Looking Ahead With Hope

The minimum equity capitalization a company must have to be considered for "membership" in the S&P 500 index is $4 billion. I read over the weekend (I think it was in Barron's) that 40% of the current S&P stocks are at less than that right now. The index at around 800 has not been this far below its 200-day moving average since 1932. Only 10 names out of the 500 are up on the year.

In 2000, stock values totaled twice the gross domestic product. The long-term average has been 79% of GDP. The ratio now is only 59%. You would need a 36% rally in stocks to get back to the average of stocks to GDP. We did dip into the 40% area in the 1970s. Oddly -- or maybe it's not so odd -- the first-year recovery in stocks following a bear market averages almost 36%. I'm not saying we are going to rally, but at some point the selling is going to exhaust itself.

The market liked the appointment of Timothy Geithner to Treasury secretary on Friday -- or at least the market liked the idea he would be named. Hopefully the new Obama team will soon articulate some of its plans for stimulating economic recovery.

Since about two-thirds of the states don't allow part-time workers to collect unemployment, that might be an issue to address right away. Also, most states require a balanced budget every year. With the sudden economic downturn, states are scrambling to cut expenses. Aid to the states should be a priority. It could be assistance in covering Medicaid expenses. Or it could be grants to states that have "shovel-ready" infrastructure projects (The Economist gave us that name) that were delayed due to falling tax receipts. Infrastructure work creates jobs.

Jim Cramer suggests a series of tax credits for buying a home (I would add that it should be a primary residence), a reinstallation of TARP to buy impaired assets, adjusting the principal on some mortgages to let them come back to life, tax credits for hiring people, and debtor-in-possession financing for any bankrupt auto company and a guarantee on the new-car warranty so people would still buy cars from the company. All good and interesting ideas.

The point in listing some of Jim's ideas is simply that there are ideas, some good, some bad, but the apparent withdrawal from the field of combat by the administration is crying out for new leadership to take the field.

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Vincent Farrell Jr. is chief investment officer for Soleil Securities Group and a regular guest on CNBC and other national print and broadcast media.

Prior to joining Soleil in August 2008, Farrell was a principal of Scotsman Capital Management. Before that, he was chairman of Victory Capital Management of Cleveland and chairman of Victory SBSF Capital Management in New York. He was a founding partner of Spears Benzak Salomon & Farrell, which was acquired by KeyCorp in 1995. Vince held a variety of positions in his 23 years at SBSF, including chief investment officer, and he served as the portfolio manager on a number of the firm's largest client relationships.

Prior to joining SBSF, Vince spent nine years at Smith Barney as a vice president, sales.

Vince graduated from Princeton University in 1969 and received his MBA from the Iona College Graduate School of Business in 1972.