One Last Chance for an Obama Rally
/Tomorrow is an historic day in the U.S. Our first black American President will assume the highest office in the land, and what most believe is the highest office in the world. Obama won the Presidency with a decisive mandate for “change that we can believe in” and beginning tomorrow we will begin to find out if this is for real, or simply more of the tired Washington rhetoric that we have all become accustomed to.
Unfortunately, and from what we’ve seen from Obama so far, it looks like more of the same “government is the answer, and an even bigger government will be the savior that we’re really in need of”. Folks, bigger government didn’t work during the Great Depression and it won’t work now. Revisionist history tells us that Roosevelt’s New Deal saved the US economy in the 1930’s, and without it we would not have survived. The truth however, is that Roosevelt’s massive tax and spend programs extended the economic pain and turned what would have been a bad recession into a global economic meltdown lasting over 10 years. The New Deal attempted to violate the rules of a free market system. Any attempt at this is doomed and has no chance of success. Sadly, I believe that Obama and his legion of supporters will find this out the hard way.
Bad Debt + Bad Debt = Bankruptcy
The ongoing Bank and Wall Street bailouts have no chance at success for just this simple reason. Unless Obama surprises us come tomorrow, we will continue to throw good money after bad, and the end result will be an even more bankrupt US economy than we have today. To turn the economy around, taxes MUST be eliminated for one full year for all businesses and individuals. As I outlined in my 5 Step Plan to turn the economy around and avoid GD 2, ONLY this will re-engage the consumer, and empower small businesses…which provide 75% of our economic growth…and jump start the economy. Otherwise, even the good debts on banks balance sheets currently will become bad debts on their balance sheets within a few short months. In case you were wondering, this is why bank write-offs continue to take place, and amazingly, how they increase in size each and every month. Simply put: good debts become bad debts very quickly in a weak economy. This is why bailouts don’t work…never have and never will. In a free market system, weak businesses must be allowed to fail…this is the natural order of things and it’s why we have bankruptcy laws on the books in the first place. We can never reach a “true” bottom in the stock market until this naturally evolving business process is completed.
As I wrote last week, I look for several major US banks to be nationalized in the coming days and weeks. Anyone that owns a single share in a bank should sell these immediately. They are being aggressively shorted by savvy short sellers and there is zero upside here. Sure, there will be rallies here and there, but all will be met with massive selling. The one thing that would change this would be Obama’s backing of my 5 Step Plan, and if this were to happen we would see the stock market scream higher 100% plus in under 6 months, and our recession/depression would be a thing of the past (or a similar plan to empower consumers and small business).
MARKET FORECAST
As I’ve been commenting, the markets are at crucial technical levels and must reverse higher in a hurry or they will fall decisively beneath the 50 day moving averages. If this happens, we will test the November 21 lows…and in a hurry. We ended up on Thursday and Friday, maybe due to option expiration pressure, and the S&P 500 ended right at 850 which is a key technical level and the 50 day moving average. The NASDAQ also closed right at the key level of 1530, which is the 50-day simple moving average.
The international markets are getting hammered, down from 3 to 5% on average, with banking stocks leading the way. Unless Obama pulls out all of the stops, his honeymoon is going to be an incredibly short one.
Finally, Precious Metals continue to rank among the best investments for 2009-2010. Massive currency inflation can only end with one outcome…a much weaker dollar and much stronger gold and silver.
I wish President Obama great success…and the courage and wisdom that it will take to become a great leader.
Kip Herriage
Editor, VRA
