Sunday, March 08, 2009

Wishful Thinking

Two observations to share today:

1) I spent a lot of time today at a local garage getting my car worked on. A good portion of that time I was talking to a guy who was, in his own words, "just sick of all those damn politicians in DC." Commiserating with him was fun, although we approached solutions to those damned folks from very different directions. Anyhow, all the talk shows this morning were focusing on the economy. Mr. Bitter says to me "have you ever seen so many smart people look so dumb?" Indeed, it is amazing. . .it's almost as if they don't mind that the economy is totally in the tanks. Hmmm. . .

Which brings me to point #2: Apparently, round-table discussions are all the rage on the Sunday morning shows. (I haven't really watched them before, and, to be honest, I'm pretty sure I'm not going to be dying to do it again) During one of the round tables (I saw two of 'em, so long was my wait), some smug economist was saying with absolute certainty that the markets will eventually turn around. "People need to buy houses, they need to buy cars. These things will help turn the market around." Now, for the record, I'm no award-winning economist, but I can't help but think that his smugness was far from deserved.

First, to my cynicism: I don't believe that people need to buy houses. Yes, they need to have somewhere to live. But that doesn't necessarily mean purchasing, does it? And it DEFINITELY doesn't mean purchasing homes in a manner or volume such that we'll start seeing equity building up in our homes again. And THAT'S what we need out of the housing market to help the economy: equity. An awful lot of it has been destroyed in the last 30 months--a sale here and a purchase there ain't going to bring it back.

Cars are probably a similar story: There will be car purchases out there--but they don't have to be new cars. In fact, I am even thinking of making my next purchase a used car--which would be the first time that happened in a decade. And with the exception of used car salesmen, I don't think there's a lot of industrial strength out there gained from buying used cars. I could be wrong. . .anyhow, I can't help but think that I'm not alone in thinking the next "new" car in my garage will not be new at all.

But here's the real crux of this guy's idiocy: STOCKS DON'T NECESSARILY GO IN THE DIRECTION OF A COMPANY!!! Yes, companies that have a good bottom line are normally darlings of wall street. But the strength of a stock depends entirely on the company's ability to draw INVESTORS into the fold. And yes, maybe all it takes is a single good earnings report. . .or MAYBE even just some buzz.

But I'm thinking that with the market in its current state, buzz isn't going to get a ton of capital off the sidelines. First of all, I'm not sure how much capital is still out there waiting for the right opportunity--remember, there's been a lot of wealth destruction in the last few months. Secondly, those who do have capital are probably looking for the right LONG-TERM opportunity, and with the exception of stocks that mirror directly the cost of energy, I'm not sure there's a lot of optimism out there that anything will be a good long-term player.

And all of this discussion is assuming that the government doesn't become a majority owner of every single aspect of this economy. Because I can think of nothing that would kill investment more.

And personally, I bet the fact that nobody knows exactly when the administration is going to stop with their power grab is one of the main reasons why there aren't people trying to take advantage of the "great deals" available in the market today.

AND WHILE I'M ON IT: I can understand "bargain hunting" in real estate, where you can purchase something with a physical presence. I don't think the same thing applies to stocks, though: all you own is a piece of paper (or more accurately, a couple pixels that tell you that you have the right to own a piece of paper). Stock investing is virtual gambling, plain and simple: real money out of your pocket that may or may not be returned at all.

And I, for one, am not surprised to see that people WITH money are being a little cautious with gambling.

My guess is they probably will be cautious until they get a better read on what Team O is thinking. While they wait, we will explore the depths of a "capitalism is still alive" market.

Let's hope the message sent from DC isn't a "this isn't the capitalism I thought we knew". Such a move would make us long for the 6,600 point market of yesteryear.



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