American Negativity is Upside Down

We've got a problem with the number of people who are bemoaning the steps being taken to solve our economic crisis. America has been rewarded with prosperity in large part because of our ability to quickly solve problems and move on. Lately that tradition of problem solving has turned into a bad habit of second guessing; we've turned into a nation of Monday morning quarterbacks.

Enough already. The positive developments over the last month have put us in the best economic position we have been in for well over a year and yet markets join the chorus of political negativism that is wrongly being spread by so many. Consider the recent progress made in the three most important triggers for an economic recovery:

Trigger #1: Banking. Ben Bernanke and the Federal Reserve have quietly taken policy innovation to a new level in their efforts to solve the financial crisis. While all eyes are focused on the indecisive banking plan from Treasury Secretary Tim Geithner, Bernanke has been making great strides. His actions deserve much more credit than they have been given. After his speech yesterday, Tony Crescenzi labeled him as the 'most powerful man on earth'. For those in need of a simple refresher course, the primary motivation for creating the Federal Reserve was to address banking panics. It was formed in response to the severe crisis of 1907 that led to Congress enacting the Federal Reserve Act of 1913. The Fed is doing what they were built to do.

In the midst of this crisis Bernanke has improved the relative strength of the dollar, he has lowered interest rates, he has helped lower mortgage rates, he stabilized the money market mutual fund industry, he has increased the supply of credit to households and businesses, and he is about to puchase asset backed securities that will help with student loans, auto loans and credit cards. He's also doing his part to prop up bank balance sheets with his commitment of $500 billion to purchase mortgage backed securities.

The Fed balance sheet has practically doubled in the last year as it will soon surpass $2 trillion. Bottom line is the banks are in much better shape than they were last year and we haven't even talked about what Geithner's trillion will do to help. The big banks of JP Morgan (JPM), Bank of America (BAC), Citigroup (C), and I'll include Goldman Sachs (GS) are very good buys at these levels because of the progress that has been made by Bernanke and his gang.

Trigger #2: Unemployment. The purpose of stimulus is to get the money in the hands of those who will spend. In a time when taxpayers are unwilling to spend money, the government must lead the way. The latest trends suggest that consumers would rather save than spend; perfect time to pass the biggest spending bill in American history. Remember that no matter how loudly Republicans bark about what this money is being spent on, the truth is that the economy is blind, all money spent is positive.

From the reaction on Wall Street you would think this spending bill is somehow a negative for economic growth, but rest assured there are some innovative initiatives in here. Money is headed to NASA, agriculture, law enforcement, defense, alternative energy, infrastructure, homeland security, healthcare, education, public transportation and housing. While there are no obvious stock plays off of this widespread package it does open the door to buy the broad market index ETF (SPY) at these levels. Four million new jobs are obviously better than zero new jobs. Obama is taking care of business but the cloud of negativity hovering over this market is so thick that not many can see what is happening.

Trigger #3: Housing. President Obama has been innovative in his method of dealing with housing. The latest mortgage plan relies on incentives to both lenders and borrowers who participate and it doesn't bailout the worst of the worst who have no business owning a home in the first place. Sounds like an excellent plan to me. We went from no plan to a plan that will help 9 million avoid foreclosure. That is closer to a glass half full than half empty.

Strong action has been taken. Once the smoke of negativity clears we will see that this administration has doused the flickering fire of our economy with massive amounts of lighter fluid. Without this lighter fluid, we would be at risk of losing the flame as we were at various times last year. Without the lighter fluid we would be at risk of finding new market lows. During those nervous moments of 2008 the people and the markets were screaming for help, now that it has arrived we all want to think we have a better plan. It's time for everyone to get over themselves and embrace these unprecedented responses; after all, finding solutions is what makes America so great.

DISCLOSURE: LONG BAC

Comments

[texalope:]

Finally, a voice of reason. Congrats.On my blog I focus on the good news developing.
Unfortunately, all the pundits and talking heads instantly pan every new idea. They scare everyone and make the downward spiral into a self fulfilling cycle.
Keep up the good work.

Feb 19 06:22 AM

[Clarence th...:]

"Once the smoke of negativity clears we will see that this administration has doused the flickering fire of our economy with massive amounts of lighter fluid."

I apologize. Someone had to tease you about it. It was my turn.

Feb 19 06:38 AM

[Respirate:]

I echo the first comment above, but lay the negativism primarily at the feet of partisan politics, and secondarily to the shallow news cycle. The (dis)loyal opposition is well under way developing ammunition for the next election cycle. Unfortunately, this prevents any semblance of real support for the people in charge here and now.

At the earliest juncture of a new presidency the new guy can barely find the way to the Oval Office restroom, yet circumstances have energized this one to initiate substantial steps to head off a more profound economic meltdown.

There is definitely good news developing, and a bright future unfolding before us - if we allow it. If hateful partisans can get behind the government's efforts we'll see a turnaround sooner than later.

