On Saturday, the "most listened-to man in radio", Paul Harvey, passed away. You can read my note about his life at HumanEvents.com: http://www.humanevents.com/article.php?id=30888
As I write this just before 9 PM Mountain Time on Sunday, stock index futures are pointing to another very weak open on Monday morning, with Dow Jones futures trading well below 7,000. Asian stocks are getting slammed, with shares of HSBC halted and the market anticipating weak earnings, a dividend cut, and a large sale of stock at a highly discounted price. And that's a bank that's doing well. The market was stung on Friday and appears to continue to be so by a downward revision in Q4 GDP, from -3.8% to -6.2%, far worse than most expectations...but not worse than mine. As if the overall economic picture weren't bad enough, we also have the government getting larger just as the rest of our financial picture is getting bleaker, meaning our taxes are going up just as our ability to save for ourselves and our children's futures is diminishing. That's right: the only one of the GDP components which did not drop was government spending. And I'll bet that this quarter's number will be about as bad as last quarter's. Why wouldn't it be? I had written last week that I thought there was a chance for a technical rally, that is a market rally driven by brief oversold conditions and massively negative sentiment. But every time government announces what it's doing next, and as it becomes clearer that Barack Obama intends to destroy American capitalism, we are eliminating the reasons for anyone to buy, and the many billions of dollars of "cash on the sidelines" can find no reason to move off the sidelines. In other weekend news, Spansion, one of the largest makers of flash memory, has filed for bankruptcy protection. The EU has refused to consider a broad bailout of other European nations, and AIG is about to destroy another $30 billion in taxpayers' hard-earned money...the fourth time government is letting it pick the pockets of citizens. And as if the AIG news isn't bad enough, with government taking controlling stakes in financial companies with our money, now we learn that AIG is going to repay recent loans with stock in its divisions rather than pay us back our cash, with interest, as promised. Of course, the real wet blanket on the market is Barack Obama's budget and its wishful thinking...bordering on lies...about future tax revenue. First, it assumes a much smaller decline in economic activity in 2009 than we will have, and then it assumes a historically normal growth rate for 2010! These errors alone are likely to make the deficit from Obama's budget top $2 trillion! In terms of "cost savings", the Obama lie that's getting the most light shined on it is his claim to be saving money from the Iraq war by assuming that it would have gone on forever, at about $170 billion per year, without him, so any spending less than that is being called budgetary savings! Now you know why Obama seemed so pleased to be bringing the war spending fully into the budget. Although I thought there might have been a chance for a temporary technical rally, and still may be, I maintain my bigger picture view that stocks are NOT cheap at these prices and that we are not yet at the bottom of this bear market. Furthermore, after we have reached the bottom, we will not get back over 9,500 in the Dow for at least 18 months at a minimum, and probably longer. (If we do, it will not be by much and not for more than a day or two, and it will be a great selling opportunity.) In general, I think any rally of 10% is a sale (but I'll play it by selling out-of-the-money calls so I have some wiggle room because I don't ever expect to buy the absolute bottom or sell the absolute top.) (For those of you interested in an interesting discussion of whether stocks are cheap or not, John Mauldin had a good piece last week making two main points: 1) The p/e at the time you invest is critically important, and 2) Every situation is different, and even though that seems obvious too many people assume that market history will repeat itself.) Back on the budget, I believe people are finally realizing the smoke and mirrors surrounding Obama's claim that he'll get a lot more tax revenue by raising taxes on the top 2%. First of all, the income in that group will be dropping dramatically due to market conditions. Second, that's the group that can either afford to find ways around generating taxable income, or can afford to work less since their incentive to take entrepreneurial risk is under assault. And finally, but maybe most importantly, the market is probably realizing the massive tax hike -- and a particularly regressive one -- that Obama's "cap and trade" system would impose on the economy. It will make his income tax like look like nothing, and it will destroy what is left of our economy in the short run. Obama's budget represents anything but "hope" and "change". It's more of the same from the Democrats, more of what they've done from FDR to LBJ and wanted to do since then but not had the power until now. History shows that it always fails, as it must based on such a flawed model as Keynsian stimulus. But this isn't about economic success, it's about government control of our lives. Until the public fully realizes that, we're in for a tsunami of economic fascism and devastation that will leave many people wondering what happened to their country.
