This blog post originally appeared on RealMoney Silver on Jan. 20 at 8:25 a.m. EST.
To believe, suspend disbelief. We have been through this before, the flags and fine speeches, the brass donkey paperweight, the glass elephant, the rise and fall of administrations, the coming and going of figures great and small. It's good to put that aside for a few days, to remove yourself from politics, partisanship and faction, to suspend your disbelief, to be grateful that the signs and symbols endure, as does the republic, and raise a toast: "To the President of the United States."-- Peggy Noonan, The Wall Street Journal
, when over the last 12 months, amid the slippery slope of credit and of the weakening economy, the pain has become increasingly palpable for the average American. The storm clouds have been gathering for a longer period of time, however, not in the grand halls of finance but in the confidence and pocketbook of the average American. In reality, the lot of the U.S. consumer was worsening well before the more conspicuous signs of credit contraction and economic slowdown and even before the world's stock markets and the value of the U.S. housing stock began to plummet. Indeed, the foundation of the speculative growth in credit, which ended in 2007, was weak and cracking well ahead of any evidence that the first toxic derivative had begun to poison the world's financial intermediaries.
As I have written, in so many ways, the current cycle is far different than from anything seen in the past 50 years. It likely holds an uncertain impact (in timing and magnitude) to household wealth and on our social condition. It follows that we must be realistic in our expectations of corporate profit and economic stabilization/recovery and that investors must be prepared to
with regard to a sustained stock market lift.
Our accumulated economic and credit problems are secular, not cyclical, and their impact have been heightened by policymakers who have misinterpreted the magnitude of the risks accumulating in the credit arena and the emerging weakness (especially of a housing kind) in domestic economic growth as recently as six months ago.
There is no overnight solution to deeply rooted and structural imbalances that festered untended and were allowed to grow exponentially. Slowly, market participants are finally coming to grips that it is different this time; the world's financial system has failed the test of the marketplace, as the late 2008/early 2009 experience is not of a
recession but holds the possibility of a garden variety depression.
I spent most of 2008 being critical of the Bush Administration, of its direction and in its ad hoc and incoherent policy decisions. With a passing of the old guard, some caution the effect of political change as many now worry that the President-elect will be too plodding and studious, too munificent in his avoidance of making enemies in his hard decision-making process.
I doubt it.
Indeed, if the last five years was the age of foolishness, we should be hopeful that the next five years is the age of wisdom.
The goal is to restore strong, competitive, innovative financial markets to support global economic growth without once again risking a breakdown in market functioning so severe as to put the world economies at risk.-- Paul Volcker, Chairman of the President's Economic Recovery Advisory Board
The economic mission of the Obama Administration is clear in its vast scope and context. The menu includes but is not restricted to improving credit flow, permanently repairing or shoring up the capital base of our banking (and shadow banking) systems, stabilizing housing, improving confidence, making deep changes in the role of the (independence) regulation and enforcement (and improved transparency) agencies that govern our financial institutions, and creating accountability and reducing conflicts of interests at many of the levels in the private and public sectors:
- Unclog the transmission of credit, both with regard to the level of interest rates (especially of a mortgage kind) and the general availability of credit.
- Repair a capital-deficient and nonfunctioning commercial banking system by permanently bolstering capital positions, ring-fencing bad assets and by changing bank managements.
- Stabilize the residential real estate markets.
- Bolster consumer and business confidence.
- Target tax policy that aids the middle class and that asks more from the upper class but without the effect of impeding business initiatives and spending.
- Institute new regulations and guidelines that call for greater transparency and stricter corporate-governance standards, providing tougher oversight and reining in the risk of the intermediaries whose failure could bring down the financial system.
- Regulate the shadow banking system and provide transparency in credit default swaps and structured and securitized product offerings.
- Provide a new sense of accountability geared toward predatory and irresponsible lenders, regulatory authorities (change their compensation methodology!), the accounting profession (also blinded by "the relationship") and corporate managers who cant lose by taking risk as beneficiaries of a "heads I win, tails I win" compensation system.
- Develop a comprehensive and long-term approach to controlling government spending and provide for a disciplined strategy toward addressing the mushrooming budget deficit.
"The two most powerful warriors are patience and time." -- Leo Tolstoy
While I recognize that the President-elect could very well catch lightning in a bottle during his inaugural address later today, the heavy economic and policy lifting lies ahead. Nevertheless, I am comforted, and I am more optimistic about our new leadership (especially the Obama/Summers/Geithner/Volcker economic team) than I have been in a long time.
In the fullness of time, an engaged new Administration's message of hope holds promise not only for the average American but, in time, for our capital markets as well. For now, patience (waiting but not passively waiting), perseverance (amid downbeat news) and perspiration (most likely tons of it!) hold the ingredients to a successful strategy in our economy and in our stock market.
Right now, though, it's a huge relief to be getting an inquisitive, complicated mind in the White House. W. decided there was no need to be president of the whole country. He could just be president of his base. Obama is determined to be president of as much of the country as possible. We're trading a dogmatic president for one who's shopping for a dog. It feels good.-- Maureen Dowd, The New York Times
Today, on the day of the President's inauguration, things already feel more hopeful, and, in the fullness of time, it might even feel good once again.
But, whether it is the best of times or the worst of times, one thing is for sure: Now is the only time we have.
I raise my glass to toast to the new President of the United States. Here's hoping that he has the courage, the intelligence and the patience to deal with our financial ailments and that he stands ready to grapple with the associated challenges that will undoubtedly arise.
Doug Kass writes daily for
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At the time of publication, Kass and/or his funds had no positions in the stocks mentioned, although holdings can change at any time.
Doug Kass is founder and president of Seabreeze Partners Management, Inc., and the general partner and investment manager of Seabreeze Partners Short LP and Seabreeze Partners Long/Short LP.