How Detached From Reality Can Investors Be?
First, they really expected a Bush supported emergency bank bailout plan to just walk down the isles in the House. I’m sorry, but hasn’t the Bush administration been talking about the strength of the economy for the last several months? Years even? Given that they had their heads up their asses or were completely lying about the situation, why should be believe in any urgency about the bailout. Seeing as how they were completely wrong about the state of the economy for at least the last 18 months (the largest bank in the world – WAMU – doesn’t fail overnight folks), why are they suddenly right about the economy?
Then, this morning I read this article about a large slide in the manufacturing index. This should have been a no-brainer. If businesses can’t get money from their banks, they tap their other resource for capital: inventory. It’s a pretty simple business concept. Sell inventory and turn it into cash. Most businesses that sell products operate like this. Somehow, this is a foreign concept to the folks on Wall Street? Of course, in normal economic conditions businesses reinvest that revenue back into inventory. But if your bank is holding you by the gonads, you don’t buy more inventory. You keep the cash.
Good thing the fundamentals of our economy are strong.