Confidence

Jim Grant of Grant's Interest Rate Observer was on Bloomberg radio this morning. I haven't been a subscriber to his newsletter since the early 90's but I can't remember him ever being bullish. By the sound of what I heard, he is in fact getting more constructive on what he considers to be undervalued assets, but had an interesting quote on when and whether the financial markets will start working again. He focused on how professional market participants lack of confidence in system:

"The best confidence comes from knowing the rules."

That quote is not exactly correct in all likelihood but you get the idea. I couldn't agree more. Who in their right mind would buy a bank stock, common or preferred, if you didn't know until yesterday whether some banks would be nationalized? Who would bid on a portfolio of distressed debt if there was even a possibility that the Fed would be the next bidder? If you're upside down on your mortgage, why make this month's payment if Uncle Obama might come over the top with a cramdown next month?

We need to know the rules.