Today I'll be one of several speakers addressing a Rally for Personal Freedom, organized by the non-partisan Gadsden Society, on the West steps of the state capitol in Denver at 2 PM. You can read more here: http://www.gadsdensoc.com/ I look forward to seeing you this afternoon.
Although this news came out a few days ago, I needed something for my Saturday note because I'm traveling and don't have time to write...and since the story shows Joe Biden, yet again, to be a dunce, I'm guessing many of you didn't hear about it: see "Stimulus tracking website off to fast start even if Biden can't remember its name", USA Today, 2/25/09
While I predicted (though not with high confidence) a potential temporary market rally over the next few weeks, the market simply can't fight through the continuing stream of economic fascism (and I do not mean that as hyperbole) coming from the White House. As people learn more about the rosy assumptions that Obama uses to ONLY get to a $1.75 trillion dollar deficit, as they learn about the incredible cap-and-trade tax increase being proposed, as they learn how much "free" health care is really going to cost, and as they learn that Obama is radically changing our government into something much larger, more expensive, and more intrusive than anything we've ever seen, there will be a revolt, even among Democrats. (Not CA and NYC democrats, but middle-of-the-country Democrats and southern Democrats who find themselves unable to get a job and unable to afford to heat their homes.) The problem is that Obama stands a good chance of forcing these things through during his "honeymoon" period, using the economic crisis as a cover to destroy the economy, like the murderer who comes into the hospital disguised as a doctor and injects poison into the sick patient's IV line. While I still think there may be good technical reasons for a rally, it's not easy for investors to decide to put money into a market when you see your economic future being destroyed.
On Wednesday, the National Association of Realtors reported that existing home sales fell 5.3% in January, much worse than expectations, and the slowest sales rate in 11 years. There was an interesting comment from NAR's senior economist, Lawrence Yun, who said "Given so much stimulus package discussion in January, some would-be buyers simply sat out for clarity and certainty on the nature of housing stimulus" The Associated Press summarized the story this way: "A real estate group says sales of existing homes took an unexpected plunge from December to January, falling to the lowest level in nearly 12 years as buyers waited for the government to boost the U.S housing market." In other words, hope and fear about what the government might do in the future is keeping people from buying homes and preventing a market-based improvement in the housing market. It's not only the housing market where this sort of squeeze-out of private action is likely to be making our recession worse rather than better. It's probably happening with cars, with energy development (whether efficient sources or "renewable" sources), and even with banks making loans or businesses looking for loans (the demand for which would obviously be low in any case.) It's sort of an economic analog to studies which show that the chance of a witness to an accident acting to help an accident victim is inversely related to the number of witnesses. It's basically a free-rider problem, with people believing that they don't need to do something because someone else will. A nanny-state government does the same thing. If people don't need to help themselves with education, health care, retirement, or even home ownership, they won't. They'll just let government do it. And the more government does, or even hints that it will, absolve individuals of such responsibilities, the more individuals will abandon responsibility, dumping their problems on government and increasing bureaucracy, inefficiency, and cost to the rest of society. Politicians, but especially liberals, seem to completely miss the psychological squeezing out effect, even while a few of them seem to recognize the financial squeezing out of the private sector by excessive government taxation and borrowing. As long as government gives people reason to believe that "we're here to help", they will deter the proper function of the private free market which could, if not cause a short-term substantial recovery, at least stabilize for a time while business, markets, and individuals catch their collective economic breath.
