Seeking Advice

Why This Is No Time for Buy and Hold

I also got suckered into clicking on the link to the "Cloward-Piven Strategy", which turns out to be right wing fear mongering much like the left wing versions I've seen written during the Bush administration. Unforunately after that the author lost all credibility.

It's definitely non-partisan to see and be concerned by the market manipulation going on. This administration (like any other) is not going to stop the big players from pushing the market up (against fundamentals) since it increases general sentiment. This of course also happened during the Bush admin (and probably every other). Maybe it's worse right now with volume so light, because it leaves markets in a position to be easily pushed around. Sooner or later fundamentals come in to play because they have to in the greater scheme. But in the short run, the manipulators (the big time tradin desks) can profit handsomely.

Still Cautious About This Rally

Good points. I scaled back on equities some time ago, significantly reducing my holdings and have been looking for some sense when it might be safe (or safer) to begin thinking about scaling back in. I've resisted previous bottom calls as I did not believe the economic fundamentals could support a sustainable upturn. I still don't see much call for economic optimism any time soon, but the equities market can move somewhat differently. A rally of such force to me usually is suspicious as it is when it moves very sharply to the downside.

Wall Street's Response to Obama's Economic Policy

Everyone is just expecting too much of the new administration. We can complain about the 'right' or 'left' and their roles in this and both share some of the blame.

We've had a long run of unsustainable growth in this country and we came to accept it as situation - normal. The last 8 years of growth were financed by unrealisically low interest rates that were held low for a long time to goose borrowing and spending. It worked and now we're in debt. Combine that with lax enforcement of regulations on investment banking and a near consensus it was a good idea to package debt into AAA rated vehicles that could be conveniently sold with high returns and you had a recipe for trouble. It was probably more about when the big fall would be triggered and by what events rather than "if" a major crash would eventually happen.

Whether Obama and Geitner turn out to be good for the country (or not), this mess could not easily be solved. It probably can't really be "solved" at all. It's something we are just going to have to go through. Neither administration had a magic bullet because there isn't one. Pressure to do something won't allow any administration to just let the "free markets" (or what passes for our free markets) take its course. That would likely mean seeing our major banks fail and unemployment well into the double digits. Doing nothing would probably mean a shorter downtuen but a much more painful one (possibly depression). But where would THAT political will come from in either party? Clearly it isn't there. And in our system where the optimal long term choices aren't likely to be made. IMHO

Ray Dalio: A Long and Painful Depression - Barron's Interview

This severe recession requires people to spend to move the economy forward since our economy has become 70% consumer driven. However, given the losses individuals (and families) have sustained in their 2 main assets - homes and 401k's - the only responsible action is to save more to try to make up some of the difference. Some lower amount of spending has to result and with that having been 70% of the U.S. economy - that has to drive slower economic growth going forward even after we've eventually come through this debt and solvency crisis.

As far as the stimulus packages, while I and many other non-economists are wary of them, most economists I hear seem to feel that the ones being proposed are still far too small to have the needed impact. I feel it's probably politicallly impossible to do nothing. Doing nothing would probably mean a quicker route to recovery, but a horrendous couple of years for most people to get there. And that's why we'll have a stimulus package passed and if that doesn't prove effective, maybe more to follow.