Portfolio manager Cale Smith on investing, Spoke Funds®, and Islamorada in the Florida Keys.

Q. Which way is the market headed?

A. My answer to this question is going to look similar to the answer I gave a few weeks ago regarding whether or not the recession is over. More specifically – in the short-term, I have no idea. That said, neither do the “experts” you see on television or read online. The common wisdom on Wall Street is often just plain wrong.

Former mutual fund manager Peter Lynch used to say, “If you spend thirteen minutes a year trying to predict the economy, you’ve wasted ten minutes.” For what it’s worth, here are three minutes of my thoughts.

I do not believe the stock market is set for an imminent collapse. In the short-term, there are still several positives that appear to be favorable, including lowered earnings expectations that should be easy for companies to exceed, a continuation of the government’s massive federal stimulus program, and the need for many investors to find higher-yielding investments due to extremely low rates available on cash.

That said, talk of another long-term bull market like the one we saw from 1982 to 1999 is premature. In contrast to economic conditions then, and as discussed in an earlier column, both inflation and interest rates are bound to increase eventually, though that could still be some months away. Anyone looking at the projected federal deficit over the next ten years would justifiably think a tax hike is inevitable at some point – whether as a value added tax or an increase in federal tax rates. Increased regulation of the markets and the aging of the baby boomers are other factors that would seem to differentiate the stock market today from history’s most recent bull market.

So what’s all that mean for investors? For value investors, it doesn’t mean much. The process for selecting stocks should be consistent, regardless of economic and market predictions. As Warren Buffett once said, “Short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children.”

As described in this op-ed in the WSJ:

Thanks to the federal tax credit to buy high-mileage cars that was part of President Obama’s stimulus plan, Uncle Sam is now paying Americans to buy that great necessity of modern life, the golf cart.

The federal credit provides from $4,200 to $5,500 for the purchase of an electric vehicle, and when it is combined with similar incentive plans in many states the tax credits can pay for nearly the entire cost of a golf cart. Even in states that don’t have their own tax rebate plans, the federal credit is generous enough to pay for half or even two-thirds of the average sticker price of a cart, which is typically in the range of $8,000 to $10,000. “The purchase of some models could be absolutely free,” Roger Gaddis of Ada Electric Cars in Oklahoma said earlier this year. “Is that about the coolest thing you’ve ever heard?”

The golf-cart boom has followed an IRS ruling that golf carts qualify for the electric-car credit as long as they are also road worthy. These qualifying golf carts are essentially the same as normal golf carts save for adding some safety features, such as side and rearview mirrors and three-point seat belts. They typically can go 15 to 25 miles per hour.

In South Carolina, sales of these carts have been soaring as dealerships alert customers to Uncle Sam’s giveaway. “The Golf Cart Man” in the Villages of Lady Lake, Florida is running a banner online ad that declares: “GET A FREE GOLF CART. Or make $2,000 doing absolutely nothing!”

Golf Cart Man is referring to his offer in which you can buy the cart for $8,000, get a $5,300 tax credit off your 2009 income tax, lease it back for $100 a month for 27 months, at which point Golf Cart Man will buy back the cart for $2,000. “This means you own a free Golf Cart or made $2,000 cash doing absolutely nothing!!!” You can’t blame a guy for exploiting loopholes that Congress offers.

The IRS has also ruled that there’s no limit to how many electric cars an individual can buy, so some enterprising profiteers are stocking up on multiple carts while the federal credit lasts, in order to resell them at a profit later. We should note that some states, such as Oklahoma, have caught on to the giveaway and are debating whether to cancel or limit their state credits. But in Congress they’re still on the driving range.

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