Saturday, January 31, 2009

False Positive?

“Bet not thy whole wad.” Basic investment tenet.

Three weeks ago, in an admittedly weak moment of “irrational exuberance”, I thought the market was heading up despite the news. But, this is the Great Recession. I didn’t even follow my own advice. Investment newsletters that I pay a lot of money for every year said there was a "strong case” that the Dow had formed a base. I could see their point.

But the November 20 Dow Theory bear market confirmation is still in effect. We have no contrary signal to indicate a change to a bull market.

So, I’m heavy in cash. On January 6, I put about 15% of my cash position into
DIAs and considered dollar cost averaging in to the potentially revived market.

I haven’t added a dime to the position since.

“Bet not thy whole wad.” No one knows. According to
Richard Russell, right now selling pressure has declined dramatically but no one wants to buy into this market. That is a very bad sign. The market cannot rally without buyers and right now no one wants a piece of this market. So it more or less glides around the slowly declining 50-day moving average.

On Thursday the Obama Administration made a terrible mistake. This stimulus idea and bailout approach is wrong. It’s wacko. The idea of raising debt to generate wealth is deeply flawed and akin to all those fools who bought houses they couldn’t afford. Of course, it started before Obama took office. But now Obama will be crucified for it if it doesn’t work. Palin in 2012? Maybe the world will end first. So, there’s hope.

I reluctantly agreed that
AIG should not have been allowed to fail. We cannot have a good economy when the financial system is in failure. But, since then we have seen the spontaneous appearance of corporate welfare on a scale previously unimaginable. This is a New Deal for Corporate America.

It is a rather remarkable moment and people can’t fathom that
the Obama coronation – for all its poetic optimism (setting aside the fact that all that money was spent for an event that ended up being a redo; I hope that’s not an ominous sign, though it is certainly a comical one to me, accentuating the waste of the whole expensive affair) – is a dream. This economy doesn’t care who is president. This is the Great Recession.

Obama impresses me in the way most liberals impress me. With his
environmental policy, with his commitment to unprecedented openness of government, his judicial ideology (though closing GITMO reflects an overly idealistic understanding of our situation), his tolerance and respect for opposition, and his policy toward science, technology, and education.

Obama is wrong about the stimulus. There’s no stimulus to it. Just check out how all those billions have "assisted" the banking industry. So far, we have committed (or will commit if the Senate approves it) about $1.5 trillion dollars out of thin air to bailout and stimulate our economy. This is unprecedented. And the layoffs keep on coming.
There is not a shred of a sign of recovery.

My personal criticism of the stimulus/bailout philosophy is that it trivalizes risk. It sends the inappropriate message that it is ok to take as much risk as you want, to be rediculous with your enterprises. No need to worry. The government will erase the consequences of your ill-formed strategies. Meanwhile, those of us who play within the contraints of risk, who take risk seriously, who plan and worry and strive to minimize financial exposure - in short, to live within our means - get nothing. That's some twisted way to run an economy.

David Brooks made an excellent point last night that Obama has blown a chance to build genuine bipartisanship by pushing an agenda that goes beyond stimulating the economy into the measure. Over $290 billion of it actually. Change has not come. The vote was along party lines. And the legislation was passed at a frenzied pace, making bipartisan support (something that requires a bit more time and finesse to achieve) all but impossible.

If immediacy was needed why not just abolish the income tax for a year? Well, there are two wars still to pay for and a growing mass of entitlement partakers.

“best and brightest” minds may have screwed us again. This time, instead of Vietnam, we would get a Greater Recession because, ultimately, this additional public debt – that’s all the damn stimulus is – might weigh us down, devalue our fiat dollar more, and sink us further.

That would be Ayn Rand's perspective. There's been some press about it recently. But, there is no greed in Atlas Shrugged. Great book but did you ever notice that? Rand's characters are pristine, cardboard idealists. It seems to me that, as much as anything, a culture of the free pursuit of self-interest got us into this mess. Who is John Galt? I think a more accurate inquiry would be who is Bernard Madoff?

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