Session 2–Recent History

Recent History

BillBefore we get into the financial media portion of our work , I think it is important to talk about the political thrust of this blog.  There should not be one.  But because the “Party of Stupid”, as Louisiana Governor, Bobby Jindal, has called it has been so active in fear mongering, I have to talk about their impact and the impact of their media outlets on the investment mindset.  If you read this and are offended by my critique, remember what we are trying to do is clear the clutter and nonsense so you can invest with some sense of comfort in the history and perspective that is provided.

First and foremost are the facts.  Since the early days of the Obama administration the S & P 500 has rallied from a low of about 670 on March 9, 2009 to just over 1500.  My sense is that this was due in part to the following:

  • Massive injections of liquidity (still continuing to this day) by the Fed late 2008 after it began to realize the staggering problems we had created during the housing bubble.  This included a wide-open discount window.
  • The passage of TARP (Troubled Asset Relief Program) which was signed into law by President George W. Bush October 3, 2008.  This effectively backstopped and stabilized our banking system. $700 billion was authorized,  $418 billion was distributed and almost all has been paid in the form of principal, dividends and interest.  There are still principal balances outstanding on the program, but the cost to save our economy even if these are never repaid was minimal.
  • “The Stimulus”, The American Recovery and Reinvestment Act of 2009 was signed into law by President Barack Obama February 17, 2009. The cost of the package was estimated to be a bit over $800 billion between 2008 and 2019.   At the time of passage there were significant disagreements about the size of the package and what it was spent for, actual infrastructure vs. extended unemployment benefits and pork.  Nevertheless it passed and may have had some positive benefit (extended unemployment benefits that did pump additional money into the economy).
  • The Auto Bailout.  In the darkest days of late 2008 the Bush administration gave Chrysler and GM a temporary bailout and left their futures to the incoming Obama administration.  Although these loans were extremely controversial at the time (they still are to many).  It was absolutely the right thing to do at the time.  From my personal perspective we had just passed TARP and the market was extremely jittery.  All we needed was another big jolt (another million or so unemployed) to put it back in a tailspin.  The Obama Administration took the next step selling Chrysler to Fiat and loaning Fiat $7 billion to do the deal (all paid back).  The Administration then took over GM and reorganized it.  This was widely criticized at the time, but the right move because financing was not available in the private sector to do a bankruptcy reorganization of this size.  The rest is history.

Now you may not agree with any of my analysis here, but I feel pretty certain that if no TARP, no Stimulus and no Auto Bailout (Oh yes, let us not forget the Fed and Ben Bernanke), we would have massively higher unemployment, a much longer work-out of our economic malaise and much lower values in our IRAs and 401k plans.  I have plenty of bones to pick with the Obama Administration, but their overall -handling of the financial crisis is not one of them.

I know the free market guys would say we needed to let this thing go, clean out the speculation and bad behavior.  They did that in 1930 as a precursor to the Great Depression.   We had 25% unemployment that was only eased by massive federal spending and really did not completely end until the huge deficit spending that the country did during World War II.

Getting back to the point of this blog, if you had riveted your attention on the absolutely constant stream of criticism and negativity streaming from the Right or their media minions, you might have been inclined to be away from all things stock market (save Sturm Ruger or Smith and Wesson).   It would have been a big mistake given the 124% move up in the S & P since the lows.  From the very beginning according to many, the Obama administration could do no right. Despite this grand ineptitude, we made it through the first 4 years and are likely to make it through the next term just as well.

Fear not the “nattering nabobs of negativism” for they will continue to natter and it will continue to be noise.

The information presented in represents my own opinions and does not contain recommendations for any particular investment or securities.  I may,  from time to time, mention certain securities for illustrative purpose, names where I personally hold positions.  These are not meant to be construed as recommendations to BUY or SELL.  All investments and strategies should be undertaken only after careful consideration of suitability based on the risks, tolerance for risk and personal financial situation.


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