IRVINE, Calif., Oct. 10 CA-Charles-Rother
IRVINE, Calif., Oct. 10 /PRNewswire/ -- The following release is being
issued by Charles Rother, Chartered Financial Analyst: Panic has overtaken
our financial markets. We have not seen this level of investor panic in our
lifetime. Financial panic has swept through our debt and equity markets and
has put our country and the global economy in grave danger. Unfortunately,
taken to its extreme, panic behavior can be very economically dangerous,
self-reinforcing and destructive. Each day that goes by without strong,
decisive and effective actions worsens our ability to restore lifelong
investor confidence and extends many times over our economic recovery time.
Therefore, Treasury Secretary Paulson and Federal Reserve Chairman Bernanke
must take decisive actions now.
Fortunately, there is a strategy for United States Treasury Department and
Federal Reserve Bank to restore investor confidence and recapture the taxpayer
cost of our financial crisis bailout.
To prevent a complete financial market meltdown, the Federal Reserve and
the United States Treasury need to utilize additional tools to restore
investors' confidence. The Federal Reserve and Treasury Department should
consider purchasing any securities, including domestic stocks or stock
indices, they deem substantially undervalued, hold the securities through the
crisis and sell the securities, likely at a substantial profit, back to the
private sector after the crisis. This would accomplish four objectives:
-- First, a transparent policy of stock support during fire sale episodes
would discourage panic selling.
-- Second, a transparent policy of stock support during fire sale
episodes would make predatory rumor-driven short selling riskier and less
likely.
-- Third, a transparent policy of stock support during fire sale episodes
would encourage long-term foreign and domestic investors and investments.
-- Fourth, if restricted to only severe liquidity crises, most likely
once in a generation or less, these interventions may yield a hefty capital
gain to taxpayers. Given current valuations, it is quite possible most of the
taxpayers' cost of the current crisis could be paid for by such an action.
The first step to restore investor confidence is for the Treasury and
Federal Reserve Board to issue the following statement:
"The Federal Reserve Bank and/or the United States Treasury reserve the
right to purchase any securities, including domestic stocks or stock indexes,
it deems substantially undervalued, hold the securities for a period of time
and sale the securities at a profit for the benefit of our taxpayers."
The second step is for Federal Reserve Bank and/or the United States
Treasury to purchase significantly undervalued publicly traded debt or equity
securities at today's fire sale prices. Investors watching what the central
bank and Treasury Department does are likely to follow suit.
Finally, after a period of time, when the financial crisis has subsided
and these securities prices have recovered, these securities would be sold
back to the private sector. Given current valuation levels, some extremely
undervalued securities may return 100% to 300% for the taxpayer. Without any
intervention, the financial markets will eventually recover. However, using
this strategy, the Treasury Department and Federal Reserve can restore
investor confidence quicker and pay for the bailout.
About Charles Rother
Charles Rother, Chartered Financial Analyst (CFA) is Chief Investment
Strategist for Sector Logic and is the President of American Strategic
Capital, Inc. Sector Logic is a registered investment advisor that offers
investment advisory services to employee pension and profiting sharing plans,
trusts, foundations and high net worth investors. Mr. Rother has over 25 years
of professional investment experience.
SOURCE Charles Rother
