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This Too Shall Pass


Date: Wednesday, October 1, 2008
Author: Dr. Robert J. Froehlich, Riskcenter.com

Even though most of Wall Street is in shock as the stock market collapsed 777 points (the single- largest point drop in the 200-plus year history of Wall Street) and all because the House of Representatives failed to pass the T.A.R.P. rescue plan with a 205 - 228, I find it kind of ironic that the market dropped nearly one-point for every billion dollars in the plan or a 777 point drop for a failed $700 billion plan. Let me make something perfectly clear to you. "This Too Shall Pass." And the 'this' that Iím referring to is both the T.A.R.P. rescue plan and the massive stock market sell-off.† More about the quote later.

T.A.R.P. will pass

Just because today's vote was "no" doesn't mean T.A.R.P. is dead. Let me tell you what I told a group of Merrill Lynch advisors last week, when I delivered a keynote speech to nearly 350 of them in Orlando, Florida. "There is a zero percent chance T.A.R.P. will not pass."† And why? Because we must understand that when you have a "lame duck" President, it is really difficult to get support, even from your own political party for a controversial plan, which is exactly what happened today. For many investors that don't watch Washington closely, the making of law is not a very pretty thing. It's a little like how they make hot-dogs. If you ever watched it, you would never eat one again. But the end product tastes pretty good. And the same can be said about what is happening here with TARP, while the process is truly ugly, the end result should be good. But first, we need to get the political posturing behind us. And here is why I am confident it will get passed. If we don't fix this liquidity crisis, many corporations will not have the cash to meet payrolls. I am not sure there is a more important issue to Main Street than their paycheck. I said it before and I will say it again, this T.A.R.P. is not a Wall Street bail out, but rather a Main Street rescue and it too will pass. The vote will not happen Tuesday, (because it is the Rosh Hashanah holiday), meaning the soonest this could happen is Wednesday.

Wall Street Rebound

Why do I believe that Wall Street can also recover from the biggest point drop in history? Because while most of you were focused on Washington D.C., I was focused on a few other things that also happened today that set the stage for a stock market turn around. Oil fell 10% to $96.38 a barrel. Remember when it was almost $150? And I believe, ladies and gentlemen, boys and girls, that you have to look at this collapsing price of oil as one of the biggest tax cuts ever to consumers and businesses alike.

Then, there's the matter of Citigroup that bought the banking operations of Wachovia Bank. How many times do I have to tell you that consolidation is a good thing, not a bad thing? Consolidation makes for both stronger balance sheets and better market share. And that in turn could lead to higher profits as well.

And one more thing; did you notice the yield on the 10-year Treasury bond is 3.59%? Low rates like this act as fuel to our market. Low rates help stock markets, they don't hurt them.

When oil is down, mergers are typically up; and when interest rates are down, it is only a matter of time until the market is up as well. Like I said, "This Too Shall Pass."

Watch out for Ben

Here's something else to think about. When I was on CNBC with Larry Kudlow Friday evening, I suggested that Ben Bernanke and the Fed may surprise the markets with an inter-meeting interest rate cut. I was thinking it would happen after TARP. But now I think it may happen before TARP. Come on Ben, we are counting on you.

This too shall pass

How ironic is it that the vote on T.A.R.P. will have to wait another day (at least) due to a Jewish Holiday?† It is especially ironic, if you know where the quote, "This Too Shall Pass" came from. It is a phase occurring in Jewish wisdom and folklore involving King Solomon and the phrase is commonly engraved on silver rings.

The story goes like this. King Solomon once searched for a cure against depression. He assembled his wise men together. They meditated for a long time and gave him the following advice: "Make yourself a ring and have thereon engraved words "This Too Shall Pass". The king carried out the advice. He had the ring made and wore it constantly. Every time he felt sad and depressed, he looked at the ring whereon his mood would change and he would feel cheerful."

And you too can feel cheerful again, once "These Two Will Pass". The "Two" I am talking about are the T.A.R.P. legislation and the stock market sell-off.

Dr. Robert J. Froehlich is Vice Chairman of DWS Investments and serves as Chief Investments Strategist. DWS Investments is the US retail brand of Deutsche Bankís global asset management division.

All investments involve risk, including the possible loss of principal. The opinions and forecasts expressed are those of Dr. Robert J. Froehlich and not necessarily those of DWS Investments. All opinions and claims are based upon data at the time of the publication of this article, September 29, 2008, and may not actually come to pass. This information is subject to change at any time, based on economic, market and other conditions and should not be construed as a recommendation.