Official: Budget projects $1.75 trillion deficit GM posts $9.6B 4Q loss, burns through $6.2B cash Royal Bank of Scotland reports $34 billion annual loss Ukraine's credit rating cut by S&P amid default fears We're surrounded by the worst economic news of my lifetime, like a never-ending hailstorm of bankruptcies, foreclosures, and government bailouts. I've been consistently negative on the market for months now. (Even a liberal reader remembered that recently and gave me a rhetorical pat on the back for my accuracy, which I gladly accept, of course, though I wish I had made money on the way down.) And yet, I have a hunch that we may be due for a market rally of noticeable size, i.e. maybe 8%-10% as measured by the major indices. It's a tough call to make at a time like this, when everything is screaming "sell", but my guess is that people have heard the screaming for long enough now that many people have already sold. I often tell people, when speaking of markets, to wait until a trend is so severe that you hear about it on CNN with words like "Will the dollar ever go up again?" or "Will stocks ever be a good investment again?" Well, yesterday on CBNC (admittedly not as good an indicator of "public" sentiment, which is really what I'm speaking of), I heard someone say "There are only two types of players in the markets today, shorts and people covering shorts; nobody is long." That was the first indicator I've had in months that there may be a reason for a decent, if temporary, rally. I'll be traveling for the next few days and I doubt I have the courage to buy and then not watch. If I were home trading, I'd carefully try the long side, but with stops in place, and the realization that this economy could spit out another piece of very bad news at any time. The question is: Are we so used to bad news now, so expecting it, and so many people already short anticipating it, that there's very little news that could make the market drop substantially further in the short term? [Note: I am not a financial advisor, much less your financial advisor. These thoughts represent my opinion and are not intended to be read as anything but that. I take no responsibility for your trading decisions. It's hard enough taking responsibility for my own.]
Since I wrote two weeks ago about the stock market's negative reaction to the Obama Administration's steady stream of bailouts, "investments", and socialism, the market has fallen further (about 8% at yesterday's close) to levels not seen since 1997. It is stunning to watch the administration seem to completely miss the basic concept of "if you find yourself in a deep hole, stop digging." While Joe Biden talks about how he and Obama were put in a difficult spot by the prior administration handing them a large budget deficit, do they think that the American people won't notice that government's response was to immediately and massively increase the deficit? Barack Obama will soon own the economic mess, despite the interference running by TV talking heads, newspaper editorial boards, and Democrats in Congress. And he knows it. It's why he's trying to put a slightly fiscally responsible face on his disastrous spending binge. But it's not working. On Monday, Gallup reported that US investor confidence hit an all-time low. On Tuesday, the Conference Board reported a new all-time low in consumer confidence as well. And why wouldn't they fall? It is only ivory tower academics or liberals with no understanding of real-world economics (the same people who assume that people's economic behavior doesn't change when tax rates change) who believe that Americans are stupid enough to believe that we can all get rich by running up our national credit card bill. Now Ben Bernanke is saying that there will probably be no substantial economic recovery this year, and only maybe next year...and that any recovery may create far fewer new jobs than we'd like to see (which makes one wonder just what definition of "recovery" they're using.) And why wouldn't we have a "jobless recovery", with Americans who might consider starting a business knowing that government will regulate and tax them to death if they can get past their companies being unionized through strong-arm tactics applied to their workers after "Card Check" passes? Just who is going to start a business, especially one that requires more than a half dozen workers and requires taking some real financial risk, in that environment? Barack Obama spent much of the past few weeks arguing that if the stimulus bill didn't pass, a crisis would turn into a catastrophe. As many of us warned, I believe the American people are going to soon learn that the stimulus bill itself was the catastrophe, with follow-on bailouts and additional government spending just serving as a little more fuel on the fire. The American people certainly don't understand economics well. But they understand unemployment. And if they won't learn a lesson about the terrible outcomes of socialist policies without that lesson being exceptionally painful and expensive -- a problem that most of us have in some aspect of our lives -- then that's just how the lesson will be. People were talking about Obama having 6-9 months during which he could attempt to keep blaming others for the economic mess. My guess is that his and Congress' aggressive over-reaching, such as the stimulus' bill (1) lack of infrastructure spending, (2) assault on our health care system, and (3) rollback of the welfare reform signed by Bill Clinton means that his deadline has been moved up. Obama will be owning this mess by Memorial day, possibly much sooner, and he'll richly deserve to. Unfortunately we'll all be much poorer for it (except for the lines of lobbyists slobbering over the billions of our tax dollars). Update: Just after I wrote this (about 14 hours before it went up on my site), I got the following update from Gallup in my e-mail: Obama Job Approval Dips Below 60% for First Time One interesting micro-trend: Versus the same poll taken a few days earlier, all of the drop in Obama's approval came among Independents and Democrats; the approval number among Republicans was steady at a (low) 27%.
