The Rude Awakening of 2010

The heyday of the Bush-Obama bailout frenzy is coming to an end.

The bailout’s base of public support, tenuous from the outset, is collapsing.

Its chief architects — Treasury Secretary Geithner and Fed Chairman Bernanke — are politically dead or dying; its loyal opposition — Obama adviser Paul Volcker and FDIC Chairman Bair — is gaining rapidly in influence.

Suddenly and with growing momentum, America is shifting into a brand new phase of the crisis …

The Rude Awakening of 2010

You and I knew all along; we were not among those sleepwalking through the storm. Nor did we ever support those who stumbled from one ill-conceived government rescue to another.

We knew all along that TARP was a classic financial blunder and ultimate moral hazard: It rewarded guilty bankers, while shafting innocent taxpayers now stuck with the bill.

We knew all along that the Fed’s zero-interest-rate policy is a ticking time bomb: It subsidizes and stimulates high-stakes gambling on Wall Street, while it robs America’s prudent savers of nearly every penny they hoped to earn in interest.

We also knew all along that the original cause of the housing bubble was Greenspan’s money-printing machine — and that Bernanke’s new machine has been running at light speed by comparison.

Throughout this entire crisis, we could plainly see the emperor had no clothes.

What’s changing is that, now, many others — including some who engineered the bailouts in the first place — finally see it too.

That’s why …

• Public opinion regarding the president’s handling of the federal deficit has nosedived. Back in March, 52% of voters approved and 47% disapproved. Now, the numbers have reversed dramatically to the opposite side — only 36% in favor, 62% against.

• Voters say they want the deficit reduced even if it hurts the economy. In an NBC News/Wall Street Journal poll, they were asked if they’d prefer (a) to boost the economy even though it meant larger deficits, or (b) control the deficit even if it meant a tougher recovery. Only 31% chose boosting the economy; 62% chose controlling the deficit.

• Paul Volcker — previously shunned and ignored by most of the Obama team — has re-emerged from the shadows and regained the limelight. He’s looking over the president’s shoulders. He’s pressing the administration to get tough with Wall Street. And ultimately, he could push Obama to change course on key aspects of the bailouts. 

Right now, Paul Volcker is the only person on the team not associated with the bailouts and having the credentials to fight this battle.

Whether he will retain that standing — in the heat of battle or in the wake of a renewed banking crisis — remains to be seen.

But for now, his reappearance on the front lines is a metaphor for the sweeping mood change among voters and a possible policy shift at the White House.

He will help attack big commercial banks that have played Russian roulette with your hard-earned savings.

And he will push the drive against big investment banks that have transformed themselves into gambling casinos.

But, alas, there is still no one of stature standing up to the biggest public nemesis of all — the government itself.

There is no single organization strong enough to stop Washington from sacrificing our children’s future on the altar of a false prosperity. No one able to restore the prudence and balance that can sustain our greatness over time.

What I’m Doing Right Now

A half-century ago, my father, J. Irving Weiss, founded the Sound Dollar Committee to help President Eisenhower balance the federal budget.

Thanks to Dad’s efforts, an estimated 11 million postcards, letters, phone calls, and telegrams poured into Washington and state capitols, demanding an end to federal deficits.

It was an avalanche … and it helped Eisenhower deliver the only true balanced budget of our lifetime.

Today, I am Chairman of the Sound Dollar Committee, and I will soon be launching a national effort along similar lines — adapted, of course, for today’s times.

Stand by for more information and how you can help.

In the meantime, your best offense is a strong defense — for your own portfolio and financial well-being.

In the stock market, just the perception of this political sea change — that Washington is going to be stingier with stimulus and more realistic about rescues — has been enough to knock the Dow for a loop.

To the degree that Washington actually DOES back off from fiscal stimulus, stocks are bound to sink a lot more.

So my recommendations are unchanged:

Caution! That means, at most, SMALL positions in the stock market, focusing on sectors and special situations that are most likely to buck the broad market trend. Plus, it means plenty of cash equivalents — DESPITE the miserably low yields.

Overloaded with stocks? Then cut back substantially.

Don’t want to sell? Then hedge with inverse ETFs.

Good luck and God bless!

Martin

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