Thursday, January 28, 2010

Finally Something I Can Agree With Obama On- I like The Dog In The Picture

The title and the picture have nothing to do with this posting. I just liked the dog since it looks like our Gertie. Gertie, by the way, is proving to be smarter than our President as she has no dilusions about who she is, or what she wants. She doesn't confuse herself with Hugo Chavez' dog while Barrack does seem to be channeling Hugo in his quest to turn the USA into a South American economy. Enough about dogs. As far as Obama, he may not be the cause of the market sell off, but his rhetoric and posturing sure are not helping the situation.

A brief review of my last several posts makes me look pretty prescient. While I said start getting ready for another slide, I didn't really expect it to occur immediately. Any brilliance I possessed is luck. I was confident in the direction and very lucky on the timing. Happily I took my own advise and haven't been beaten up.

The big question is how long and how deep will the sell off be? Wish I knew. I listened to an hour presentation yesterday by Bob Doll, Chief Investment Officer of Blackrock, who was coherent and logical, as he always is, and made a good case for 2010 being a positive year for equities. I can't fault his logic, but my stomach thinks otherwise. He gets paid better than me, has better data at his disposal, and has spent more time thinking through various scenarios, but if he is right, it will be one helluva roller coaster ride getting there. He named all the headwinds that we will face, but thought that massive stimulus and inventory rebuilding will lead stocks higher. It could happen, but I don't think it will.

In a nutshell, you don't need inventory if people don't buy. Sales tax receipts say the consumer isn't buying. Business won't replenish inventory, again, unless the consumer starts to step up and feel better. That won't happen without a much more robust job market. That appears years away. All of the bailouts,stimulus and jobs spending has spooked the public and ultimately it will spook the bond market. Visions of the future are presented daily from Greece, Iceland, Ireland, Portugal, and Spain. These evolving problems will translate into higher US interest rates and compete with equities. Higher bond yields mean that equities will need higher earnings yields, the inverse of the P/E, and earnings will not grow enough to compensate for declining P/Es.

I have no confidence in Obama being a positive in our recovery. He's ideologically opposed to being business friendly. Therefore, I don't think the consumer, nor business, is going to start gaining confidence and our economy will remain weak. China and Brazil will not grow at levels to ignite our economy. The only potential bright spot for 2010 is the same one i identified last year and that is M&A as solvent companies need to grow somehow and when organic growth isn't available, you do acquisitions. Lazard remains the purest play in M&A and is huge in restructurings which we will see lots of as the world sputters.

Mr. President, for popularity purposes, you need to be seen more with dogs. I like dogs, especially little white dogs.

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