Build Your Own Stimulus Plan

In recent weeks we have tried to focus attention on the key issues for US equities.  In particular, the most important thing for an investor to do is to separate political opinions and philosophy from investment decisions.

We continue to expect a stimulus plan to pass in the Senate.  A conference committee will resolve the House and Senate differences, and it will then be passed by both houses and signed by President Obama.  It will happen partly because it is popular.  Most people think it is necessary, and will have broader benefits than TARP.  It will also pass because the leadership can add and subtract provisions until they have a winning coalition of legislators.  This is easy to do with bills of this sort.

Everyone realizes that this is the best chance to get funding for a favored program.  The political debate criticizes some programs as not containing real stimulus.  Readers might enjoy the chance to craft their own stimulus program.  See how well you can stimulate jobs and keep costs down.

The next step will be the plan for banks (and housing).  If the economic plan has a sound method for dealing with “toxic assets” it will be greeted warmly by stock traders.  The single most bullish event right now would be the suspension of mark-to-market accounting.  We can then look for a better way of implementing this idea, and doing so at a more leisurely pass.

Meanwhile, it is time to stop de-leveraging at WARP speed.

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