The Economy of 2010

By: Brooks A. Mick

The election tonight gives some home that the headline rush into socialism may slow somewhat–or even be thwarted for now. So what IS the economic outlook for 2010?

Until tonight, I would have said that it was gloomy. Even though there are actually many positive factors which should portend a higher stock market, I had concluded that Obama’s implacable determination to take very possible measure to kill the economy and prevent job growth would win the day. Now I’m at least sitting on the fence. Perhaps there is some light at the end of the Marxist tunnel.

The positive factors are numerous and varied:

1) Slow economic growth tends to keep inflation down and gives the Federal Reserve time to formulate its policies and make decisions and act. The current situation is, on the other hand, the equivalent of sailing into uncharted waters, as the great market guru, Bob Brinker, has said. This is a unique situation in financial and economic and political history. We’ve had a near-logjam or freeze in the financial markets, a continued and unprecedented inflow of liquidity, and Bernanke’s reasonable theories of the past regarding “throwing money out of black helicopters” seems to have taken a random walk down Wall Street. Paul Volcker appears to be locked in the basement of the White House. The Neo-Keynesians appear to be running rampant despite the total lack of evidence that the theories are correct. The supply-side folks have been locked out of the discussions. No Milton Friedmans or Arthur Laffers allowed in Obamaville. Yet inflation does remain fairly low…

2) The Index of Coincident Economic Indicators rose 0.2% in November.

3) Industrial production rose in November.

4) Capacity utilization increased in November.

5) Retail sales rose in November.

And against this good news there is Obama’s implacable determination to attack banks, to tax whatever moves, to subsidize whatever stops moving, and to denigrate corporations, financial institutions, and anybody else who earns more than he thinks reasonable.

The American economy, despite all the trauma it sustained, is showing remarkable resilience, but can it survive and grow despite Obama’s best efforts? Doggone if I know, but I took a bit of a gamble and increased my exposure to equities a week ago. So far it’s paying off. But I’m shifting the bond portion more toward inflation protection in case the economy does heat up and the inflation dragon rears its head.

Heck, if you don’t bet, you can’t win. My bet is that the market will rise for at least several months. After that, be ready to take your profits and run. Obama’s on the loose still, and shows no sign of tempering his headlong flight to socialism just because the Democrats are losing elections.

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