|
|
MAKING CENTS OUT OF THE NEWS
Blog #8
(February 19th, 2009)
ARE WE STIMULATED YET?
By Tom McAllister, CFP™
Congress passed the new stimulus bill last week and it's been signed by President Obama
An economic stimulus bill was necessary, I believe, if only for psychological reasons, given the rapidly deteriorating U.S. economy and its impact around the world. Something needed to be done, that's for sure!
Unfortunately, by my lights, only about half the bill's provisions will have measurable economic impact, and even that is likely to be modest at best.
As regular readers of my blogs and newsletters know, I see many outstanding investment opportunities available currently. I continue to recommend value-oriented common stocks, high-yielding preferred stock, and short-to-intermediate term general obligation municipal bonds. Passage of the stimulus bill does not, to any great extent, enhance - or deter - of these opportunities..
The bill represents a victory for our new president, but he is sure to incur the blame for any shortfalls in its execution and results. After all, the stimulus bill passed with a mere three Republican votes in favor (a greater number of Democrats voted against the bill)! The president appears to have made several rookie mistakes in the process of rushing the bill through in just his first month in office.
The bill was created by the Democratic leaders in the House, virtually all of whom are from the "left" of the party, as is Obama himself. (One must remember that Obama's voting record in the Senate was the most liberal of the entire Senate body!) He entrusted the creation of the stimulus package to like-minded legislators. This resulted in the bill being loaded with "liberal" (pun intended) helpings of "pork", most of which can have little or no current impact. One striking example is the proposed $8,000,000,000 rapid transit rail system from Nevada (home of Senate Majority Leader Harry Reid) to California (home of House Speaker Nancy Pelosi). It is difficult to imagine a project of such magnitude, involving so much planning and engineering, having any immediately impact on individuals' beleaguered financial situation.
The tax cut portion of the stimulus bill amounts to slightly less than 40% of its dollar total. When I recall the relative failure of the $500 tax refunds of 2008, it's difficult for me to expect better results from a $400 taxpayer refund this year. The more promising provisions in the bill, including a number of tax credit increases and an extra depreciation allowance for small businesses, on the other hand, are justifiable and should help the economy.
A major problem that I foresee relates to the "Law of Unforeseen Consequences," which routinely applies to Congressional actions and which I expect will apply to this one. In fact, I can imagine many such unforeseen consequences as the result of this gargantuan but hastily executed emergency-fighting action. Hardly unforeseen will be the huge debt load on our economy down the road and its corollary, runaway inflation.
Turning to the economy itself, I see signs the free fall is over, or at least a slowing in the rate of descent. The banking system is still in shock and may stay that way for some months, but credit is beginning to be available for qualified buyers. The suspension of foreclosures, a move which carries high risks for lenders, nevertheless is helping keep banks' problems from worsening.
No action was ever taken by the new administration to suspend the "mark to the market rules" on mortgages, or to make permanent the "up-tick" rule effecting short sales. Both these measures were called for months ago by Steve Forbes, and I had independently concluded that both changes in regulation were vital to a recovery (see my Blog #10 "Rules Gone Wrong"). Both these changes can be accomplished through presidential direction, if Mr. Obama so decrees. The first move, reinstating "mark to the market", would immediately help the banks, while the second, reinstating the "uptick rule", would stabilize the stock market over time.
A third idea that has been raised but never implemented, is for the SEC to regulate hedge funds and derivatives. This would take several months to put into place, but, as far as I'm concerned, the sooner the better.
Are we stimulated yet? My advice is simple: Look to fundamentals in making your investment decisions. All decisions should be made with your own goals and risk tolerance firmly in mind. I would not advise assigning much importance to the impact of the stimulus bill - it may be a while showing up. In the meanwhile, your job is to take care of YOU!
With all the rapid changes in our economy and in the investment markets, there are many investors who would benefit from more consistent guidance. We are currently accepting new financial planning and investment clients, and would appreciate your referrals.
|
| |
| |
______________________________________________
| |
Click To Print This BLOG
