February 24, 2009

February 22, 2009

February 11, 2009

Porkulus: Epic Fail

My Tuesday predictions of the immediate market effect of the Senate passing the so-called "stimulus" bill appear if anything to have been a touch conservative, as the damage was compounded by Geithner's hollow non-policy non-prescription non-plan. A quick review:

Stocks: My call, 3-5% hit. Actual hit as of Wed close, Dow off 4.5%, S&P off 5.0%, NASDAQ off 4.0%. Top end of my predicted range, though still in it.

Crude Oil: My call, down 0-3% on perceptions of zero added demand from the "stimulus." Actual as of close, down almost 5%.

Metals: My call, an immediate 2%+ spike in prices. Actual as of close, 2.2%. And as of this morning, foreign indexes are indicating another 2% rise for today.

The damages will continue now that it's become apparent that Timothy ("the only man for the job") Geithner has no real plan at all. What the markets are looking for specifically is either a straightforward objective easing of the mark-to-market rule (FAS 137) available to all banks that would allow them to work through their toxic assets, or a solid indication that the Treasury plan would develop some other method of letting them shed those assets without violating their capital requirements. A buyout pool backed by the Treasury would do the trick. But they got neither. Vague assurances that a few of the favored might get picked for politically-steered salvation does nothing but fuel fears of a Chicago-like corruption favoring only the Friends of the Connected.

The credit lockdown will not ease until one of those two things happen. The Bush admin approach of buying bank stocks to shore up capital was a dismal failure, as it did not address how to get those toxic assets off the books. Until and unless those toxic assets can be somehow brought off the books and sold at rational prices, banks will stay clenched, a sword hanging over each of their heads by a thread, and the thread ends held in Washington by decidedly avaricious pols. The only other salvation there is for some fo the larger banks to start reporting profits despite the government's market meddling.

Banana-Bama politics. Even as leading indicators start to firm up, indicating a bottom, the admin seems intent on talking the economy down. Mr. HopeChange had better drop the fear-pimping and get back to selling that Hope, and soon, or an extension of the recession becomes a self-fulfilling prophecy. So far Congress and the White House have done their best to stretch it out. Time to quit digging.

February 09, 2009

Watch the Birdie

The so-called "stimulus" plan looks set to clear the Senate in the next day or so, but it's close enough and uncertain enough that until it actually does the markets won't react. That gives me a window to stick my neck out and make some predictions that can make me look stupid...as if I need the practice. So, on the assumption it will clear the Senate, here's a prediction of the immediate market reaction:

Stocks: The Dow and the S&P will hump themselves for an instant loss of about 3-5% or so, testing the lows of last fall on fear of the inevitable inflation from all that government spending and the lack of real stimulus, along with the fear of the future taxes required to pay the Porkulus bills. The NASDAQ will also fall, but maybe not quite as much. It's never really recovered from the dotcom crash, so it has less margin to lose.

Crude Oil: Neutral to about a 3% drop. While cheap oil is nice, it's also a sign that the markets do not believe that Porkulus will have any near-term stimulus effect AT ALL on energy demand. Well, duh.

Metals: A nice clean indicator for expected inflation resulting from Porkulus. Figure on an immediate 2% or more spike in gold and platinum prices. That 2% represents the net present discounted cost of the dollar inflation that will result from Porkulus.

In other words, the markets will tell us the obvious--we have just debased our national assets by 2% or so in one spending bill, trying to return to prosperity with printing presses rather than real production.

Banana republics everywhere can tell us how that works.

Reality Bites

Economist John Taylor of Stanford has a measured take in WSJ today about the recent evolution of the recession. Well worth your time.

Also, some tasty snark from Rick Moran over at PJM:

The truth should be dawning on all of us just about now that Democrats, Republicans, economists, Wall Street wizards, and even the high priests of monetary policy at the Federal Reserve have no idea how bad things are going to get or whether anything Congress does can improve the situation — much less stave off disaster. And that means that the only thing we have to hang our hats on is the credibility and trustworthiness of the president of the United States.

Instead of instilling confidence, Obama is selling fear. Instead of raising us up, he is crushing us with his rank appeal to partisanship. Instead of statesmanship, we get gimmicks like his stimulus bill that the Congressional Budget Office tells us will harm the economy in the long run.

It is amazing and frightening to think that less than three weeks into his presidency, Barack Obama is at risk of losing his credibility as a leader by threatening disaster unless his will be done. He may very well get what he wants when Congress passes this monstrosity despite it monumental flaws.

But at what cost?