President Obama made smart move last week by cutting tax-deal with republicans. It was a good compromise on multiple fronts:
- While President had to compromise in agreeing to extend tax-cuts for wealthy Americans, he got good concessions on extending unemployment benefits by 13 months and payroll tax-cuts for everyone
- Removes uncertainty which was facing economy and markets
- Adds much needed nearly $900 Billion stimulus with this compromise. This would give a good boost to economy. Already many economists are raising 2011 growth forecasts by 1/2 point to 3.5%
- Markets have welcomed the move by continuing the Santa rally last week
- With Fed's $600 Billion QEII and Obama's tax-cut extension of $900 Billion, that's significant boost to economy nearing about 10% of total economy size
- Fears of deflation and double-dip are gone - this is clearly evident with wild rise in 10-year treasury yields from low of 2.33% in Oct to 3.33% last week. (good that I had invested on this move by buying some TMV)
Overall President has realized that he cannot stick to his ideology if he wants to win second term. This is first step in many pragmatic moves he would (should) do in next few months. This may anger democratic party members who are sticking with ideological ideas at expense of economy. Obama should follow what Clinton did after 1994 electoral losses - it's not only good for his own re-election but also good for America, economy and markets. Good call Mr. President !
So what are some of the investment ideas to bet on this change ? Check out FAS @ $25, SFI-PD @ $15.50, CECO @ $19.50 and MBI @ $10
Have a great week !
/Shyam
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