Saturday, February 7, 2009

President Obama's Buy Signal on Stocks

The major indices' bad showing in January suggests a bad year for stocks. But there are two mitigating factors. (1) The hyper-inflation of the money supply last fall means that there is hyper-octane fuel in the stock market's gas tank and a newly built turbo charged sports car engine that will do 200 in 2 seconds. (2) President Obama announced that he would not be giving bailout money to investment banks that pay salaries over $500,000, a piddling sum that is paid to first-level supervisors. I have students in the MBA program who make more than that. Not a lot of them, but there are a few in the class.

Both Goldman Sachs and Morgan Stanley contributed heavily to Obama, 2 to 1 over McCain. Obama would not establish a pay limit if the investment banks were going to need it.

Obama and the I-banks both believe the market is going to soar because of the high octane fuel. This is a good time to buy stocks and gold and to borrow. When the market starts running into inflation, get out of the stocks and into the gold.

Keep borrowing. Dollars are monopoly money.


Anonymous said...

Yes, everybody is a "chicken little" these days, including the CIC, who offers his daily reminders that if we don't do it his way, the sky will fall. Or even if we do it his way, the sky may fall.

But, as you say Mitchell, it is really the perfect storm for "the ONE". Massive stimulus is out there, high grade stocks are trading at 10PE, cash dividends @ nearly 4%. No major wars on the horizon (in direct contrast to the 1930s, something nobody talks about). The ONE has the stage set for a pretty good rally, and he probably doesn't even know it. He probably believes his own line that the sky is falling.

Which make one wonder about the impeccable timing of the banking meltdown (really just a chain of massive margin calls). McCain was a few points ahead in the polls (Sept), and then the bottom fell out. The timing was perfect.

I'm now putting on my tin foil hat. So ... who is the master puppeteer?

Mitchell Langbert said...

I'm not sure who's pulling the strings or if its totally conscious, although it might be. Back on 8-25-08 I wrote the following at

Mr. Obama claims to favor change, yet he is allied with specific economic interests, specifically Wall Street. In 2008, Goldman Sachs so far has given $2.7 million to Democrats and less than $1 million to Republicans. Goldman Sachs's contributions to Democrats has exceeded those to Republicans every year since 1990. To assuage public concern about excessive Wall Street influence on Obama, America's off-the-charts-insipid media provide testimonies from "principled" Wall Street tycoons like George Soros and Warren Buffett that Obama is for "change". Of course, Messrs. Soros and Buffett do not discuss how Obama's "change" will influence their own economic interests.

In contrast to Goldman Sachs, Morgan Stanley has traditionally given to Republicans, according to Open However, in 2008 Morgan Stanley has donated $1.4 million to Democrats and only $824.8 thousand to Republicans. As far as the finance, insurance and real estate industry as a whole, open secrets reports that in 2008, for the first time since 1990 when it begins its report, the industry as a whole is favoring the Democrats over the Republicans.

The bailout seems to have worked entirely in Obama's favor. It seems evident that there are massive economic interests with a stake in increasing government intervention, beginning with the financial community.

The hedge funds such as the Carlyle group are intimiately linked politically and one of the chief beneficiaries of the Federal Reserve System and inflation.

Anonymous said...

OK, GS it is.

Which brings to mind an untapped source of tax revenue for the Federal government, really just a user fee. Multinational companies, expecially financials, are major beneficiaries or world peace. Do companies like Citi, JPM, or GS want to do business in countries where there is no protections of private property? Enter the U.S. Navy.

So when you hear that these Wall Street giants are outsourcing jobs to third world countries, do they still get the benefits of law and order (the U.S. Navy)? Yes, of course. And when the job was in the U.S., payroll tax deductions were made to pay for the U.S. Navy, but when the job is in a third world country, no payments need to be made, compliments of the U.S. Navy. Not a big deal, but it is a freebie.

As an analogy, the IRS 706 (Estate and Gift) tax was instituted in the World War One years. The rational was that those who had the most to loose in a catastrophe, should have to pay something extra, for international law and order.