Feb 19 06:50 AM

[socrateazz:]

HMMM I am about neutral in my thinking banks are better off now than last year. A lot was hidden from us last year. At least now fewer bad loans are being made. And less speculative use of monies are taking place. Seems to me, those banks who had been strong to the speculative side are the ones in trouble. Those who concentrated on loaning monies in traditional ways are better off. I think the former still may be undervalued while the later might be undervalued in general. I could be wrong. Although you are right any monies thrown to the people will stimulate the economy! I think you could get more stimulation in many other ways. More weight added to an anchor speeds the decent into the pond. Once the anchor hits bottom, then the negative results will be seen. The anchor needs to be pulled off of the bottom. I think we need bang for the buck. Not bang and then require the future to worry! Personally, I am suspicious from what I have been told that the stimulus is more of a reelection plan than a current stimulus. economies do not just thrive. There are reasons for all things. Things that happen today are often the result of actions taken in the past. Therefore what is done today will effect the future. will todays actions really improve tomorrow!
We will see. I do give Obama a B+ on the housing crisis. He has a very reasonable plan given what faces Americans. I disagree with what I have heard as his reasons for the action. But the result is what is important. I see improvement both now and in the future with this housing plan. The stimlus I seel a little current improvement with a massive future weight added. And the banking plan as about equal to doing nothing. Some positives, some negatives, but a lot of failure to connect current problems with the correct past policies.

Feb 19 08:40 AM

[monday1929:]

Why am I certain that you were one of those who believed that "Real estate never goes down" and like Hank Paulson said in 2007 "the economy is the stongest I've seen in my life-time".
The collapse of a bubble follows a (in some respects) predictable path, and you are playing your role well. I hope you retain your optimism at S&P 250, when I will become optimistic, and you will be not be one of the pessimists who point to all the fundamental reasons why we have seen the "Death of Equities", as Business week put on their cover at a more minor low in 1979.
Being positive is good. Denying reality is dangerous. The collapse of the largest credit bubble in historywill have long-lasting effects.

Feb 19 09:27 AM

[bluesmoke:]

"we've turned into a nation of Monday morning quarterbacks."

Whether they are right, wrong, or indifferent, regardless of their education level everybody is now an expert. I couldn't have said it any better.

Feb 19 09:44 AM

[PassingBy55:]

Agreed...we will see false starts in this economy. It is too simple to think that a country this indebted with no real productive capacity can "bounce back".

We have a long road ahead of us even if this is the bottom. ( I doubt it) Does anyone else find it strange that NOTHING has been cut at the state/federal level in response to the restructuring of the consumer/corporate pyramid below government. The government and upper class is becoming more and more top heavy while the working class supporting the entire thing is barely hanging on.

This game cannot go on forever. Unless we see a real move towards putting people back to work generating value (not just selling worthless trinkets to others to charge on their credit cards) we are not going to see a significant uptrend...the tough times will be back very soon.

If this happens bulls will be burned again for their poor foresight the same way they were in 2008.

Author: I applaud your optimism as you have inclined me to attempt to look at the positive side of things, but do not fool yourself into thinking this system is sustainable. Short term trades may look nice, speculators may make a killing, but if the fundamental problems are not addressed we will not see a change.

If the stimulus is wasted..it will not help, it will hurt. When we put together the amount of interest we will pay on our bulbous national debt, $80,000 toilet seats and empty museums (with state budget upkeep every year) will not do much to save us.



On Feb 19 09:27 AM monday1929 wrote:

> Why am I certain that you were one of those who believed that "Real
> estate never goes down" and like Hank Paulson said in 2007 "the economy
> is the stongest I've seen in my life-time".
> The collapse of a bubble follows a (in some respects) predictable
> path, and you are playing your role well. I hope you retain your
> optimism at S&P 250, when I will become optimistic, and you will
> be not be one of the pessimists who point to all the fundamental
> reasons why we have seen the "Death of Equities", as Business week
> put on their cover at a more minor low in 1979.
> Being positive is good. Denying reality is dangerous. The collapse
> of the largest credit bubble in historywill have long-lasting effects.

Feb 19 10:21 AM

[Top Gun:]

Well said. The admin has done a good job of base building, moreso I think than dousing with lighter fluid.

The opposition continues to ignore the needs of our people. We are blessed to have Obama and team at the helm, not for their perfection, but for their desire to represent the people of our great land.

They will regain the trust of the world and americans. It will take months or years, not days. I can only hope those wishing them to fail get with the program.

Feb 19 02:42 PM

[CJJ:]

Its one thing to be an optimist or pessimist about the current economic climate and whether you see the downturn going on for 6 months, 2 years, 5 years or longer...I don't even mind people who have never used gold in their lives to buy anything excitedly talking about how great it is. More power to them.
I have a problem with people who categorically 100% are calling for the end of the US economy while ignoring the fact that would mean a collapse of the global economy. Even if that occurred, people would still wake up the next day and they would move on.
Its one thing to be giddy making money shorting any and every company because its working right now, but its another to actually root it on. Its another to actually believe McDonalds or Walmart are better run companies(they are well run) then all others while ignoring the fact they are doing so well because they sell the cheapest stuff.
These people are actually rooting for decreased quality.
No matter what your investment strategy is, you aren't going to be "wealthy" in any way living your life in fear of the end of the world(why wake up in the morning) and you're not going to hold any wealth if the global economy collapses.
You may wake up tomorrow and the pizza parlor a block away is closed, don't fret, the one 3 blocks away is still open for business.

Feb 19 10:45 PM

[snagglesnarf:]

What fantasy land do you people come from? Government, businesses and the American people are bankrupt. We are not going to just buy our way out of this mess as we have in the past BECAUSE WE HAVE NO MONEY!!!!!. We have been living beyond our means for decades. Our over-sized mc mansions are stuffed with every imaginable consumer crap ever invented, most of it purchased on credit. This correction will be so frightening that in the near future, if it's not already happening, saving will be the new borrowing, and that will drive hundreds of thousands of companies out of business.

Feb 20 01:19 AM

[ironpants:]

Yes the public and investors are increasingly more infantile and NOTHING will please them.

And vermin have taken the market.

Feb 20 05:59 AM