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The US stock market is off to one of its worst starts in history, credit is shrinking, and home prices are declining at rates never seen before. The current credit and housing crises have been on the front pages of even non-business newspapers since last summer. It’s a mess out there. At the same time, our nation’s leaders in Washington are still assuring Americans that they are monitoring the situation closely and will be ready to act in order to avoid any negative consequences of the current credit crisis. What are they waiting for?

Several months into this episode, the lack of decisive action is unnerving and apparent to even the most casual investor. This is a real crisis of confidence. No matter what your opinion of the proper steps, if any, that are needed, there is no denying the fact that financial markets hate uncertainty. Unfortunately, that’s exactly what they are getting.

US markets have historically been regarded as a safe haven. Investors all over the world have placed a premium on US assets knowing that when faced with crisis they can expect clear and decisive action. Following the 1987 crash, The Brady Commission was formed to root out its cause and prevent it from happening again, but this was only after the Fed took decisive action. Before the markets opened the day after the crash, the Fed had already taken numerous steps to provide liquidity and maintain confidence in the financial system. As a result, the Dow never looked back. In the fall of 1998, when faced with the failure of Long-Term Capital and its threat to the financial system, the Fed summoned the heads of all the major banks and brokers to New York to help engineer a fix. By the end of the year, the market was once again at all time highs.

In the current crisis, it seems as though the Fed and Washington's politicians have consistently underestimated its intensity, only to later be forced into action. Each time this happens, investor confidence takes a hit. While things appear to have gotten bad out there, it's not too late.

This week, the CEOs of Intel, IBM, and GE all said they don’t think the economy is in a recession yet. Economic indicators, while weak, are still not convincingly in recession mode either. In our monthly look at economic indicators for Bespoke Premium subscribers, we examine the trends of various indicators grouped according to Manufacturing, Employment, Housing, Inflation, and the Consumer, and provide charts of each indicator. Below we highlight the portion of the report dealing with the manufacturing sector (click here for charts) (pdf file).

The table summarizes the y/y change (unless otherwise noted) in each indicator. We also highlight each release to show if the report improved (green) or weakened (red) over the last month. As shown, in manufacturing, the indicators remain evenly split between growth and decline. So it's not too late, but unless decisive steps are taken to restore the public's confidence in the markets, the lack of confidence will work its way further into the overall economy. As they have done for the past 25 years, investors all over the world are looking to America for leadership now that times are rough, and unfortunately today, we’re not getting it...yet.

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Talking the talk and not walking the walk is about the worst thing that the Fed, the President, or Congress can do. When you say that rates are going to be lower in the future or say you're going to provide an economic stimulus package, it causes economic activity to freeze until these things actually happen. Why would anyone borrow money if they know rates are going to be lower in the future. If you're going to cut rates, do it. If you're not, let the market know that you're not. This can all be summarized in the great Royal Bank of Scotland commercial below:

Source: It's Ugly Out There. What's Washington Waiting For?