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Goldata Financial
Investing with the accent on rísk
STOCK MARKET COMMENTARY
March 1, 2010
From Elliot
Goldberg, Registered Investment Advisor, Goldata
Financial
Last week, governments around the world
continued their attempt to come to terms with the limitations now being set
on their irresponsible current spending and future commitments. Government
sponsored constituents desperately attempted to hold on to budget-busting
promises previously made starting with Greece and Spain, where both governments
proposed budget adjustments by reductions in future pay, pensions and/or work
rules. As expected, those constituents (unions, government employees) pushed back
in the form of strikes and walkouts. France got into the act as their air
traffic controllers went on strike preemptively to guarantee jobs and pay
through 2012. We are no better with our promises made as the FDIC, our
government agency responsible for guaranteeing deposits at banks, reported
that they are now $20 billion in the red. To refresh memories, the FDIC
charges banks premiums which are used to build a “rainy day fund”
to pay off depositors should their bank fail. Unfortunately, banks are
failing faster than premiums are coming in and the “fund” has
disappeared so what to do? Change? No. Let’s kick the can down the road
as the FDIC proposed covering this shortfall by having banks pre-pay premiums
for the next three years now and worry about shortfalls later. Real reform (lower
limits?) must come here, but until then, you and I as taxpayers are footing
the bill. The fallacy of government spending (tax credits) to
“stimulate” the housing market was exposed as only moving demand
forward when it was reported that existing home sales dropped 7% in January
after a 16% drop in December (November was the end of the first round of tax
credits). And finally, the big enchilada, health care, continued to suck up
mind-share and focus (remember jobs?) after it was pronounced dead in
Massachusetts a few weeks back. Trying to convince the electorate that
covering more people for less cost is a line of reason even P.T. Barnum would
not try (“There’s a sucker born every minute”) and has
probably contributed to the latest consumer confidence readings which dropped
significantly. What does all this mean? Simply, that worldwide, reality is
forcing governments and its citizens to start to think about the limits of
government and its boundless spending and open-ended promises. This is a
great long-term trend as it means, eventually, resources will be allocated by markets to
more productive areas as opposed to the sinkhole of government (and its
distortion of markets). In the short-term, there will be pushback (even the
buggy-whip manufactures attempted to survive the invention of the automobile)
here in the years to come just as is currently being viewed in Europe, but
ultimately, credit markets will discipline all governments by extending
credit to only those that show movement towards fiscally credible ends. Game
plan: I’ll continue to attempt to hit some singles by selling the
rallies and keeping stops updated as portfolios still need to be protected
from a potential down-draft. Every week that passes gives me more confidence
Mr. Market will be our long-term savior.
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