Today's stock market loss of over 500 points, reversing Tuesday's 500+ point gain, has led to calls for action by various agencies of the government. Enough!
Let the markets sort themselves out. That's what they do best, when left alone. There is too much "what will the Fed do now?" This attitude forces politicians into action, just when they should remain silent.
Politicians don't know, any more than anyone else, why markets go up or down. There isn't any real news in the stock market since the slide began to accelerate last Thursday. We already knew (before last Thursday): 1) Europe was a basket case; 2) The US has a debt implosion; 3) GDP growth in the US was virtually non-existent 4)the President hasn't got a clue. This we all knew well before the market drifted below the 12,000 mark. The only new piece of news was the S&P downgrade. But, who did that surprise? (Other than Geithner, of course, who is surprised by everything).
The politicians should keep their hands off. We don't need more policy. We don't need calming statements. We don't need the ECB to do something. Let markets do their thing and keep the politicians on the sidelines. Haven't they done enough?
Wednesday, August 10, 2011
A Bankrupt Fed Policy
All eyes were on Bernanke yesterday. The usual coterie of hysterical media folks -- Jim Cramer comes to mind -- were screaming loudly that the Fed needs to do something. Yes, the Fed needs to do something....go on vacation. The idea that the central bank can offset the sledghammering that the Obama Administration has done to this economy is ludicrous. All Bernanke is doing is angling for reappointment, nothing else.
The Fed is bankrupt (literally) and the US treasury is bankrupt. Bernanke and Geithner should be retired. They are the architects of the worst economic recovery since the 1930s. No policy at all is better than foolish policy.
The government needs to get out of the way, not come up with some new dumb idea that the media can focus on as a panacea for our economic troubles. Only free markets can get us out of our troubles, not more big government.
The Fed is bankrupt (literally) and the US treasury is bankrupt. Bernanke and Geithner should be retired. They are the architects of the worst economic recovery since the 1930s. No policy at all is better than foolish policy.
The government needs to get out of the way, not come up with some new dumb idea that the media can focus on as a panacea for our economic troubles. Only free markets can get us out of our troubles, not more big government.
Tuesday, August 9, 2011
The Stock Market
The stock market should be bought here. No one has made any serious money by holding stocks since March of 2000. That is more than eleven years of nothing, except occasional dividends. Stocks will do better over the next eleven years. Long term investors should own this market here.
That doesn't mean that stocks won't go lower. They probably will. But, picking a bottom is a fool's game. The economic environment always looks terrible when it is a good time to buy stocks. Otherwise, it would not be a good time to buy stocks.
Agreed that the Obama Administration and the Democratic Congress of 2009-10 have done everything they possibly can to destroy the American economic engine and have, in part, succeeded. But, help may be on the way. It isn't clear that the American worker will survive the Obama debacle, but American business might. American business can outsource, can expand plant and equipment and can sell its products to the rest of the world. The US is probably entering a long run period of economic stagnation, but that doesn't necessarily spell doom for the stock market.
Americans have chosen to price themselves out of the labor market by adopting an absurd litigation environment and onerous mandates and America has chosen to impose upon itself unaffordable retirement and health care schemes. But, the rest of the world, especially the part of the world that is growing, has not been so foolish. American business can, over time, link itself to the growing parts of the world. This is not encouraging for the future standard of living for the average American, but, for the investor, the non-western world can provide solace.
So, close your eyes, swallow hard, say a prayer and buy stocks.
That doesn't mean that stocks won't go lower. They probably will. But, picking a bottom is a fool's game. The economic environment always looks terrible when it is a good time to buy stocks. Otherwise, it would not be a good time to buy stocks.
Agreed that the Obama Administration and the Democratic Congress of 2009-10 have done everything they possibly can to destroy the American economic engine and have, in part, succeeded. But, help may be on the way. It isn't clear that the American worker will survive the Obama debacle, but American business might. American business can outsource, can expand plant and equipment and can sell its products to the rest of the world. The US is probably entering a long run period of economic stagnation, but that doesn't necessarily spell doom for the stock market.
Americans have chosen to price themselves out of the labor market by adopting an absurd litigation environment and onerous mandates and America has chosen to impose upon itself unaffordable retirement and health care schemes. But, the rest of the world, especially the part of the world that is growing, has not been so foolish. American business can, over time, link itself to the growing parts of the world. This is not encouraging for the future standard of living for the average American, but, for the investor, the non-western world can provide solace.
So, close your eyes, swallow hard, say a prayer and buy stocks.
Monday, August 8, 2011
Some Positives; Time to Buy
The S&P downgrade is a salutary event. It spotlights the problems with US government finances. This is all to the good. In the midst of the downdraft today, President Obama gave a brief statement that exhibited a total lack of understanding of US debt problems. The stock market followed the Obama comments with an almost immediate drop of another 200 points. Overall the markets lost nearly seven percent by the time the smoke had cleared.
But most folks get it, even if the President doesn't.
No longer can politicians pretend that the debt issue can be swept under the rug or buried in a sea of class warfare.
It must be time to buy stocks again.
But most folks get it, even if the President doesn't.
No longer can politicians pretend that the debt issue can be swept under the rug or buried in a sea of class warfare.
It must be time to buy stocks again.
Do The Numbers
The present value of our social security and medicare liabilities can be conservatively estimated at $ 66 trillion. How do we deal with that?
