Monday, June 22, 2009

An Administration's Three Pronged Tale to Muscle Through Free-Market Failure

The stock market has had a very good move since early March, yet the Psychology of the Call team (POTC) believes few positive fundamental growth events have occurred to rationalize today's valuations. Hence, the equity run has been 80% technical in our opinion. We reserve the other 20% for a turn around based on unorthodox policies rooted in creating the largest budget deficit in the history of investment finance; or just plain luck with some new growth paradigm emerging in bio tech or technology. Yet we believe there are three very ominous anti growth policies regarding: energy, health care, and the Employee Free Choice Act (EFCA) still ahead. . Is it possible the Administration gets lucky and some new growth paradigm emerges, Yes; is it likely, No. POTC believes the rest of the world, especially export driven economies like China are in deep trouble as U.S. GDP and unemployment remain anemic. The problem, from a macro perspective is "U.S. GDP Growth" and Organic U.S. Job Growth (minus govt spending). . POTC sees a paradox developing with this Administration. Green initiatives would end up destroying jobs and add to U.S. unemployment, yet such anti free-market policy is being debated. What does this Administration not understand? Why would pro entrepreneurship/capitalism advisers push-out oil and coal in favor of green initiatives in times of economic strife? Oil and coal are two extremely important elements in the U.S. macro economic picture for stability and eventual equilibrium and growth. As the title suggests, there are many dangers ahead of us, especially: 1) energy policy, 2) health care policy, 3) EFCA . IF the Administration muscles through even one of those proposals, we predict the S&P breaks through the 800 level. IF they muscle through 2 or all 3, then we see the S&P breaking through the old 666 low. Thus ultra short ETF's like "SRS" and "SKF" would become huge winners. We also feel Gold, as highly touted as it is is a real wise investment for 20% of your portfolio. POTC recommends the "GLD" ETF as an inflation as well as a geo political hedge..We remind bottoms form over time, and are marked by boredom setting in. . Bottoms are also often times marked by left field events layering on top of what every economist, talking head, journalist and educator already knows. Thus we like "GLD" and "SRS" and "SKF" for up to 30% of your asset allocation, as that left field event has not yet occurred. The other 70% could be either a combination of cash and technology Generals who have tremendous barriers against entry, as well as a cash hoard to buy their dying competition: GOOG and AAPL IF you must be long. We do not like RIMM due to their concentration in the business enterprise sector. . POTC urges you to realize the U.S. economy and its markets are on a precipice due to the behavior of the current dynamo. Their refusal to allow many private sectors to right themselves will have unknown consequences going forward. And the markets dislike the unknown. Investors and traders feel hog tied as a result, since the weight of the Treasury's printing presses is an unbearable phenomenon. . Please focus on the Administration's deadly three pronged pitch fork in the coming few weeks - months. If they muscle through any or all of these partisan policies, free-market failure is almost guaranteed. . Thank you for your Monday attention, the Psychology of the Call team hopes nothing ahead of us will be too shocking and that everything will only change your world for the better:


Anonymous said...

Most have lost their political compasses. Happy to see you gents are still on top of the issues that matter going forward.

Anonymous said...

Def agree with EFCA and health care, still squatting on fence regarding energy policy though..
Mike in Seattle