In the waning days of his presidency the stock market would plunge every time George Bush appeared on television. It's not his waning days, but last week the stock market moved into full retreat mode at the very sound of President Obama's voice. On Friday, as the President hammered away at insurance companies and Wall Street, the stock market went reeling. What I still don't get is this notion that Wall Street has to pay for his mistakes.
The TARP program was bait and switch out of the gate, and once the new Administration got its hands on it they switched gears, too. But it was the President that gave taxpayer money to failed auto companies. It was the President that pumped endless amounts of money into AIG. It was the President that bypassed Congress to give Fannie Mae (FNM) and Freddie Mac (FRE) unlimited access to taxpayer money. Why he is so angry at Wall Street firms that paid back taxpayers' money (with interest), employ Americans, and compete on the global stage, it just seems odd. I think that it's all about a dislike of people making too much money. But it goes further to the notion that private industry is part of the public domain. That private business owes the public and the government more than employment and taxes.
The Administration's seething animosity toward businesses reared its head last week like a child being told to pack up as the family is ready to leave the beach. Not wanting to leave, the two year old child rushes over to the sandcastle it took hours to build with his dad. He kicks it, smashes it, and then screams about fairness. Of course, ten minutes into the ride home the child is asleep and wakes up with a clean slate, the demolished sandcastle a forgotten moment in time. After learning that his healthcare bill built with lobbyists, unions, and other special interest groups was finished, the President ran out and ripped Wall Street. He was smashing the industry for making money and screaming about fairness.
He didn't calm down on the road, either, as he hit the ground in Ohio in full attack mode. Capitalism built this nation, but the resistance to add socialism into the mix is being met with blind fury.
The crowd was lackluster and didn't have that magic that was so infectious and intoxicating during the summer and fall of 2008. One of the reasons for that missing oomph is the rate of unemployment, about double what it was back then. Promoting another jobs bill and ranting about Wall Street in the same breathe misses the real point that wasn't lost on the stock market. Our economy cannot function without capital and confidence. Our economy cannot function without consumer credit companies. Our economy can't function if the reward for success is the government descending upon your business and your earnings. I think that we would have survived a few more big bank failures, albeit after a period of serious pain. But, our economy can't function if the attitude toward shareholders and bondholders is let them eat cake. Yet, this is the position of the President, and it was echoed by one of his top lieutenants last week.
This brings me to the concept that the attack on Wall Street is a political maneuver to take advantage of populism. Is this something that people think about when they wake up in the morning or are they wondering how safe is their job if they are lucky enough to have a job? The grassroots movement sweeping the nation is in opposition to big government and excessive spending. The bank issue was tossed at Scott Brown and it didn't work. So, the real deal is the President will try to hijack the grassroots movement by making hatred of banks its centerpiece. When Austan Goolsbee said the reason for the aggressive attack on Wall Street was because there is a fundamental need for public trust in financial institutions or the "capital markets will fail" I immediately thought then why are guys fanning the flames of anger? This gambit didn't work in 2009, and it is doomed to fail on 2010.
When David Axelrod talks about the healthcare bill and says that people will "never know what's in the bill until we pass it" he doesn't get it. People want to know what's in the bill before it's passed, and they want their input and fears addressed not shaped or manipulated. Politicians in general have settled into a game of positioning themselves as the lesser of evils, hence the constant focus on how bad the last guy did the job. All of this stuff doesn't help the stock market. Sure, there is the idea that gridlock is good, but right now there has to be some positive measures to help Main Street. I hope that instead of trying to manipulate the message from Massachusetts, which coincided with the message from election results in New Jersey and Virginia last year, the White House will listen. Although, I fear that it will take a landslide by the GOP in November to get President Obama and his team to understand they serve the public interests not their own.
By the way, when Valerie Jarrett responded to the question of what the President has achieved in his first year she began with "dramatic difference" on how America is seen around the world. Oh my god, what the heck does that mean to the 27 million Americans underemployed?
Why is the top priority making the rest of the world like America and how does it change our economic fortunes? We are on the cusp of a trade war with China not over the Yuan being unfairly undervalued, or the killings of ethnic minorities or the multibillion dollar piracy of American intellectual (and non-intellectual) properties. But, instead America is ready to get tough with China because Google (NASDAQ:GOOG) doesn't like their Internet policies. Wow, I know that there is a love affair between Google and the President but let's get real. By the way, I will stand up and applaud the day when President Obama attacks China in the way he has attacked American industries that provide millions of jobs.
The Stock Market
The Good News
I like that stocks were pulling back on mostly solid earnings reports. Not only did the names that reported look more and more attractive but, so, too, did competitors whose shares were down in sympathy ahead of their own earnings releases. So we were poised for a bounce at the end of earnings season, albeit if the results were above consensus.
The market was due for a pullback and I for one have always favored sharp and short-term corrections versus the slow water-torture pullbacks that saps the will of investors.
There is a slate of economic data this week that could provide positive surprises. Even 4Q09 GDP could spark hope even as it's debated whether an inventory replenishment phase can trigger demand.
The Bad News
Earnings were not inspiring in the sense that they went beyond justifying recent run ups in share prices.
Economic data is inconsistent, and the last initial jobless claim report was spooky and not the kind of numbers that bode well a couple weeks ahead of the next jobs report.
Technically, there is much room on the downside as the 50-day moving average was violated with ease on Thursday and Friday.
The war on capitalism is the most worrisome part of the market right now. The White House wants to replace free market principles with a nanny state that dictates winners and losers in the business world.
The Bernanke Bounce
Talk about strange bedfellows, the President can breathe a sigh relief after key Republicans came to his rescue over the weekend saying Ben Bernanke will be reconfirmed. The news is great for those that like ultra-low interest rates in perpetuity. Sadly, the main reason people, such as Senator John McCain, are leaning toward a "yes" vote is because there is nobody else in the batters box. The stock market is selfish and doesn't care about long-term risk of inflation or double-dips in the economy. It just wants to rock and roll now.
Interestingly, we are voting again on something to avoid short-term pain; it's a serious problem that it keeps coming ahead of our stated principles. This is why we have TARP, because everyone says the nation would have been in worse shape if big banks failed. However, (A) I still don't know to what degree or for how long we would have been in worse shape; consider, however, if all those billions of dollars would have been redirected to Main Street in creative ways, and (B) the idea we have to mitigate pain at any cost will eventually be very costly as we kick the can down the road.
Bernanke has learned on the job, but he was oblivious as part of the team that failed to see this disaster coming and he flatly rejects any culpability. That is reason enough to take short-term pain and kick this guy to the curb.