Cheap Keeps Getting Cheaper

I used to spend a great deal of my time investigating individual stocks. Throughout my career as an investor and in my previous life as a broker, I always found this to be one of the best possible ways to while away the hours. Back then, I expended very little energy looking at macroeconomic factors or day-to-day market movements. Once in a great while, I'd stick my head up and take a look around at broader factors, but it didn't really affect my stock selections.

I miss those days.

As the pace of activity from the Fed and Treasury began to exert a more frequent influence on the stock market over the past few years, the divvying up of my days has changed. Starting with the post-9/11 massive liquidity injection, it seemed to me that the economic activity and government responses began to exert a greater influence on stock prices. Of course, since August 2007, I find that I have to pay even closer attention and stick my head up much more frequently.

In reviewing the current situation yesterday, I stuck my head up once again and took a look at the world around me. I wish I had not.

Everything I feared that could go wrong with the proposed bailout has gone wrong. The government has already changed direction with the funds; no longer will it buy distressed assets. I suspect that the powers that be realized that the toxic creations of Wall Street were going to be impossible to price with any kind of margin of safety for taxpayers. Instead, the government will invest directly in banks.

As predicted, a plethora of parties have now lined up, clamoring for their turn to be quasi-nationalized and benefit from taxpayers' generosity. The automakers want to be saved, at least two cites have stated that they should get TARP money, and several insurance companies purchased savings and loans that were 0.1% of their size and applied for bank status and TARP funds. And let's not forget that American Express (AXP - commentary - Cramer's Take) decided that it was a bank, not a credit card company, and, you guessed it, applied for TARP funds, and, just yesterday, there was news that 11 of the nation's transit agencies are asking for federal guarantees of their debt payments.

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At the time of publication, Melvin had no positions in the stocks mentioned, although positions may change at any time.

Tim Melvin is a writer from Stevensville, Maryland, who spent 20 years a stockbroker, the last 15 as a Vice President of Investments with a regional firm in the Mid Atlantic area. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Melvin appreciates your feedback; click here to send him an email.