Getting Through the Politics

In my preview for the week, I emphasized the political hurdles.  With three days gone, most of these are behind us.

Last week many pundits confused rhetoric with reality and over-reacted to President Obama's criticism of banks.  Everyone likes to grouse about government spending and the use of "their" tax dollars.  Banks were in the bulls eye because many see them as part of the original problem.  Bankers are a natural political target, especially during bonus season, and the rhetoric should not be taken too seriously.

The week started with plenty of worry about politics.  Jim Cramer represents much of the punditry. He highlighted President Obama for attacks on profits in both articles and his television show.  He is hardly alone.  Many observers expected problems from one of the following sources:

• The Bernanke nomination would fail.  Wrong!  It may be a modest margin of victory, but confirmation will occur tomorrow or Friday.
• Sec. Geithner would stumble during the AIG hearings.  Wrong!  The debate over AIG is turning into a calculation of different levels of return.  Nothing suggests specific wrongdoing by Geithner (or anyone else).
• The Fed would take a policy mis-step.  Wrong!  The Fed is continuing the course, recognizing slightly improved economic growth, and emphasizing a continuing commitment to low interest rates.
• The President would be too partisan in the State of the Union Address.  Wrong!  This was a measured speech, intended to reach a wide audience.  There was appropriate emphasis on jobs, the economy, and concern for budget deficits.  There were many moderate statements, some specifically aimed at the GOP.  Commentators known for neutrality and analysis universally saw the speech in that way.  S&P futures moved slightly higher during the presentation.  I am sure that some will try to spin specific segments of the speech to prove a point, but they are off base.  This was a solid speech, suitable for the times.  It is not one that will go down in history.  I would call it workmanlike for Obama, who is pretty good at his craft.

Regular readers know that I look at politics only as it affects our investments.  The undue focus on politics in the wake of the Brown victory in Massachusetts has suggested a false lesson — that there is a wave of populism that will somehow undermine the stock market.

With most of this week's key political questions successfully behind us, the market can now react to earnings results and the economy, where the news has been mixed.

In particular, investors  can profit by finding stocks and sectors where there is an undue fear of government action.