Stopgap Measures, Strategy Implications

Jesus is coming. Look busy!

The Democrats in Congress appear poised to exercise the political version of the second coming with a second coming of their own – a stimulus package targeted toward consumers for the last half of this year: the election half.

The number bandied about is $50 billion. Just enough to look busy, yet not quite enough to enhance the presidential chances of Senator McCain. After all, the Democratic equation is McCain = Bush third term. Certainly the Democrats can’t disrupt that math.

There are two aspects to this issue:

First, a clearly defined pattern has emerged, as stopgap measures seem to be rage in government. Be it the financial wildfire strategies of Paulson and Bernanke or the rebate checks or offshore drilling or ad hoc regulatory actions, seriously thought out solutions to long-term problems are clearly not a part of this most political of years.

Second, $50 billion, while hardly enough to be truly meaningful, will likely be just enough to help the US economy avoid a full-blown recession this year. In the process, the full-year operating earnings for corporations will likely be a touch higher than the top down projections of $82.

Investment Strategy Implications

If the operating earnings number for the S&P 500 for 2008 were moved up a touch from $82, and given the fact that the market is presently so sufficiently undervalued (assuming one does not buy into the stagflation lite scenario) then stocks should continue their summer rebound with or without Financials leading the parade.

In regards to Financials, it does seem that any economic performance that produces bad but not terrible results will be most welcome. Some semblance of stability may not produce much in way of stock gains for the group (contrary to what many bottom-fishing investors might hope for), but it would go a long way toward to providing an overall sense of relief that the end of world is not just around the corner.

As for solutions to long-term problems, that clearly is not on the agenda for this year. Once it does become the focus of public policy, I would suspect issues like infrastructure building will take precedence over consumer demand stimulus packages. And in doing so, a secular uptrend in that area will produce very attractive investment opportunities for years to come.

While busy work is not truly productive work, a few sorely needed bucks (for consumers and investors) will not be rejected.

Comments

[elwind45]

Taxes Taxes Taxes?

[iThinkBig]

You know it Elwind. You beat me to the punchline! How's the economy going to look in 2011? It's becoming somewhat clear now through the foggy haze of socialism.

[wpdragon]

socialism would be a welcome relief after the fascism we have endured the past 8 years as our constitution and economy went into the trash bin. Anybody who thinks the republican "tax breaks" were a boon to the economy or to the vast majority of TRUE American citizens is an idiot... it was a raping of the average citizen at the behest of the supremely wealthy and the people who pandered to their every whim under the great lie known as "free" trade.