Kass: Bernanke Can't Bail Us Out

Bernanke Can't Bail Us Out

This blog post originally appeared on RealMoney Silver on Sept. 17 at 7:51 a.m. EDT.

Over here, Countrywide Financial(CFC) is suffering and was most recently "bailed out" by Bank of America(BAC) and others. Over there, in England, mortgage originator Northern Rock is facing its own ruin. (Editor's note: A subscription is required to read The Wall Street Journal article in its entirety.)

The bullish crowd now views Fed Chairman Ben Bernanke as the market's sine qua non, here to come to the aid of a credit crunch, the hemorrhaging mortgage businesses at home and abroad and the many hedge funds and financial intermediaries that hold mispriced investments -- a residue of the aggressive search for yield/returns.

Tomorrow's reduction in interest rates, whether it's 25 basis points or 50 basis points, will do little to resolve housing's depression and little to reduce the probability of a 2008 recession as the record level of unsold homes, the pace of mortgage resets, the likely deterioration in coming jobs reports and still-stretched affordability issues suggest that the inherent supply/demand imbalances will continue for some time despite government intervention.

Every recession since 1960 has started with a decline in home construction; the recession of 2008-10 will be no different.

For housing and those industries that depend on construction, it won't be such a wonderful life for several years to come.

It is for these reasons and others that I would sell/short either move by the Fed on Tuesday -- especially if there is strength following the announcement.