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Sunday, March 08, 2009

Dow 3,000

Obama’s recent comments on the stock market sounded sensible to me. He said that price to earnings ratios were getting down to the point where it might make sense for investors with a long time horizon to get back into the market. Price to earnings is the price of the stock compared to the earnings of the company. To me, relying on the real earnings of the company seems a lot more ethical than cannibalizing the dreams of others, which is what you’re really doing if you manage to sell high at the peak of a bubble. I’ve heard that PE ratios usually need to fall to single digits before a turnaround, and that would put the Dow at around 3,000.

I currently have 100% of my thrift savings plan in government securities, but if the Dow drops to 3,000, then maybe I would buy some stocks. Please note I am not a financial advisor! I’m just saying that the declining stock market might not be a bad thing. Ellen Brown writes that we can have a robust economy and employment without inflation, income taxes, or the need for a gold standard if we print the right amount of money, invest it in the people, and reduce the role of the private bankers.

Who knows? Maybe Obama has read “The Web of Debt” and is already working with Brown behind the scenes to get our economy straightened out. NPR’s “This American Life” noted administration statements that there are no plans to nationalize the banks, but went on to say that if they were going to nationalize the banks, they would do exactly what they are doing now. They would deny it, work behind the scenes, and then take them over suddenly perhaps late on a Friday evening. Republicans are also talking about nationalization, but whatever they have in mind, I don’t trust it. I do trust Brown and her assertion that if banks are insolvent, they need to go into receivership. Let’s hope that everything works out ok.


At Wed Mar 11, 07:21:00 PM CDT, Blogger Tom Cleland said...

So Geithner meets behind closed doors with Democratic members of Congress, and then the Dow rallies. Maybe it was the Citigroup statement of profits, or maybe it was some sort of assurance from the new Treasury Secretary. Or maybe this is the final pump-and-dump before nationalization of the banks…


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