March 04, 2009

It’s a Great Time to Buy!

According to President Obama, we should all start buying up U.S. equities!

?What you’re now seeing is profit and earning ratios starting to get to the point where buying stocks is a potentially good deal, if you’ve got a long-term perspective on it.?

Perhaps Obama was taking investment advice from Gordon Brown, who was in the room at the time to discuss his plans for a ?global New Deal.? But Gordo is, of course, better known for speculating in precious metals. While he was Chancellor of the Exchequer back in 1999, Brown decided to sell more than half of London?s gold reserve?400 tons in total. The bedrock of the British people?s wealth was thus auctioned off at under ?250 per ounce. Ten years on, if Brown wanted to buy back some of that gold, the price would be upwards of ?650. I don?t think Britain should be selling any of its gold, but if it must, then perhaps someone other than the Scottish socialist should be assigned the job of market timing. (And in a more civilized time, if it had been discovered that a Chancellor had blown billions of the nation’s money, he would have been sent posthaste to the Tower of London.) 

While Brown is obviously a nincompoop, Obama is more of a subtle bullshitter. No serious person thinks that Obama knows what the hell he?s talking about??profit and earnings ratios? are smart-sounding terms the president thinks he once heard on CNBC. He might as well have theorized that stocks went down in the fall because Wall Street suffered from an Oedipal Complex. As everyone knows, corporate fundamentals are terrible and getting worse. And Obama even indicates that he?s speaking out of his you-know-what by using all these caveats and escape clauses??potentially,? ?long term perspective.” He made sure that no one will be able to hold him to his recommendation. (Mr. Obama, you might sound more convincing if you use an actual term in your next address, like, say, “price-to-earnings ratio.? Just a thought.)

Moreover, Obama?s investment advice is representative of a long-term trend in Washington in which politicians have learned not to worry about the horrible economic fundamentals in the country?low and negative savings rates, massive trade and budget deficits, etc.?and trump up ?wealth? (that is, jumps in the unrealized paper value of assets and real-estate.) Washington has essentially told the people, “Go ahead, rack up credit-card debt at the mall, take out a home-equity loan, it doesn’t matter since your house will go up 20 percent per year. What? Real-estate prices fell 30 percent …  well, I guess you’re screwed.” Notice that in his press conference, Obama didn?t recommend that we all start saving our money or demand that Bernanke jack up target interest rates to 20 percent, as did Paul Volcker in the early ?80s, to encourage people to put their cash in the bank?which, of course, would have the added benefit of re-capitalizing these insolvent and ?zombie? institutions without federal bailouts. No. Instead, Obama wants to keep real-estate prices from falling and now seems to hope that some investors will irrationally charge into the equities market and start bidding up prices on the sage advice of our Dear Leader. 

The Onion, as it often does, got it right.

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