God Bless America.
"It will provide a jolt to an economy that has stalled, and give companies confidence that if they invest and hire, there will be customers for their products and services. You should pass this jobs plan right away."
It wasn't a great speech, and didn't hit us with anything new, although I kept thinking maybe there would be a Steve Jobs moment..."and one more thing, I've paid attention to what's happening and I'm going to ask Congress to cut taxes on individuals and corporations." That didn't happen. What didn't happen was that "jolt" or sense that this plan was an answer that would trigger real sustained economic growth. The caveat that the plan isn't a silver bullet was an understatement. It was a hodgepodge of stuff that was more political than economic, despite protest to the contrary. In several ways, it exposed that deaf ear to reality with offers that made no sense.
Really...we are going to ask small businesses to hire more or raise wages for tax cuts, really?
President Obama urged swift passage of the bill, but we get the details on how to pay for it a week from next Monday. Then there's the notion that somehow the Super Committee is going to find a way to add the extra $447.0 billion onto the $1.2 trillion that was already looking like an impossible task for twelve people that couldn't be further apart. These members are going to have to walk through metal detectors before each meeting as a handshake isn't going to be enough. (One theory of the origin of the handshake is it was a gesture of peace to show the other person the hand held no weapons.)
Really...the Super Committee is going to figure this out?
"The agreement we passed in July will cut government spending by about $1 trillion over the next ten years. It also charges this Congress to come up with an additional $1.5 trillion in savings by Christmas. Tonight, I'm asking you to increase that amount so that it covers the full cost of the American Jobs Act. And a week from Monday, I'll be releasing a more ambitious deficit plan - a plan that will not only cover the cost of this jobs bill, but stabilize our debt in the long-run."
I didn't expect the speech not to have elements of class warfare, but wish it had more elements of a united nation. It was peppered with the notion things aren't fair, and the suggestion the way to fix that is to go after the rich or "fortunate", those lucky sons of a guns that got paid by taking advantage of the masses. We got several versions of fair: "fair shake", "fair share", "fair and security", and "unfair." There is a certain amount of irony in the sense that the same crowd that thinks Darwin had all the answers doesn't think its nature for survival of the fittest applies to humans or economies. The notion of fair is so misguided that it makes the nation weaker.
But, humans have been blessed with the ability to be born a prairie dog and die a bald eagle.
President Obama talked about China, South Korea, and other would-be rivals to the United States, and at the same time he put the focus of his economic plan on making life harder for our best players. Maybe in nature the bald eagle was lucky to be born that species and the prairie dog unlucky to be born that species. But, humans have been blessed with the ability to be born a prairie dog and die a bald eagle. Nowhere is that truer than America. In fact, I don't see poor people in America, just people that haven't taken advantage of the system yet.
It's not "fair" to make their circumstances more comfortable with a temporary job carrying solar panels from a flatbed truck to a government building. It's not "fair" to tell them the best they could do is community college. It's not "fair" to tell them successful Americans are fortunate, suggesting their wealth was happenstance, luck, cheating, and "unfair" in some manner. In this world, the real world, people work their way to the top. In this world, you don't take Tom Brady out of the game because the third string guy isn't getting playing time. In this world, it's "fair" and smart to praise and encourage success because great players make the entire team better.
This jobs bill is a form of a pity party and woe is me for Americans that buy into the message of last night's speech.
$250 billion tax cuts
$100 billion infrastructure
$100 billion extension of unemployment benefits, etc.
The three digits that stood out to me yesterday was 1*1*9, but it wasn't the 119 point drubbing endured by the Dow after Ben Bernanke gave an old speech that dreamed of the day America is snared in that infinity state called the "virtuous circle." No, the magic number was the $11.9 billion increase in consumer credit. That is a huge number, and it extends a trend that dates back to last November. Sadly, the Street mostly yawned, but it's pretty clear credit might be slipping through the dam at banks and making it onto Main Street. Of course, everyone I know in banking says it's about demand as the money is there.
Keep in mind there is a long way to go to reach pre-recession levels, and any number that goes back to July is deemed too old to be taken seriously on the Street. But, the trend has one undeniable plus. People are looking to use credit so they must feel settled in their job situation. The majority of the increase is attributed directly to auto sales, the leading driver in the $15.4 billion spike in non-revolving credit. Echoing weak consumer confidence numbers, revolving credit (credit cards) actually declined by $3.4 billion, so the report isn't all rosy. Nonetheless, if we want to see economic activity a large portion has to come through credit.
On that note, Ben Bernanke lamented that while credit availability has improved for many borrowers it remains tight in categories such as small business lending. I'm not sure how this situation changes, but there is no doubt the savior of America's economy is ultimately businesses. On that note, it's the small companies that create all the new jobs so they need access to credit a lot more than a break on new hires that doesn't even cover healthcare costs.
Ben didn't Bend
He acknowledged households are struggling with other important headwinds like persistently high levels of unemployment, slow gains in wages for those with jobs to go along with falling house prices and high debt burdens. Yet, Bernanke seems a little perplexed about why households seem "exceptionally cautious", reflected in freefalling consumer confidence. Of course, Bernanke has bought into the notion yelling fire in a movie theater that is on fire is some kind of economic felony but printing trillions in dollars isn't even a misdemeanor. Yet, the Federal Reserve Chairman just can't figure it out. Of course, just like the Executive Branch, the Fed needs a scapegoat for failed actions.
There is something wrong and the guys that control the purse strings seem confounded and bewildered. Take a look at this line from yesterday's speech:
"Why has this recovery been so slow and erratic? Historically, recessions have tended to sow the seeds of their own recoveries as reduced spending on investment, housing, and consumer durables generates pent-up demand. As the business cycle bottoms out and confidence returns, this pent-up demand, often augmented by the effects of simulative monetary and fiscal policies, is met through increased production and hiring. Increased production in turn boosts business revenues and increased hiring raises household incomes, providing further impetus to business and household spending."
I think the speech will fade as the session goes on and the focus gets back to this constant battle of value versus vacuums. There is great value for investors, but greater vacuums of leadership and vision. The dynamic creates uncertainty coupled with people giving up. This morning, we wake up to news Bank of America (NYSE:BAC) will lay off 40,000 people. This is a bank that got billions in taxpayer funds and even more billions in secret low interest rate loans from the Federal Reserve. I can't believe people still think TARP worked. One thing is for sure, there is another 40,000 people that will not be working.
Christine LaGarde is out saying European banks need more money, so those markets are lower. The last time she made such a comment the critics came out barking, but she's being honest, although I fear the solution is giving banks more taxpayer money or simply printing fresh cash for them.
Yesterday the market made a nice rebound early in the session, hoping Bernanke would come to the rescue. That didn't happen, but it illustrates how easy it could be for the market to climb off the canvass if a fraction of the trillions sloshing around on the sidelines thinks there is a chance to make money. I wouldn't force it this morning, but I'm not in panic mode either. A little melancholy for sure, not because of what happened ten years ago but because of what's happening now that could do to America what no terrorist ever could.