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There's probably something wrong with me, but I love a big, bad scary day in the stock market. In fact, I only like to buy stocks when other folks are dumping them.
There was dumping aplenty on Wall Street on Tuesday and there's dumping again today.
With the S&P500 down 2.5% at the close Tuesday, I put some cash to work in my S&P 500 stock-index fund, for the first time this year. I'll likely buy some more before the close today.
No, there isn't much hard evidence to back up my sudden bout of market optimism. You could argue there is none.
The S&P 500 is now lower than it was on the first trading day of the year. Nearly every piece of recent economic data has been grim. The big Friday jobs report will inevitably disappoint.
And as the 30-year Treasury slips under 4%, bond investors are now predicting America's economic malaise will last into perpetuity, which is a very, very long time…like forever.
But if you're of a contrarian bent, you tend to rely less on the day-to-day macro-economic data published by the Treasury, Fed or the Bureau of Labor Statistics and more on your instinct.
So, while lots of investors are freaking out about bad ISM numbers, mediocre new car-sales and crummy GDP figures from a few days back, you know what I am thinking about?
Profits and President Obama.
I won't bore you with a long lecture on how stock prices are a function of projected profits. But it's easy to forget that fact when the world seems like it's coming apart every fifteen minutes.
Of course, the state of the U.S. economy matters to profits. But it's not the be-all and end-all.
For the first half of this year, U.S. GDP growth has been abysmal: 0.4% in the first quarter, 1.3% in the second. But has that stopped U.S. companies from delivering record earnings?
S&P and Moody's may go ahead and take away America's AAA rating. But will the downgrade really hurt Apple, Google or Microsoft, which are cash-rich and derive most of their sales overseas?
Truth is, things haven't been right with the U.S. economy since 2007, and the quasi-recession we're hanging onto like a bad cold will last a few years more.
But that's no reason to panic and sell stocks, especially now, which brings me to President Obama.
Did you watch Tuesday's Rose Garden talk about the debt-ceiling bill?
The president was sullen, quietly desperate. He knows the economy stinks and that a double-dip recession might finish off his presidency.
But, strangely, the more I watched him, the more his dire, downer mien gave me comfort to invest. Yes, he offered up his standard “tax the rich and corporations” shtick, but it lacked bite and conviction.
The president now knows he's run out of government-driven options for the economy – and that's a very good thing for stocks. In the coming months, he'll be forced to adopt a U.S. Chamber of Commerce-style plan for hiring and prove Steve “Obama is destroying America” Wynn wrong. In the end, no jobs, no re-election.
So get ready for a business-friendly agenda from the White House: the passage of the Korea and Colombia free trade pacts, the tax-advantaged repatriation of overseas corporate profits, a new push on corporate tax reform, a little muscle on the NLRB to drop the Boeing suit and maybe even the appointment of Jamie Dimon as next Treasury Secretary. All good things for profits.
Of course, there are no guarantees. But to me, things are feeling an awful lot like they did on some very bad days last August.
I was happy to buy then. I'm happy to buy now.
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Did you sell out of the financials you recommended a couple of years ago? (BAC was in the 30′s).
The Weimar Republic didn’t have the benefit of a myriad of very large private and public companies making huge profits with a hoard of cash reserves. Our optimistic contrarian may have a point.
This is the beginning of the end for POOR CITIBANK THAT HAS BEEN CLOSED. Citibank is dead money Lu Soros has been posting for months. From here to zero is a sure bet Lu Soro was quoted. Citibank is being dismantled at this very moment and all investors will be holding worthless paper. CITIBANK R.I.P.
What a bozo the clown….but not the funny one from WGN in the 60′s.
Look, stocks will crash as the Dollar does. Even Putin in Russia and the Chinese Govt are TELLING US, we’ve overspent in favor of a bigger Govt….. THESE ARE COMMUNISTS THAT BELIEVE IN BIG GOVT!!!
We’re done. I’ll just watch my gold and oil wells rise in value. FORGET STOCKS AND BONDS. Read about the Wiemar Republic. We’re there, gentlemen (and ladies).
Dear Evan –
I believe you have underestimated our Fearless Leader. Left unchecked, he will barrel forward with economic transformation that will devastate corporate profits and smash job creation to smithereens. I hope I’m wrong, but I’m sure you are.
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