NotaCompletePessimist

Which Way Wednesday, Fed Edition

KPopper: I'm pretty old, and my memories of how bad it was when Reagan was elected are still pretty intense. In some ways, things are worse now, in others I honestly think they were worse then; e.g. I remember Americans being much more demoralized back then, Inflation and interest rates were brutal back then, etc. On the other hand, I don't remember the financial system being so stressed and fragile as it is today.

I don't however, view a "bigger" manufacturing base at the start of recovery as the catalyst your comment implies. Arguably Japan had a larger relative manufacturing base entering its doldrums of the 90's and the 00's and it hasn't done them much good for reinventing themselves. On the other hand American entrepreneurial culture in the 90's and much of the 00's did a lot of good and generated much growth.

I think American entrepreneurial culture is the bigger differentiator, and Reagan set the stage for it to flourish when the US was very down once. My observation is that Obama has inherited a horrible situation and is using very different policy levers to "pull the country" out. He is much more reliant on government, Reagan was much more reliant on Main Street.

Personally, in spite of Stiglitz and Krugman commentaries that the govt. should do "more", I think Reagan was right, I would rather see growth promoted through Main Street, not Pennsylvania Ave. I think it works better.

The bigger issue, however, to me is if you agree with my larger view on policy differences, so what does this mean to the investor? Where to put the money? On the other hand, if you disagree with my, then .... Where to put the money? If you're right, and Wall Street hegemons will rule the day, then I'll just buy GS. On the other hand, if Glass Steagall is reinstated, that doesn't look like a good short / medium term position.

Same question, different answers though, and frankly, I am really interested in hearing opinions.

Thanks,

Which Way Wednesday, Fed Edition

I like your column very much.

However, there is one aspect missing from your reasoning I think. Uncle Sam has the capacity to raise its revenues by increasing taxes if it really wants to balance its books, or debauching our currency. By way of example, Brazil has come out of worse I think, going back to 1994.

To me, times are interesting. Obama and Reagan both entered office under the most challenging post war conditions of any President. Reagan used debt funding driven by tax reductions and de-regulation to pull the economy out of its hole. Obama on the other hand is using debt funding driven by deficit spending and increased regulations to try and pull the economy out of its hole.

I prefer Ronald Reagan's approach, but now we will get to see who allocates resources better. Government or the US taxpayer.

Your vote?

No One Saw This Economic Crisis Coming?

I think Hedge Fund manager John Paulson's name should be added t the list of individuals who saw this coming. However, he stands out in that he did something about. He took positions and wagered on what he saw. By all accounts he seems to have done well.

John Hussman: Has the Market Reached Final Lows?

So do you think the market has hit its lows or not??

Buffett: The Impossible Expectations of Stock Performance

It would appear that you do not recommend equities, without actually saying so. What do you therefore recommend?