10/11/2005: I am not an investor....
since my employer doesn't pay me enough to invest. But if you are you might want to avail yourself of this advice from James J. Cramer: The Gold Parachute Or, how to stop worrying and save yourself from the presidentís profligate spending and stubborn insistence on no new taxes.
Itís dawning on wall street that George W. Bush may be the first president since Lyndon B. Johnson who believes that we can have a guns-and-butter federal spending policy without creating a serious inflation spiral, if not outright government bankruptcy. At least LBJ, to his credit, believed that there were limits to profligacy and that taxes had to be raised. Not President Bush. Heís making Johnson look like a fiscal conservative, what with his insistence on waging a war in Iraq thatís costing $177 million a day and rebuilding New Orleans by taking on a monstrous load of federal debt.
For the longest time, because Bush is a Republican, we on Wall Street simply didnít believe that he could be a reckless spender. We knew only two paradigms: You either spent less and cut taxes or you spent more and raised taxes. Both courses at least presumed some sacrifice at some time. Not Bushís plan. Heís gone on both the biggest spending binge and the lowest taxation course in U.S. history, which, alas, will produce gigantic liabilities down the road. Of course, heíll be back on the ranch by the time his successor will have to deal with his inflation and currency debasement. Our only hope that financial disaster wonít strike sooner lies with the Chinese, who actually fund our deficit by buying our Treasuriesó$242 billion worth, or 12 percent of all foreign holdings. If the Chinese decide to be good communists and stop buying our bonds, the Feds will have to raise rates to attract new investors and the reaper will be at our doorstep with interest rates more akin to those of South than North America. Right now, itís not a problem. But in a year or two or maybe less, I perceive that the government will throw a bond auction and nobody will show, including the Chinese, until rates shoot up dramatically.
What if that happens? What if our fiscally clueless president really does keep spending at a rate that far exceeds what our government can take in at these low tax rates? What happens if the presidentís acolytes and the Pollyannas in Treasury keep believing that we can grow our way, fairy-tale-like, out of this jam? You can bet that when you cash out your nest egg of nice U.S.-based mutual funds and solid common stocks, your dollars will fit nicely into a wheelbarrow designed specifically to cart worthless currency to the bank.
Len on 10.11.05 @ 01:16 PM CST