resolved, I have to think Chapter 11 is the better option. It hurts me to say it, because I think the sins of the financials are of an order of magnitude worse than those of the auto companies, but the financials pose a greater threat to the U.S. economy. 

Both Bank of America (NYSE:BAC) and Citigroup (NYSE:C) posted new 52-week lows yesterday. 

*****Intel (Nasdaq:INTC) cut its revenue and margin estimates for the 4th quarter after the bell. Revenue was cut by approximately 10%. Margins came down by nearly 7%. 

It’s surprising because Intel reaffirmed its guidance less than a month ago. I remember thinking that was good news because. Intel usually has a pretty good grasp on its business. 

One analyst called the revision "…shockingly bad guidance." And we should probably be prepared for more downward earnings revisions from a host of technology companies. I’d be especially concerned about Apple (Nasdaq:AAPL) stock. Christmas could be brutal for it.