What happens when we run away from Irak?
May 22, 2008
– Comments (11)
I'm wondering why this issue receives so little attention, but the fact is, the US economy is now looking an athlet running with 20-pound dumbells attached to his legs. From the investing standpoint, the cowboy's Irak adventure was a godsend because this is one reason we still can buy stocks so cheaply. This is not PE=3, to be sure, but putting illusions aside, stock prices are as cheap as they are likely to get. All right, but everything good comes to an end, and this includes stock sales. 7 months from now Obama will walk into his Oval Ofiice, and the first thing he will do is tell the troops to take to their heels. So there'll be hundreds of billions of savings, the equilvalent of receiving Bush's stimulus package next year and the year after that, etc., except the money will be real, not printed. Of course the troops will not run away in one day, it will take some time and even some frictional costs, like printing several millions of leaflets to convince ourselves that we won, but the markets also don't need to wait till the last moment. For example, when Bush said the stimulus checks will arrive in May, the market rallied in February. So we have at least one catalyst that is all but certain to begin affecting the market in Dec-Jan. How strong this catalyst is going to be? Well, if Bush's one-time (and highly inflationary) rebate took us from 12000 to 13000, shouldn't we expect a more permanent and more real tax relief to do at least as much? All other things being equal, if the Dow holds the 13000 level in Dec, I'll expect the Christmas rally to take us to 14000 in the conservative scenario, and 15000 by the end of winter will not be out of the question.
P.S. If we go up today with this news release, then an athlet with dumbells is a bad example. A more fitting analogy is an air balloon with $165 bln worth of ballast in the gondola.
"The 75-22 vote also added billions of dollars in other domestic funds such as heating subsidies for the poor and money for fighting wildfires to funding for military operations overseas.
Shortly afterward, the Senate voted 70-26 to approve $165 billion to pay for military operations in Iraq and Afghanistan into next spring, when Bush's successor will set war policy. All told, the measure contains $212 billion over the coming two years, plus about $50 billion more through 2017 for veterans education benefits."
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