INVESTING: Stocks likely to go lower, but bull run may be near

When I was growing up, a bunch of other kids from the neighborhood and I would play touch football on the street in front of our homes. At least once a game, the ball would take a weird bounce, go out of bounds and someone would yell, “do over!” Then we would all line up again and do it over.

Treasury Secretary Henry Paulson and Congress just called for a “do over,” but you don’t get them in real life.

The blame game has been running hot all over Washington and Wall Street, as leaders of all stripes try to preserve their jobs and advance their careers. And I am sure all the explanations they give are part of the reason global markets are melting down.

The truth lies a lot deeper than a handful of greedy mortgage bankers or lax regulatory oversight. The true blame starts with the creation of the U.S. Federal Reserve in 1913, strengthens with the enlarged powers granted to Fannie Mae and Freddie Mac in the 1960s, finds fertile ground when President Carter pushed through a law that forced banks to lend to economic demographics that flat out don’t make economic sense, and explodes to light when the market figured out that Alan Greenspan founded this new principle for the Federal Reserve: that it should do anything and everything to keep the stock market from going down.

Throw in some greedy mortgage brokers, an American public that ate it up, and the unassailable natural law that bull and bear markets always will be with us, and you have the current picture of the U.S. financial system.

By now, you have heard stories or perhaps experienced yourself that it has become much more difficult to obtain a loan. There are the obvious reasons for this and the reasons that are less apparent. Banks don’t have money to lend primarily because of their non-existent balance sheets and the lack of willingness by banks to lend to one another.

Paulson hopes that by selling their bad debt to our government, banks will be able to trust one another again, then in turn begin to trust a loan to businesses and people. I think this can happen, for the short term. If it is the destiny of the Dow Jones to fall somewhere around 9,000 before this bear market is over (and I think it is), then whatever devil’s creature Congress unleashed on us this month will offer only a temporary reprieve.

The reason selling pressure could surge again in the coming weeks or months may not be apparent today. I can see a scenario where most of the banking problems could be behind us, but a new problem arises, like the baby boomers panicking because the Dow fell below 10,000. Another problem I could foresee is the millions of new investors from emerging markets living through their first bear market, and not liking the early results. Waves of selling could occur from either situation.

I know that all of you have been loyally reading my column for the past 14 months and took defensive action last fall, when the markets were at their all-time highs. If for some reason you never were able to check that item off your to-do list, then it is getting near the time when it could be too late.

Do what you can to raise cash. The next bull market could kick off within six months. And if you have some money and a little bit of your wits still with you, you can have that “do over” that will continue to elude our political leaders.