What a Mess

House Republicans are apparently the hold up on the mortgage plan. I never thought that Republicans would veer this far away from Bush. But, it has happened, and the debate goes on. Everything will remain a mess until that plan is passed. However, even after it is passed, I think the best the market can do is lead us into another bear market rally before we stagnate or tumble again.

The WSJ outlined a couple different scenarios for the economy in an article published this morning, none of which are good. One scenario is an extended recession resulting from the housing bust and credit crunch. The WSJ states, "International Monetary Fund economists studied 122 recessions around the world since 1960 and found that the ones associated with housing busts or credit crunches were deeper than others." The second scenario is a longer, Japanese style deflationary period. However, they consider this situation unlikely stating, "For deflation to become a real problem, it would have to infect more than just volatile food and energy prices. At the moment, that doesn't seem likely, because prices outside of these sectors have remained reassuringly stable in the past few years."

I think the bottom line is that the current market environment and economic conditions are not just going to vanish. As I said before, things are going to take a long time to sort out and it'll take a while for businesses, financials, and consumers to regain confidence.

Financials along with the broad market are already getting hammered pre-market. The gap down will likely be pretty ugly and the tone could persist throughout the day unless some positive news on the Treasury's plan comes out.