This blog post originally appeared on RealMoney Silver on June 30 at 7:48 a.m. EDT.
As an investor and as an American, I am disappointed.
I am particularly disappointed in the general inability of
-- our executive branch and now add legislative branch to the mix as well as our leaders in the Treasury and the
-- to accomplish the following tasks:
- 1. to identify an emerging problem in derivatives;
2. to propose, launch and engineer bold initiatives to counteract the depression in housing; and
3. to reduce our reliance on imported oil.
As Tom Friedman
New York Times
on Sunday "My fellow Americans: We are a country in debt and in decline -- not terminal, not irreversible, but in decline."
I fully recognize the role of free market capitalism and the responsibility that lies in the private sector, but I am equally conscious of a small cabal of investment bankers that poisoned our financial system with toxic, unregulated and unwieldy derivatives (especially of a mortgage kind) -- the growth of which was fostered by the complicity of ratings agencies and was neglected by governmental authorities (until it was too late).
That having been said, our nation's financial rebuilding must start with bold moves, not in vilifying short sellers and speculators. On the housing front, a bipartisan Marshall Plan for housing continues to get dragged down by partisan politics. Importantly, we also need an intelligent, effective and timely energy policy, as the elevated pricing of energy products is now universally at an economic tipping point. (This is something that economist Ed Hyman mentioned in his weekly conference call last week.) Congress and various Administrations have had 40 years to develop a sound energy policy. They have failed. Arguably, they have barely even tried.
I am now convinced, based on the above factors (and others) that the U.S. electorate will demand change and that the
will continue into November 2008. Quite frankly, the alternative (i.e., status quo and inertia) is growing increasingly unacceptable to most.
For some time, I had viewed an Obama victory as a mixed blessing: The middle class' lot will be improved but at the expense of higher corporate and individual tax rates. Accordingly, for much of the past year, I had
a Democratic Presidential win and a sweep of the Congress as a potentially depressing market event. With the current inactivity in public sector policy weighing so heavily on share prices, however, I am now changing my tune. At the very least, the rising likelihood of an Obama victory (and the 100-point S&P discount to that victory that I estimated compared to a McCain win) seems to have been speedily reflected in today's valuations, as an Obama win could now be viewed as an agent for economic change that the Republican Party might not be able to deliver.
Indeed, the potential for change, which is seen by voters to be more readily brought forth by the perception of creative and aggressive proposals from the Democratic Party, should now be considered as a P/E neutral to expanding event, particularly from today's share price levels.
Beyond the potential for a new, catalyzed and change-driven Administration in November, the market's best hope continues to revolve around the following factors over the short term:
- a slowdown in emerging economies;
- the ECB backing off its rate hike policy;
- the Federal Reserve extending the duration of its liquidity auctions;
- a more productive fiscal stimulus package; and
- an effective strategy directed toward the housing depression.
The upside for a badly beaten market lies in some of the above resolutions, which could serve to lower crude oil prices, lift the U.S. dollar, slow headline inflation, quiet the Fed's jawboning and aid the consumer.
Doug Kass writes daily for
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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 Short Offshore Fund, Ltd.