Investing In Washington’s Wake


This week will likely be remembered for years to come as a pivotal week in our nation’s history. It’s the week when we put pen to paper in an attempt to reverse a terrible downward spiral in banks and the overall economy.

Financial Stability

As you likely know on Tuesday Treasury Secretary Tim Geithner unveiled his plans for the second half of the TARP – now called the Financial Stability Plan. The initiatives met with a great deal of skepticism – mostly for being non-specific.

But market analyst Ed Yardeni says he’s concerned that the remaining money won’t be enough to achieve its objective - cleaning up toxic assets.

That's because banks probably have at least another $1 trillion in losses to come, due to souring mortgage debt and other risky assets on their books. Before banks can start lending, they have to offload these assets — or take on huge sums of fresh capital to dilute their effect.

"The only way to do that is to spend more money, and you have to ask where it's going to come from," says Yardeni.

Economic Stimulus

Then on Thursday, lawmakers announced an agreement on a much ballyhooed stimulus package. Moving with remarkable speed, the $789 billion plan allocates about 36 percent of the money for tax cuts and 64 percent for spending and other provisions.

“We’re spending a lot of money but in too many different areas; they’re not focused,” adds Yardeni. In fact Yardeni thinks the money would have been better spent if lawmakers had focused it all on the housing.

“If the money was focused on housing which is the epicenter of the problem, I think we could have dealt with many of the related issues.”

What’s the trade?

Considering banks could need a lot more money and the stimulus doesn't address the epicenter of the crisis, Yardeni tells Fast Money, “I don’t have a lot of confidence that Washington’s going to get this right.”

As a result, “gold wins,” he says.

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Trader disclosure: On Feb. 12th, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Najarian Owns (CAT) Call Spread, (ENER) Call Spread, (EEM) Call Spread, (GDX) Call Spread, (GLD) Call Spread; Najarian Owns (CHK) Put Spread; Najarian Owns (FCX) & (FCX) Calls; Najarian Owns (GS) Calls; Najarian Owns (MSFT) & (MSFT) Short Calls; Najarian Owns (MS) & (MS) Short Calls; Najarian Owns (MOS) Call Spread; Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Finerman's Firm Owns (DNA) & (DNA) Call Spread; Finerman's Firm Owns (MSFT), (UNH); Finerman's Firm Is Short (IYR), (IJR), (IWM), (MDY), (SPY), (COF), (USO), (BBT); Macke Owns (RIMM), (AAPL), (MS), (TM), (SDS) with wires