Dos Hombres: Two Guys, Two Takes, One George Hamilton-esque Tan:
After weeks of the noise from Washington DC driving me ever to going militia Nesto gives me something to feel good about: God is getting a good chuckle over the debt debate. As my tag-teammate puts it, "Nothing makes God laugh like a 10-year plan." Alas, those of us stuck in one of the World's most fallen countries are going to be forced to watch our economic futures reduced to campaign slogans for the next 23 days; even longer if the pols decide to default on U.S. debt for the first time since we shafted the French 225 years ago.
Yes, the Republicans and Democrats are getting hung up on whether or not the budget/deficit plan should encompass a decade or only through the 2012 elections. While the latter would force us all to listen to this palaver again in 18 months, the shorter plan would have the benefit of being loosely based on reality. In contrast, a 10-year plan would offer America the illusion of a problem being solved until 2021, which is just 5 years until Gen X'ers are forced to come to grips with the fact that we will never, ever, get Social Security benefits.
Economic plans which don't involve enormous benefits for special interest groups (read: crackpots and old people) never last 10 years. The simple reason is that such plans assume nothing ever changing. We don't know if there's going to be a European Union two months from now, let alone what our GDP is going to be in 10 years.
Happily Oppenheimer's Brian Belski has more secular solutions for stocks. Being a practical guy, Nesto is enthused about Belski's 3 point plan of: 1) Creating tax incentives for hiring 2) Repatriating overseas cash being stockpiled for corporate America and 3) Enticing U.S. companies to increase buybacks or dividends. According to Belski and my buddy, these three steps would be perfectly logical ways to raise America's tax revenues by giving citizens real life jobs.
Taking the stick (professional wrestling-speak for microphone), I corrected a Nesto Simpsons reference but suggested that he & Belski are on the right track with points 1 and 2... which is why I made them key elements of my plan for saving the world in the July 6th edition of the Purple Crayon. As for increasing buybacks and dividends, the problem is neither increases share price. Oh yeah, there's also a dividend tax that's wildly unlikely to be reduced, making dividend hikes an inefficient wealth distribution strategy.
With no real solution for America's economy unless and until we liberate Greece, I'm focused on and suggesting that investors focus on preserving cash after the early July market fireworks. It's axiomatic on the Street that stock traders discussing anything other than stocks is bearish. If you walked through the pits today you'd hear about The Amazing Jeter, the heat and debates over whether the Fed or the ECB is a bigger pack of idiots. None of those conversations are going to result in buy orders for stocks.
If you want to focus on the fundamentals brace yourself for earnings onslaught starting tonight with Alcoa (AA) and starting for real next week with better companies. Earnings are expected to be up somewhere in the lower double-digits over last year. But that doesn't matter. The only two things that should matter to stock market players are guidance and market reaction. Expect corporate outlooks to be generally negative. That only matters if stocks go down in response. If guidance is weak and stocks stay strong, it bodes for a good second-half for equities. If stocks continue to melt in the heat we're back in the 1,250 - 1,350 range.
On the upside, range bound is a great excuse to "Go French" by checking out for August. With stocks down and temperatures up that doesn't sound like such a bad idea.