Paulson Changes Direction With TARP

The market declined steadily throughout the session today, amid more negative news on the consumer, and continued concerns about the global economy.

Best Buy (BBY) slashed its earnings guidance after management said that since mid-September changes in consumer behavior have created the most difficult climate the retailer has ever seen. That's a pretty bold statement, but indicative of a consumer that is in shock right now, and looking to tighten the purse strings wherever they can.

Thankfully, gas prices at the pump have come down a ton. Had energy prices remained high, the pinch on the consumer would be even worse right now. Oil continues to fall, despite OPEC cutting output in an attempt to support prices. Crude prices have slashed below $60, and closed today near $56. This is a sign that demand worldwide is decreasing.

The other news that seemed to frustrate investors was comments by Hank Paulson that the second half of the approved TARP funds will now be used towards supporting consumer credits, such as auto & student loans, instead of buying depressed mortgage assets as they had previously planned.

The initial reaction was, huh? After going before Congress and begging for this money, now you want to change how it is to be used. But I think that reaction is short-sighted. If conditions and circumstances change, I think it is better that the govt. be flexible and continually use the funds where they think they will be most effective. So I don't share the collective frustration, I applaud the flexibility. Let's just hope it starts to work at some point. Although these things always take time (i.e- govt. stimulus).

Pessimism remains palpable, but this is a normal and necessary ingredient to a market bottom. Said bottom remains elusive, and the lows will likely be tested tomorrow. I have been very cautious about putting cash to work recently, even as I expected a bounce. At this point, I will likely look to take partial profits on my downside hedges (inverse ETFs), and leave it in cash.