The Obama Rally
By Mitch Berg
“See? Look! Obama is a great president! The Dow is rallying!”
Right. In the same say that your family’s economy “rallies” when someone gives you another credit card. Government – governments around the world, really – Aare printing money faster than “Twilight” novels.
I’m not buying shares if that’s what you mean. Not at all,” Rogers told “Squawk Box Asia.””The bottom will probably come later this year, next year, who knows when,” he added.
Governments have not solved the essential problems that caused the crisis but instead they “flooded the world with money,” according to Rogers. Trying to solve the problem of too much consumption and too much debt with more consumption “defies belief” and will not work, he said.
“I mean … you give me 5 or 6 trillion dollars, I’ll show you a very good time, there’s no question about that,” Rogers said.
Indeed, dropping five or six trillion dollars from airplanes over the country would probably do the world a lot more long-term good than the government’s plan – if you could find enough planes to haul that much money.
May 20th, 2009 at 8:17 am
As inflation inevitably sets in, I’ve been thinking… wouldn’t a stock that is gaining no actual value have to increase in price just to keep up with itself? If that is so, then when the Dow closes higher by a small amount over a given period of time, the market may actually be shrinking. A modest “rally” could actually be a stagnant market & what might appear to be a bull run may only be modest growth.
May 20th, 2009 at 9:06 am
Yep.
May 20th, 2009 at 9:27 am
Gold. Silver. Lead.
May 20th, 2009 at 10:15 am
Yes and no. Much of the early rally seemed to be short sellers having to cover their sales.
Now we may be headed into an inflationary cycle. It’s hard to say at this point.
But remember the 70s with its inflation: essentially stocks traded sideways for the whole decade once you corrected for inflation. So they’re not a bad place to be if there’s inflation. Cash is king in deflation.
May 20th, 2009 at 12:59 pm
Nerdbert,
I’m thinking more about the illusion of a growing economy presented by looking at the Dow, not an investment strategy.
May 20th, 2009 at 1:17 pm
the Dow is rising but the volume of shares sold has been falling. When this happens to an individual stock it’s time to get out of it.
May 20th, 2009 at 1:19 pm
Invest in some stainless or blued steel and lots of brass and lead.
May 20th, 2009 at 1:21 pm
Well, Mr. Shirt, IF you’re lucky to have a job during an inflationary cycle and IF you had debt before the cycle then you do have a personally growing net worth since you’re paying off your old debt with all those new dollars that aren’t worth as much.
But if you have cash or many other assets like bonds your net worth goes down in an inflationary cycle, which drives real capital formation down.
Since the vast majority of Americans have debt and not assets, and since most will have jobs, then an inflationary cycle can benefit them. That’s not to say that inflation is without pain.
Given the debt/asset ratio of most Americans, an inflationary cycle would actually make most of them “richer” as it would essentially be a tax on assets. That’s not good for long term economic strength, but then again, politicians don’t worry about the long term since most voters don’t think past their next paycheck.
I remember the Reagan Recession that finally broke the back of inflation, though. That was painful and I’d hate to see that again. But I suspect we’ll get it again after this cycle of economic controls fails just like it did in the 70s.
May 20th, 2009 at 1:25 pm
Invest in some stainless or blued steel and lots of brass and lead.
I’m already overweighted in those investments. Diversification is called for, but getting a Class III is too expensive.
May 20th, 2009 at 2:28 pm
Nerdbert,
So far, all your “ifs” are reality & that will all be great! 🙂
But like I said, my thought was only on Democrats pointing to a stock market that has increased in terms of dollars, but stagnated, or decreased, in terms of real value… then stating “See, the market has risen because of our economic policies! Bow before our supremacy, serfs!”