It's The Economy...Stupid
/This now famous line was attributed to George H Bush's mishandling of his re-election bid, when Bill Clinton's victory turned Bush into a one term President. The economy was in the dumps in the year leading up to the election and Bush seemed oblivious to the recession that the country was entering.
Just a year ago anyone paying attention would have told you that the big election issue in 2008 would be the war in Iraq. Then, Bear Stearns went under in the Spring, and 90% of all mortgage co's followed. Once Lehman filed for bankruptcy in September, and the stock market dropped 40%, "Its the economy....stupid" became the central theme of this election as well.
It's obvious, from Barack Obama's landslide victory, that Obama and the Democratic party are the big winners of the recession of 2008.
YES WE CAN!
Our new President-elect delivered one of the most passionate and compelling acceptance speaches in history early Wednesday morning, and the whole world celebrated with him. I cannot remember seeing a sight quite like the global party that his victory brought on, but its clear that the theme of his speach, "Yes we can", resonated with hundreds of millions everywhere. Whether or not his Presidency lives up to the hype (and I truly hope that it does), this is a moment in time that we will not soon forget.
I am an optimist, and like most of you I'm sure, wish our first African American President great success. Unfortunately, I fear that Obama may regret running for the highest office in our land when it becomes clear to him just how bad of shape our economy is in. The just resleased jobless claims and bankruptcy numbers indicate that this recession is just getting started, and that its going to be a doozy. Because our economy is consumer driven, there is simply not a lot that can be done until the debt cycle that we are going through completely unwinds. Did anyone really believe that the banks would take that 700 billion and start lending again?? As Donald Trump said on CNBC, "lending has completely dried up, and not even the largest of co's can get the financing that they need to grow their business. If Fortune 500 co's cannot get funding, then there's no way that the average person is going to get any of this money...tax payers money that was promised to us!".
Here's the major problem facing us for the next 12 months plus. We live in a debt based society that uses borrowed money as it's engine of growth. Without freshly issued debt, our economy MUST contract and it must do so until the excesses are purged from the system.
This is why I continue to believe that this recession will be the worst of our lifetime. The major driver of our economy is on life support and stocks by any long term valuation measures are still expensive. At this point all the government can do is make things worse. Seriously, when is the last time you can remember the government taking action and making great decisions? Maybe Obama will be different...but we're talking months before anything he can act on would begin having an affect.
If this sounds really depressing, just remember that it doesn't have to. The opportunities to prosper, even now, are as great if not greater than they have ever been (especially if you are an entrepreneur). This is why a recession serves such a major purpose. It gives us an opportunity to buy "real assets" at bargain basement prices so that when the economy begins to prosper once again, everything that we bought low...we can eventually sell high.
MARKET UPDATE
The stock market lived up to "buy the rumor sell the news", as the euphoria from the election faded. Reality is sinking in, and any rallys will be short lived. On Friday we will get the latest employment numbers, and they will be as ugly as anything we can imagine. Let me make this point as clearly as I can: If you are long this market...if you believe that the stock market is headed higher...you are going to have a very tough wake-up call in the coming months.
If you are more of an active investor, you can continue to buy SDS when the market gets overbought on these sharp bear market rallys. Besides gold and silver stocks, which will be huge winners over the next several years, everything looks expensive here.
Yes we can....as long as we're prepared for what's coming.
Kip
