Obama’s latest address to Congress should be analyzed in the context of several trillion dollars in stimulus outlays that Washington has burned through since 2008. After 2009’s massive “porculus” bill, cash-for-clunkers, first-time homeowner tax credits, home loan modification programs, etc., not to mention the Wall Street bailout known as TARP, what is another $450 billion? Not much at all, just a drop in the ocean at this point.
Like the “porculus” bill, Obama’s plan, if enacted, might create a few thousand generously paid road-crew jobs that last all of six months. It might also help delay some state government layoffs by another year. What then? Well, nothing. It will be back to square one.
On top of that, Obama has a major stimulus scandal brewing on his hands, which, although largely ignored by the mainstream media, is sure to gain traction with Republicans in Congress. The U.S. government used its stimulus chest to give $560 million in unsecured, subordinated loans to a green-tech firm named Solyndra. Turns out Solyndra was not a going concern; the company simply burned through Uncle Sam’s cash and then declared bankruptcy. Interestingly enough, Solyndra is owned by a shell company that is 39% owned by another shell company that is owned by the "family foundation" of George Kaiser, a major contributor — technically a “bundler” of other peoples’ contributions — to Obama’s 2008 campaign and a frequent guest of the White House. Perhaps not surprisingly, Solyndra’s debt was structured so that Kaiser would get paid ahead of Uncle Sam in the event of bankruptcy.
If you thought this could not get any worse, consider that Obama’s deputy budget chief bizarrely skipped out on a June Congressional hearing on the matter. And just a few days ago, Solyndra was raided by the FBI. Surely, this brewing scandal will get a lot more airtime in Congress once Republicans start looking at the fine print of Obama’s plan. And that's a good thing. Whether or not you believe in fiscal stimulus in principle, the fact is that the funds provided by Congress in 2009 were appropriated in a haphazard, poorly-thought-out, seat-of-the-pants and, in some cases, corrupt manner. In short, they were thrown to the wind. If this is the only way that our government knows how to dole out the cheese, then it’s better not to milk the cow in the first place.
From an investor’s point of view, the most important thing to note is the understated, nonplussed, even cynical fashion in which the financial world has evaluated the substance of Obama’s plan and its prospects. Unlike in 2009, no one thinks that the next stimulus bill will somehow jumpstart the economy. The political debates are seen as pre-election theater and nothing more. There is no sense that this has anything to do with the real world at this point. The mood change from 2009 is striking.
The financial world is no longer expecting anything real from either Congress or Obama. The attention now is squarely on trading the Fed, the BOJ, SNB or wherever one's geographic focus may be. This is a historic development. For perhaps the first time ever, our elected government is no longer taken seriously by people who matter. In fact, it is largely irrelevant. This state of affairs may be endemic to places like Italy or Greece, but not to the US. As I’ve said before, we are really coming unglued.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.