Lets tax the rich! If we raise taxes, ala the Obama plan to eliminate the Bush tax cuts for the rich, we will gain $ 770 billion in revenues over the next ten years. That assumes, of course, that business folks don't alter their plans after getting socked with this tax increase. So, let's assume we tax the rich. That gets us $ .7 trillion. That leaves $ 65.3 trillion to go.
What next?
Well, perhaps bondholders will step up and buy $ 65.3 trillion more in our debt to fund our retirement and health care. You think the Chinese will do that?
Here are some more numbers. A twenty two year old college graduate might work 40 years and then retire at 62 and collect social security (that's right, three-quarters of Americans take the early retirement option at 62 (now 63), so 62 (now 63) is relevant age, not 65). So, they don't work from zero to age 25 and then they don't work from age 63 to 83. That's 45 years of no work and 40 (41) years of work. And, they plan to live at, more or less, the same lifestyle in all of these periods. Really? Since the typical American doesn't remotely save enough to do this, who will step up to the plate? That's where the $ 65.3 trillion shortfall comes in. Who will put this money up?
What eventually will happen is that the US will dishonor it's pledge to its senior citizens. It won't have any choice. It will not have the money or the borrowing capacity to come up with $ 65.3 trillion.
So, S&P is right.
Only politicians and hack journalists think this is do-able if only the tea party would go away or if only we could "tax the rich."
Lets tax the rich! If we raise taxes, ala the Obama plan to eliminate the Bush tax cuts for the rich, we will gain $ 770 billion in revenues over the next ten years. That assumes, of course, that business folks don't alter their plans after getting socked with this tax increase. So, let's assume we tax the rich. That gets us $ .7 trillion. That leaves $ 65.3 trillion to go.
What next?
Well, perhaps bondholders will step up and buy $ 65.3 trillion more in our debt to fund our retirement and health care. You think the Chinese will do that?
Here are some more numbers. A twenty two year old college graduate might work 40 years and then retire at 62 and collect social security (that's right, three-quarters of Americans take the early retirement option at 62 (now 63), so 62 (now 63) is relevant age, not 65). So, they don't work from zero to age 25 and then they don't work from age 63 to 83. That's 45 years of no work and 40 (41) years of work. And, they plan to live at, more or less, the same lifestyle in all of these periods. Really? Since the typical American doesn't remotely save enough to do this, who will step up to the plate? That's where the $ 65.3 trillion shortfall comes in. Who will put this money up?
What eventually will happen is that the US will dishonor it's pledge to its senior citizens. It won't have any choice. It will not have the money or the borrowing capacity to come up with $ 65.3 trillion.
So, S&P is right.
Only politicians and hack journalists think this is do-able if only the tea party would go away or if only we could "tax the rich."
CNBC Hysterics
This morning's CNBC features Jim Cramer, of all people, calling for "bold" action by the ECB (European Central Bank). This is so absurb, it makes you wonder if Cramer is paying attention.
The world is drowning in sovereign debt and Cramer wants the ECB to step up and buy debt, effectively print money, and permit the current absurdity to continue unabated.
It's time for these countries to take their medicine. Yes, it will be painful, but not nearly as painful as it will become if nothing is done. Ditto for the US.
Forget about the immediate impact upon the stock market. That is totally irrelevant.
It is time to face the facts. The government spending in the western economies cannot be sustained. Period. Blame Standard and Poor. Blame the ECB. Blame the Tea Party. Blame whoever you want.
But, facts are facts. The western economies will ultimately default one way or another. The sooner they begin to do workouts and reduce their government spending, the sooner their economies can begin the process of real economic recovery.
Don't listen to the silly folks who are focused on where stocks may or may not trade today, this week, this month, or this year. That doesn't matter.
The world is drowning in sovereign debt and Cramer wants the ECB to step up and buy debt, effectively print money, and permit the current absurdity to continue unabated.
It's time for these countries to take their medicine. Yes, it will be painful, but not nearly as painful as it will become if nothing is done. Ditto for the US.
Forget about the immediate impact upon the stock market. That is totally irrelevant.
It is time to face the facts. The government spending in the western economies cannot be sustained. Period. Blame Standard and Poor. Blame the ECB. Blame the Tea Party. Blame whoever you want.
But, facts are facts. The western economies will ultimately default one way or another. The sooner they begin to do workouts and reduce their government spending, the sooner their economies can begin the process of real economic recovery.
Don't listen to the silly folks who are focused on where stocks may or may not trade today, this week, this month, or this year. That doesn't matter.
More Nonsense from Politicians
Geithner is complaining about Standard and Poor. The G-7 says that they will take "concerted" action, whatever that means. The ECB says they will buy Spanish and Italian bonds. These folks still don't get it.
Politicians believe that all they need to do is "calm the waters." If that worked, it would have already worked. The world is drowning in sovereign debt. The US national debt is spiraling out of control. "Calming the waters" might get you through a day or two, but that is about it. Sooner or later the cold hard facts of the numbers intrudes.
The size of government needs to be reduced in the western economies and the entitlement programs need to be phased out. The western countries cannot afford these things anymore and bondholders won't fund them. All the discussion by Geithner, the G-7, and the ECB is irrelevant and distracting.
Politicians believe that all they need to do is "calm the waters." If that worked, it would have already worked. The world is drowning in sovereign debt. The US national debt is spiraling out of control. "Calming the waters" might get you through a day or two, but that is about it. Sooner or later the cold hard facts of the numbers intrudes.
The size of government needs to be reduced in the western economies and the entitlement programs need to be phased out. The western countries cannot afford these things anymore and bondholders won't fund them. All the discussion by Geithner, the G-7, and the ECB is irrelevant and distracting.
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