Jesus is Coming. Look Busy!

commentary from this week’s “Sectors and Styles Strategy Report”*:

The Democrats in Congress appear poised to exercise the political version of the second coming with a second coming of their own – a stimulus package targeted toward consumers for the last half of this year: the election half.

The number bandied about is $50 billion. Just enough to look busy, yet not quite enough to enhance the presidential chances of Senator McCain. After all, the Democratic equation is McCain = Bush third term. Certainly the Democrats can’t disrupt that math.

There are two aspects to this issue:

First, a clearly defined pattern has emerged, as stopgap measures seem to be rage in government. Be it the financial wildfire strategies of Paulson and Bernanke or the rebate checks or offshore drilling or ad hoc regulatory actions, seriously thought out solutions to long-term problems are clearly not a part of this most political of years.

Second, $50 billion, while hardly enough to be truly meaningful, will likely be just enough to help the US economy avoid a full blown recession this year. In the process, the full year operating earnings for corporations will likely be a touch higher than the top down projections of $82.

Investment Strategy Implications

If the operating earnings number for the S&P 500 for 2008 were moved up a touch from $82, and given the fact that the market is presently so sufficiently undervalued (assuming one does not buy into the stagflation lite scenario) then stocks should continue their summer rebound with or without Financials leading the parade.

In regards to Financials, it does seem that any economic performance that produces bad but not terrible results will be most welcome. Some semblance of stability may not produce much in way of stock gains for the group (contrary to what many bottom fishing investors might hope for), but it would go a long way toward to providing an overall sense of relief that the end of world is not just around the corner.

As for solutions to long-term problems, that clearly is not on the agenda for this year. Once it does become the focus of public policy, I would suspect issues like infrastructure building will take precedence over consumer demand stimulus packages. And in doing so, a secular uptrend in that area will produce very attractive investment opportunities for years to come.

While busy work is not truly productive work, a few sorely needed bucks (for consumers and investors) will not be rejected.

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