09/24/2008 Seasick?

Good afternoon,



Let’s see what’s going on this week. There’s been lots of news and reactions to contend with.



He is not here. He is in the hills. He will return when his people need him – That was the legend built around Milano Zapata by the Mexican people who could not accept the death of their beloved hero. Many communities and cultures have a Zapata equivalent – some figure who knows how to make the right move at the right time, almost uncannily.



Wall Street’s version of Milano Zapata (at least today) is Warren Buffet. The unerring economic general has electrified the financial media and markets by investing $5 Billion in Goldman Sachs. It is being heralded as a show of good faith not only in Goldman but the system itself. To say the very least, Mr. Buffet’s investment is a show of faith, yet not unequivocal one. His package was well crafted indeed. If you’re interested in the details – email me back and they will be yours.

Some poor soul at another financial firm was quoted as saying “Do you think that Warren Buffet has some special ability to see good investments that the rest of us lack?” I think $50 Billion in the bank is an unequivocal yes…so much for the thoughts of U and Us.



On with the Paulson package – while unpalatable to many – our Congressmen and women face a challenge. What is the solution for the greatest good ? Ultimately, I believe that we must do something to stave off the global ramifications. If the rest of the world loses faith in the U.S. economy it will get much worse than it is today.



I’d also like to put the $700 billion in context for everyone since the price tag seems to be a real sticking point –

Dr. David Kelley of JP Morgan Chase has prepared the following numbers:



Debt as a Function of GDP (formerly known as GNP)



1946 107%

1994 49%

2008 38% 2006 GDP (last available number) $13.13 Trillion



If we add in the $700B the 38% jumps to 44%. That is if we say there is NO value to the securities purchased by the Treasury. Folks, these securities WILL have value in the future. They are just illiquid now.

From your Olympic Optimist,