Saturday, September 11, 2010

Alternate Endings: The Case for a Blazing Stock Market

See my list of Retracements, a few selected stocks and indexes, showing their strength to recoup the losses since the highs in 2007 HERE The weakness shown by XLF- Banks isn't a good thing. But surprisingly, the XLU- Utilities Company isn't much better despite the 4.00% yield. I'm on the same page as Robert Prechter- the market is telegraphing its weakness. And no matter how bullish the stories are on CNBC about Treasury yield comps, historically low PE ratios, high cash hoards, all that crap doesn't mean anything to the patterns. In my opinion, if you really listened to these arguments, stocks should be at NEW ALL TIME HIGHS, much higher than 2007, and they are not, nowhere near it. So its kind of embarassing to actually see them admit this profound weakness as a reason to buy stocks. UNLESS you believe the FED can incite the public to start buying stocks. Its the Last Resort. Its the most "Not Over-valued" asset class there is. The Fed has cornered the market in mbs, so why not equities as well? Inflating Stocks would solve a lot of problems with people's investment accounts, and their willingness to go out and spend again. It would also bail out these pension funds that have no idea where the money is going to come from to fund their actuarial requirements. (A blazing stock market could negate the need to contribute any money, as it did during the late 1990's). Inflating the stock market would surely help the housing market, profits would fuel buying thus raising house prices. It may also help people who are delinquent to catch up and become current (if you think people in that situation haven't sold their stock yet). Its a Long Shot- I don't believe they could do it, they would have to drop the long term gains tax down to 10% along with the income tax on dividends. And that would take away the appeal of Municipal Bonds, creating a problem in that market, and we certainly need municipalities to be able to raise huge amounts of money for themselves. I'm just thinking out loud, asking myself what could go wrong with the Elliott Outlook and this is what I came up with. You know, TARP made the Treasury a stock investor- all those warrants were like call options on the bank's stock price, and they made $million$ on them. They also are set to profit from Citibank. Next is the GM initial public offering, and if that stock swings up later the Gov't could possibly show a profit on the shares they still hold. The seeds are there for some shrewd sweet-talking politician to make the case that Investing in Stocks is Profitable, even in the worst possible situations. Its the Capitalists' Way Out, and it would please the Republicans. And it may be the only way Obama would get elected for a 2nd term, which would still not be guaranteed even IF this scenario were to unfold. Let me know what you think of this alternative fantasy. Its how wealth is created- Bill Gates didn't get rich because he sold millions of copies of Windows, he got rich because he owned a boatload of Microsoft STOCK, same with Warren Buffet and his stock Berkshire-Hathaway. Rockefeller too with his 11 different Standard Oil stocks. Stock price appreciation is the source of wealth, not sales of a product. Product sales leverages a stock's price appreciation, ask Steve Jobs, but the money from sales doesn't go into his pocket, it just sits in a pile and grows. Hey did you read that Google is hiring ex-bankers and hedge fund traders to manage their cash-pile? Interesting, I wonder if they are buying stocks..........

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