A Sales Call to the U.S. Government
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Technology can fix anything: even the Federal government's deficit. At least, that's what the Technology CEO Council told White House officials yesterday. The council, headed by IBM (NYSE:IBM) CEO Sam Palmisano said investments in efficiency technology could save the U.S. government $1 trillion over the next 10 years.

 

Of course, the meeting was basically just a sales call. And seeing how much loot the government's been doling out, I wonder what took them so long.

 

But seriously, the Technology CEO Council makes a good point. The only way to improve the American economy is by investing in it. Sure, infrastructure projects are a good way to put some people back to work. But this type of spending isn't going to create years of growth.

 

We need investment in education. We need investment in renewable energy. We need investment in biotech. I'm sure we come up with more, but the point is, simply not spending money is not going to help the U.S. grow. In fact, that's probably a great way to ensure that we never recover.

 

Yesterday, Goldman Sachs said that its outlook for the U.S. economy could be summed up thusly: "fairly bad" or "really bad."

 

Fairly bad is GDP growth in the 1%-1.5% range. Really bad is slipping back into recession.

 

Clearly, Goldman has a much more bearish outlook than the International Monetary Fund (IMF), which is looking for GDP growth of 2.3% next year.

 

I know it's easy to look at the current problems, most notably 10% unemployment, and assume that these conditions will continue far into the future. But that perspective fails to take into account that unemployment is a lagging indicator.

 

Goldman Sachs is a savvy enough company to know that. So what's the recession fear mongering about? More quantitative easing, that's what.

 

Low interest rates and asset backed security buybacks are a goldmine for Goldman and other investment banks. I think Goldman Sachs is just talking its book with this forecast.

 

I'm pretty sure that Treasury Secretary Geithner wasn't talking about the U.S. when he said "More and more countries face stronger pressure to lean against the market forces pushing up the value of their currencies...The collective impact of this behavior risks either causing inflation and asset bubbles in emerging economies, or else depressing consumption growth and intensifying short-term distortions in favor of exports."

 

But his remarks in a speech at the Brookings Institute, most likely aimed at China, certainly apply to the U.S. as well. Fed Chief Ben Bernanke has done his level best to keep the dollar weak. And Congress has taken up the cause to pressure China on the yuan.

 

Let's not forget that our very own housing bubble got its start when the dollar was weakened by Alan Greenspan's monetary policy. And it's likely that interest rates will have to rise at some point to fight inflation. I can only imagine how high gold prices will be at that point.

 

My colleague at Wyatt Investment Research, Jason Cimpl, the trading strategist for TradeMaster Daily Stock Alerts, had this to say in his morning missive to subscribers:

 

"As mentioned numerous times in the past, the market is not overbought. It has rallied hard over the past month and the move higher offered very few dips to buy, but most indices are not overbought. Also, the indices have not recorded any reversal candles to indicate a turn approaches.

 

Until one of those changes we should not get bearish."

 

At the same time, Jason advised his readers to raise their stop losses on open positions to lock in the gains they've achieved over the last few weeks.

 

That's great advice and the perfect way to play this rally.

 

Finally, Alcoa (NYSE:AA) kicks off 3Q earnings season after the bell today.

 

Of course, I'd like to hear your thoughts here: ianwyatt@wyattresearch.com





Posted 10-07-2010 5:47 PM by Ian Wyatt