Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

The Post-Bailout Landscape


Five effects of federal intervention.


"Don't worry; they'll bail them out."

I'm saying those words a couple of times a day now, every time my clients call and ask if I think their auto insurance policy with AIG (AIG) or their money market fund will be around tomorrow, or if their CDs will be made whole if the FDIC goes bankrupt. Though I love Minyanville's Why Wall Street Will Never Be the Sameputting my clients at ease, there are consequences to the bailout:

  • Inflation: At some point, the government won't be able to afford to keep bailing our financial (and other, real) companies out, and will have to start printing money. Though it's hard to have inflation while the financial industry is deleveraging, when credit normalizes, we'll be hit with massive inflation.

  • Weaker dollar: Give me a just one-armed economist, demanded President Truman. I feel his pain. That's how I feel when I talk about the US dollar. Only last week, I thought the odds were that the US dollar will embark on the appreciation journey against other currencies.

    After the bailout announcement, the prospects are a lot less clear. The US government possibly starting a gigantic printing press isn't good for the greenback. However, currency strength/weakness is driven by relative, not absolute, economic performance. This where "the other hand" comes in, maybe foreign governments' printing press will be even bigger than ours? We don't know. So prepare for both.

  • Higher interest rates. In the past, we didn't have to worry about the financial strength of the US government, but today the government's financial strength has been tested. Though I doubt it will happen, I would not be surprised if Microsoft's (MSFT)new AAA-rated bonds will have a lower yield than US Treasuries.

< Previous
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos