Jeff Saut: Finding the Bright Spots in Today's Market
The headlines look bad, but areas such as the S&P 500 show promise.
Over the past few weeks I've issued a couple of verbal strategy comments that evidently resonated with a multitude of folks. Accordingly, said group asked me to put those comments in writing. So, by popular demand, here it goes as we begin with the following email:
Jeff, I hope all is well with you. I have a client, like many, who has concerns regarding the current administration's policies and their impact on investment portfolios. Below are some of the concerns they would like for me to address:
Susan and I feel very strongly that the direction our country is headed is not conducive to a strong economic climate. The EPA is planning on instituting policy that will adversely affect all businesses by declaring CO2 a poison gas. TARP money is now going to be spent on a jobs program that will not help to create jobs, Cap and Trade of some form, largest deficit ever, health insurance reform that will hurt small business, and I could go on. Businesses are only showing profits as the result of cost cutting. Factories are not in full production and are not planning to increase production any time in the near future. Unemployment has NOT gone down because the headline figures do not include people that are unemployed and no longer receiving unemployment compensation or all the folks that are working reduced hours and being temporarily furloughed. As a result of these issues, and others, we both feel that next year will not be a particularly good year for the stock market.
Jeff, would you mind providing me a few talking points on their concerns?
Speaking to the CO2 point, I, too, am concerned about Congress pandering to an uninformed public with views that just don't "pencil." Consequently, I again repeat my diatribe of July 20, 2009, where I quoted Questar's CEO Keith Rattie who stated:
The long-term goal with cap and trade is "80 by 50″ -- an 80% reduction in CO2 emissions by 2050.
Let's do the easy math on what "80 by 50″ means to you, using Utah as an example.
Utah's carbon footprint today is about 66 MM tons of CO2 per year. Utah's population today is 2.6 MM. You divide those two numbers, and the average Utahan today has a carbon footprint of about 25 tons of CO2 per year.
An 80% reduction in Utah's carbon footprint by 2050 implies a reduction from 66 MM tons today to about 13 MM tons per year by 2050. But Utah's population is growing at over 2% per year, so by 2050 there will be about 6 MM people living in this state. Thirteen MM tons divided by 6 MM people equal 2.2 tons per person per year.
Under "80 by 50″, by the time you folks reach my age you'll have to live your lives with an annual carbon allowance of no more than 2.2 tons of CO2 per year.
Question: When was the last time Utah's carbon footprint was as low as 2.2 tons per person per year?
Answer: probably not since Brigham Young and the Mormon pioneers first entered the Salt Lake Valley (1847).
You reach a similar conclusion when you do the math on "80 by 50″ for the entire US. "80 by 50″ would require a reduction in America's CO2 emissions from about 20 tons per person per year today to about 2 tons per person per year in 2050. When was the last time America's carbon footprint was as low as 2 tons per person per year? Probably not since the Pilgrims arrived.
As for some of your other points, I offer this: I can spin a scenario whereby the Federal Reserve can actually make trillions of dollars on its "toxic" holdings over time because the Fed is a long-term holder of assets. And, if we can keep the politicians from spending those profits on hastily conceived projects, the deficits disappear.
As for the e-mailer's point of "profits only being the result of cost-cutting," we have often spoken of this recession's anomaly whereby productivity soared due to "cost cutting." Since Corporate America had no other lever to "pull", is it any wonder it turned to cutting costs, which was the only vehicle left under its control.
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