The only thing keeping Wall Street from packing up shop and moving to Washington is the fact it can’t find a buyer for the buildings it occupies. Thanks to our elected officials, investors are forced to spend more time reading the political pages than the business section, and that means Wall Street leads directly to Pennsylvania Avenue.

Lately, the equities market has little energy or motivation to move until Washington opens its mouth. When our leaders talk, all bets are off.

Geithner sent the markets crashing. Bernanke sent them soaring. And today, Obama sent them right back down. The more they meddle with the economy, the stronger the reactions and the worse the addiction.

Anybody have any duct tape?

It is an utter mess on Wall Street. Political uncertainty has created financial uncertainty and we are all paying for it, whether it is through higher taxes or our plunging 401(k)s. As I write, all three major indices are down by over 2.25%, getting sucked down by more bad news from the real estate sector.

But even in the midst of the decline, shares of General Motors (NYSE:GM) and Ford (NYSE:F) continue their recent upswing.  GM has surged by more than 65% since crashing to a new low of just $1.52 last Friday.

What gives?

Of course, it all has to do with government intervention. Now that Obama has its Detroit review team in place, speculators believe chances of any bankruptcies are greatly decreasing by the day. Some positive gestures from Obama last night only helped to brighten the mood.

Many investors are looking at the action and wondering if this is a sustainable run or merely another government-fueled fake-out.

Read the full article here: Investments lost? Just follow Wall Street to Pennsylvania Avenue

This from Steve:

The complete inability of the banks to offer any solution to their current problems, other than to have the taxpayers pay for their bailout is the best case for some form of government intervention.

Nationalization is a disgusting word to me, but even I have reached the point of believing something needs to be done to pull us out of this mess.

Bankers have always been a strange group to me. They are the first and loudest to scream about welfare and people taking responsibility for their actions, and they are the first and loudest begging for a bailout from a situation they are responsible for creating, at least in part.

These people absorbed the entire first half of the TARP money and made no appreciable change in their lending. They have acted as if the TARP money is theirs and not the taxpayer’s.

They created and bought mortgage-backed securities they knew were garbage and expected the U.S. Government to make good on them. It’s another form of welfare.

It’s hard to believe the best and the brightest didn’t know what they were buying, with other people’s money, of course.

The obvious solution to this problem is to have the banks work openly with mortgage holders and rework these problem loans, sell off the garbage, take the loss and get this show on the road.

They haven’t done this because I believe they have no ability, or lack the willingness, to see beyond the balance sheets and recognize that this is a unique situation. The solution requires imagination, creativity and stepping beyond the normal banking parameters.  Bankers are not known for their creativity.

Bankers cannot solve the banking mess. They have offered no solution other than to wait.

The best proposal, with the greatest probability of success, looks like this: a government group takes over the asset base of the zombie banks.  The group separates the good assets from the bad, values them as accurately as possible, sets up a sale mechanism similar to the Resolution Trust Corporation to get something for the dead wood and then turns the cleaned up operation back to the bankers.

The banks take a loss, but the good assets become available to be used as reserves for lending.  We can finally stop guessing and actually know exactly what we have.

There is money to be made in this nightmare, but you’ll have to do your best imitation of not thinking like a banker to take advantage of it. Here’s my recommendation.

There appears to be no way banks, or their stock, will recover from their current situation unless something radical is done. If the limited intervention concept wins, and I think it will, we will see bank stocks drop to something similar to an AIG scenario, the stocks will be near worthless until there is a resolution of their balance sheets and asset woes.

So the obvious play now is to short or buy puts on individual bank stocks or the S&P Select Financial Spyder ETF (NYSE:XLF). Yes, I know, they are already in the toilet, but take a look at the XLF puts for Sep 09 or Jan 10 and you’ll see some real profit potential.

Also, JPM and WFC have not been immune to the beating the markets have been handing out lately. While these are the two banks with the smallest problems, they are not immune to the coming slaughter. There is lots of room for a downside play here.

If the markets react as they always have, we will have a period of severe bleeding following the government intervention, which is why this strategy will work. This should be followed by the usual waiting period to allow the street to adjust to the change and then I see a big upward move in what I call “resolved banks.” Time frame? 18 to 36 months.

How do you make money now? Look further out than the end of your nose, imagine what we could do to turn this mess around, and don’t sit around waiting for the government to send you this month’s welfare check.

Keep your eye on the horizon.

Source: Short The Banks Again For A Huge Gain

The fact is that ever-rising energy costs will alter American driving and dietary habits with no government intervention at all. $7 gasoline (or $12, now that Robert Hirsch of Hirsch Report fame has repeated Charlie Maxwell’s $12 forecast on CNBC) will make the 40-mile one-way commute unsustainable. And to some degree, we already see this reflected on a nationwide map of foreclosures, county-by-county, as put out by RealtyTrac.

In the places where foreclosures are highest, writes Wall Street Journal columnist Holman Jenkins (yes, I know I excoriated him a few weeks ago, but this most recent column isn’t half-bad)…

…Many of these homebuyers are underwater not just
because they bought more house than their incomes could support, and
not just because prices are falling. They were also betting on commute
patterns and demographic expectations that are proving invalid.

These were bets on location, location, location –
premised on the idea that people would be willing to live hours from
anywhere for a chance to own a single-family home they could actually
afford. No federally sponsored haircut can put these housing bets back
in the money, or stop these houses from coming back on the market at
distress prices.

And the reason for that, although Jenkins doesn’t say so, is that rising fuel costs are making the exurban lifestyle increasingly unsustainable.

So let’s examine the map as Jenkins did. The worst of the bleeding is in an arc reaching from Sacramento to Vegas to Phoenix, plus a goodly chunk of South and Southwest Florida, plus the tier of counties just east of I-25 in Colorado.

Now Florida’s a peculiar case; so much of the malinvestment there went into second/vacation homes. But that big Western arc sure looks like an unconscious bet that car culture would last forever. And it’s especially true of those Colorado counties — cheap land on the plains east of the Front Range, where housing was more affordable than in Denver or Aurora or even Fort Collins. It was a wonderful thing — as long as gas stayed under $2.50 a gallon.

Looking at the lighter shade of bleeding reveals more problem exurban areas — like the region 40-50 miles southwest of Chicago, including Kendall County, home to 77% population growth between 2000 and 2007, highest in the nation. Much of the state of Ohio is in the pink as well, including the I-71 corridor where new arrivals made long-distance commutes to Cincinnati and Columbus de rigeur during this decade. The parts of Florida that aren’t in the red are mostly in the pink, including the I-4 corridor that would likewise be unsustainable without cheap gas. (Can’t afford Tampa or Orlando? Move to Lakeland or Winter Haven and commute. Seemed like a good idea at the time…)

I don’t necessarily buy into all of James Howard Kunstler’s near-apocalyptic predictions about what’s in store during the Peak Oil era. But the map tells one part of the story that’s undoubtedly true: there’s a whole lot of fairly new housing stock out there, 40 or 50 miles from major cities, that’s being steadily abandoned… and may never be occupied again.

Source: An Ominous Map