Political Talk 2008

POLITICAL TALK 2008Last entry: 2.4.08

2.04.08

While Greenspan should bear much of the blame for the bubbles that were generated for the last 20 years, one cannot discount the effect of supply side economics and de-regulation that has undermined our country’s base.  The chart below illustrates the decline in National Debt as the country healed from WW II and then the increase that started with the Reagan policies.  While Clinton did create a bit of a decline in the relationship of debt to GNP, the Bush agenda has pushed it back up.

National-Debt-GDP

01.24.08

Who is in power can affect markets for extended periods of time. George Bush was inaugurated in January 2001, Gold bottomed in April 2001, and the Dollar topped in July 2001. If investors think this was a coincidence, they need another load of sand to hide under. The 2008 elections will have impact and we will weigh in with some incites.

01.25.08

The big question now for America is whether the economic stimulus plan will work.The question that doesn’t seem to be getting much attention is who and what are we trying to stimulate. Is it the stock market, is it the economy, or is it the average American who makes less than $ 100,000, about 85 percent of America?

Maybe a little math would be a good starting point. The average American making less than $ 100,000 makes up 85 percent of America and owns approximately 15 percent of the value of stocks in the country. The other 15 percent of America owns 85 percent of the stock. According to Wikipedia the total value of all stock holdings in the US is $ 51 trillion dollars (we don’t know when they did their last valuation but let’s assume for this exercise that they did it sometime in the last six months). So the Fed interest rate cut rallied the stock market approximately 7 to 8 percent or about 33 trillion dollars. This means that 15 percent of people in this country got in total about 28 trillion dollars added to their account in two days, and about 85 percent of the people in this country got in total 5 trillion dollars added to their account in two days. Now Washington is going to send $ 145 billion dollars in six months to 85 percent of the people in the country. We will let you decide the impact. And let us not forget that most investors are probably not capturing their stock assets into cash on this rally.

Our view of where we are in the economic and market cycles is more important to what happens here than the sub-prime crisis. In our opinion, sub-prime was just the needle that pricked the bubble.

Now a little comment on the 2008 political primaries. Obviously, “CHANGE” is in the air. Who will bring real change? For us, looking through the list we see four candidates who could bring real change, Edwards, Obama, Huckabee, and Paul ; and four who stand for old-era policy, Clinton, McCain, Romney, and Guiliani. Clinton has a real big problem because she believes that her husband did so well with the economy in 1992 to 2000, that she can do it all over again. She apparently is not a student of market cycles as the 1992 to 2000 era was the last part of a Bull sub-cycle, and 2008 to 2016 is the last part of a Bear subcycle. New ideas will be needed. We will talk about that as the scene unfolds over the coming weeks and months. Also we will delve into what solutions we believe will help the average American making less than $100,000, and $145 billion is not the answer.

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