Let's start with the good part of President Obama's State of the Union speech last night, since that's a much shorter task: He said his administration has "identified $2 trillion in savings over the next decade." (A decent start against the $3.25 trillion he just spent in one single piece of legislation, but just wait until he tries to gore the sacred cows of members of Congress.) He said he supports charter schools. (It was great to see Nancy Pelosi not clap.) He said he would end wasteful defense spending (see same caveat as above about goring sacred cows...) And one of the best bits, he said he'd eliminate crop subsidies "to large agribusiness." OK, that was easy. The rest of the speech, though, left me fearing for our nation. In short, he basically said: (1) Everything he's doing now is really the Bush Administration's fault, and (2) He's going to "invest" in three of the major areas that liberal pro-Democrat interest groups have been salivating for for years: Energy (sop to the environmentalists), Health Care (sop to socialist nanny-staters), and Education (sop to one of the country's most powerful unions.) Time after time, he talked about "inheriting a deficit", seemingly forgetting that he essentially doubled it in his first few weeks in office. And he made the laughable (and therefore politically stupid claim) that "we passed a recovery plan free of earmarks", to which one could hear groans and giggles from the Republican side of the room. I almost laughed out loud when Obama said that his plan will "save or create 3.5 million jobs" (clearly he's not netting out the jobs he'll destroy in the process) and that those will include jobs "constructing wind turbines and solar panels; laying broadband and expanding mass transit." It was barely a notch better than paying people to dig holes and other people to fill them in. Obama called for a cap-and-trade bill, despite the fact that the system has been an utter failure in Europe and despite the fact that more and more new data show that "climate change" is not greatly affected by CO2, or by humans for that matter. While Obama mentioned the importance of parents in education, that's clearly not where his heart -- or your money -- is. His nanny-state socialism was on full display when he said "the goal of this administration is to ensure that every child has access to a complete and competitive education -- from the day they are born to the day they begin a career." One of the great boondoggles of recent years is government-sponsored "early childhood education", but I'll leave that discussion for another time. If you were listening with your political Babel Fish in your ear, you could hear Obama tell Congress that he will use his political capital to get socialism even while forcing members of Congress to cut back on their spending wishes...because he can. Oh, speaking of "Yes, I can", I should mention that Obama said of himself and his fellow politicians that "in our hands lies the ability to shape our world", and, if that weren't messianic enough, he's going to try to be the guy responsible for "a cure for cancer in our time." I almost said "Jesus!" when I heard that, but even I, a not-particularly-religious Jew, recognized the unacceptable irony in that expression. There's a lot more to say about the speech, but I'm so sickened by what is happening to this country that I can't bear to think about Obama any more tonight. I'll leave it to others who get paid to suffer that sort of brain damage. In the meantime, I wonder how we are going to survive the national self-inflicted wound that is Barack Obama.
On Tuesday morning, a satellite launched from Vandenberg Air Force Base in California failed to achieve orbit and apparently plunged to it's electronic death somewhere near Antarctica. I'm of very mixed emotions about this. The satellite was intended to measure "global warming gases", which presumes that the greenhouse effect is real...a presumption I don't make, as well as presuming that CO2 causes "climate change" even though the data seem clear that it's the other way around. I'm glad to see NASA's James Hansen, a sort of mini Algore, prone like the real Algore to lies and exaggerations, lose a pet project. I'd be happier to see him lose the money that went with the project if it weren't actually my/our money, i.e. those of us who pay income taxes. There is a sort of karmic justice in a satellite created to justify what is essentially an anti-capitalist mythology being only the 2nd satellite out of 58 attempts by this particular manufacturer to fail to make orbit. The only reason I'm even slightly sad that the satellite failed is that it might have provided additional evidence (as if we need more) that anthropogenic global warming is a hoax. But at the end of the day, I believe the loss of the satellite is probably a blessing for all of us, as Hansen and friends won't be able to perform their usual data manipulation to try to force economically damaging policies on developed nations and more tax or grant money into their own pockets.