On Friday, the stock market dropped in the United States. The Dow-Jones Industrial Average fell by almost 140 points and the S&P 500 stock index declined by more than 13 points.
The mood of the market was captured in two articles. In the first, Investors Peer Over 'Fiscal Cliff, the authors examine the uncertainty surrounding upcoming governmental budget discussions.
"Unless laws are changed, tax cuts from the Bush era and from the post-credit crisis stimulus plan will expire at the end of December, at the same time as automatic federal budget cuts kick in, affecting swaths of government.
Clarity, though, could still be months away, making this a potentially treacherous period for investors."
The second, titled in the print edition, Fears Over the 'Fiscal Cliff' Trump Better US Jobs Data, includes a discussion of the current impact of the US presidential election.
"The uncertainty surrounding the presidential election as well as the looming 'fiscal cliff' has left investors feeling uneasy."
Investors lack a vision of the future and, given this lack of vision, uncertainty dominates the market… and the market does not like uncertainty.
I believe that more than anything else, the financial markets in 2012 have been dominated by the failure of America officials to provide any kind of leadership in the direction of US economic policy. As a consequence, people go one way for a while and then they go another way. Volatility tends to reign.
Business decisions with respect to hiring and capital investment are put on hold.
The economy is expanding. The rate of real economic growth is running right around two percent, year-over-year. The economy is adding jobs, but not at a rate that bring about full employment for many, many years. The utilization of manufacturing capacity is below 80 percent and seems to be stagnating. The US dollar continues to fall against major currencies and is barely holding its own against an economically threatened euro.
But, this is not a pretty picture. And, no one seems to be articulating a vision of what we should be doing and where we should be going.
Unfortunately, the absence of this needed leadership has been around for a long time.
And, it is not just limited to the United States.
International investors have "run away" from risk and have driven the yield on 10-year German bonds and 10-year American Treasury securities down into the lows 1.40s. Amazing!
The only "game" that still seems to be around is the one being conducted by the central banks. In the United States we have, of course, the Federal Reserve System engaged in its third round of quantitative easing. (In Europe, we see Mario Draghi, President of the European Central Bank, promising to do "whatever it takes to save the euro.")
Yet, what is the growing talk surrounding the future of Fed policy? It concerns how long is Fed Chairman Ben Bernanke going to be around?
We hear that if Mitt Romney gets elected that he will replace Mr. Bernanke as soon as he can. If Mr. Obama is re-elected, we hear that a worn-out Ben Bernanke will retire as soon as it can be arranged.
The result of this potential change in leadership? Federal Reserve "easing" will not be continued as it has been in the recent past.
Unfortunately, I fear, this uncertainty is not going to dissolve quickly. It will be around for some time into the future until someone comes along and really takes on a leadership role and provides us with a vision of what he is going to do and then generates in us sufficient confidence so that we will "buy on" to the program.
Until this happens, my forecast is for continued tepid economic results with accompanying financial volatility connected with the ups and downs of the uncertain thrust of governmental policy, both on the fiscal side and the monetary side.