We have been following markets for nearly 22 years from our special perspective -- applying expertise in neutral public policy analysis, following economics, and seeking investment implications.
There has never been a time when decisions in Washington had greater importance for investors.
Putting Aside Politics
Many of our readers labeled our approach as GOP-oriented and as Bush apologists in our early years. Now, some may think we are fans of Obama.
Neither conclusion is correct. We try to analyze policy proposals, regardless of the political stances. It is a challenge.
Opinion pieces are easy to write and get a lot of attention and blog traffic. Those that attack any proposal are especially popular. There is always a ready audience.
Current Errors
Many popular authorities -- pundits, bloggers, economists -- pounce upon any proposal with plenty of criticism. Here are some examples.
Criticizing Obama for being too liberal. Most of this is based upon budget proposals that are far from passage. Investors should focus on the immediate economic effects. As Obama noted in tonight's press conference, there was no expectation that the budget would be accepted as proposed. It is a long-term agenda. The time for debate will come.
Focusing on debt. There is a political perspective that debt is bad and that anything increasing debt will lead to the demise of our nation. This is a matter of political values rather than an immediate economic forecast. The right question is whether the plans stimulate a return to the economic norm of sensible lending. Our economy depends upon this. Debt may increase in the interim. This is normal counter-cyclical policy.
Claims that the plans are a "patchwork." One wonders what these critics would see as a comprehensive plan. Our own notion of a good plan is that it has many elements. What many see as a patchwork, we see as flexibility. It is good for government (or for businesses) to have multiple initiatives. It provides flexibility, permitting policy makers to do more of what is working and less of what is not.
Investor Implications
It is important to focus on the near-term effects. The most important questions for the economy involve stabilizing housing, providing normal lending, and stimulating jobs.
Mainstream economic analysis suggests that the plans in place will have an impact, but with a lag. No one knows the exact impacts or the precise timing of the lag. More importantly, no one knows when market recognition will take place.
There will be a challenge in reducing debt. There will be more tweaking of the level of leverage. No institution should have 30-1 leverage, but the lending system runs on a reasonable level of leverage. The critics seem to advocate a WARP speed death spiral, oblivious to the economic effects. This concept is central to understanding current public policy on the economy.
We see this as a time of great opportunity. Part of the logic is that so few share this opinion.
