Financial Stocks are Appealing but Risky The Government has a Low Pain Tolerance

Pay No Attention to Government Officials

When a government official says a problem has been “contained,” pay no attention. The government - the ultimate short-term-oriented player - cannot withstand much pain in the economy or the financial markets. Bailouts and rescues are likely to occur, though not with sufficient predictability for investors to comfortably take advantage. The government will take enormous risks in such interventions, especially if the expenses can be conveniently deferred to the future. Some of the price-tag is in the form of back-stops and guarantees, whose cost is almost impossible to determine. Almost no one will accept responsibility for his or her role in precipitating a crisis: not leveraged speculators, not willfully blind leaders of financial institutions, and certainly not regulators, government officials, ratings agencies or politicians.