The Obama Administration has the Wild Card on all Financial Markets, Rules and Regulations

The new administration is supposed to unveil more information in the coming the weeks on the financial markets with President Obama putting together more fellows of his tax dodging dream team. Fresh off signing the $800 Billion Dollar Economic Stimulus Package this guy is just getting started.

The Obama Administration has the Wild Card on all Financial Markets, Rules and Regulations. With "Main Street" folks upset and legislators campaigning for 2010 they are ready to attempt solving our past problems through new rules. No one in the industry really knows for sure what is going to the regulatory landscape post this financial crisis. When Executive salary for TARP money recipients was cut to 500k this was obviously getting too crazy.

Goldman Sachs Group (GS) even had a special Private meeting with all of their best clients to brainstorm ideas on what to do, and how to move forward from here.

Basically no one knows what type of regulations are going to be in the future.

Imagine playing poker with 6 friends a standard 52 deck of cards. Lets say that who ever has the queen of diamonds wins no matter what the other players have. How much would you bet if you did not have the card?

Then imagine if they changed the rules again, after you thought you had the wild card, slipped an ace from their sleeve, brought in new (printed) chips-depleting the value of your existing chips, and gave other players chips if they need to be bailed out due to making bad bets.

How much would you bet if you had a Royal Flush?

Treasury Secretary Timothy Franz Geithner stumbled at his coming out party last week to announce his intentions to create a plan to bring in private capital to solve the crisis in the credit markets. Aside from offering no real clarity or any actionable initiatives, Geithner showed the market no one really knows how to solve the problem of valuing these assets.

The administration needs to make sensible regulations that promote the United States Capital Markets as the world's best place to do business. The Private Capital needs to be sure of the rules of the game, and then they will begin to place their bets. The Financial Industry needs regulations that verify the custody of assets with third, fourth, and fifth parties. Many of the problems that happened with Madoff and Standford could have been avoided by simply verifying custody of the funds.

Could the Dow Go Down to 4,000?

Could the Dow Go Down to 4,000? Dow 4,000 would mean another 50% market correction. This may seem impossible to think the Dow could lose another half of its value. How could the market go down so much? How can the market cause investors so much pain? It even seems cruel to contemplate.

My friend and fellow Trader Clay suggested to me it could. At first I scoffed, and then I thought. To truly know the answer you would need to look into the capitalization structures of every component and analyze the Debt and Equity used to finance the company's operations. You need to look at the cost of the debt, how much equity they have, how much money they are currently earning or losing, ect. You would surely need to make many assumptions about future business, economic and stock market conditions. These assumptions can be many varying degrees of right, wrong, true and false. You would also need to account for how much each components market cap "weighs in" to the index as a whole to see if those prices could fall to those levels based on the "fundamental" analysis.

Fortune Magazine Interviewed Commodities Legend Jim Rogers and he said this:

"In my view, U.S. stocks are still not attractive. Historically, you buy stocks when they're yielding 6% and selling at eight times earnings. You sell them when they're at 22 times earnings and yielding 2%. Right now U.S. stocks are down a lot, but they're still very expensive by that historical valuation method. The U.S. market is yielding 3% today. For stocks to go to a 6% yield without big dividend increases, the Dow will need to go below 4000. I'm not saying it will fall that far, but it could very well happen. And if it gets that low and I'm still solvent, I hope I'm smart enough to buy a lot. The key in times like these is to stay solvent so you can load up when opportunity comes."

I debated looking at the fundamental financial data to extrapolate an elaborate valuation theory to justify a Print of Dow 4000, I then decided to leave that to someone else. After looking at the Charts of the Dow Stocks the market is already speaking loudly about how much value it believes each component of the index is worth. Closing a few points above or below the 8,000 mark Friday its investors are skating on thin ice

After some thinking I do believe the Dow Jones Industrial Average could go to 4,000.