Bloomberg.com is reporting that another "stimulus" program is under active consideration by Team Obama. The title of the article suggests that Team O thinks we are all fools: Obama Weighs Spending to Stem Job Cuts Without Second Stimulus.
None dare call it stimulus! (Well, EBR didn't, always trying to put the term in quotes. The March "stimulus" bill, known more formally as ARRA, was a mix of humanitarian relief measures such as support for Medicaid and a silly reprise of the failed 2008 one-time hand-outs to taxpayers and non-taxpayers alike, plus allegedly "shovel-ready" roads projects (Seinfeld fans cannot help but have been reminded of Elaine being "sponge-ready" whenever the shovel-ready term came up) and other such boondoggles such as a multi-billion dollar high-speed rail system to take Angelenos to Vegas so they could lose their money with less travel time.
Regular EBR readers know that we have been bullish on Treasuries for some months. That is changing. The incoherence of the Obama administration on policy, the horrible jobs data, the impossibility of understanding the solvency level of the large complex financial institutions, the likelihood that the real economy will in one way or another sop up some excess liquidity, and the large move down in 10-30 year rates the past few months suggest that traders should consider taking profits. As detailed in several current posts at Mish's site and in Dave Rosenberg's posts at Gluskin Sheff, however, deflationary pressures persist. In other words, the economy really is not so hot. It is 10 months since the Economic Research Institute's "Long Leading Indicators" turned up. And last month well over 700,000 jobs were lost according to the Labor Department's household survey. In one month! And supposedly the "recession" (EBR says depression) is over, perhaps as long ago as May. As Stanley Kowalski said in "Streetcar", Ha! I say Ha!
So, Treasuries are "OK" for now per this blog's opinion but are no longer on the bargain counter.
The stock market continues to be lunatic. Consider GE. 90 days ago, consensus earnings estimates were $1.00 and $0.95 for 2009 and 2010, respectively. These are now down to $0.97 and $0.89. (Some economic recovery!) This should not be great for a stock that had already doubled from its 12-month low. Well, this is no ordinary time. The stock is merely up another 30+% in the past 3 months. It is something approaching escape from Earth orbit when you compound an over 30% quarterly gain.
GE allegedly is worth $168 Billion but has a tangible book value of only $13 B, with unbelievable leverage in the half of its business that is the financial business and that might have gone pffft last year and this winter without extraordinary help from you and me.
In another sign of "investor" complacency, the giant pharmacy chain CVS announced a significant business reverse Monday, yet the stock sold off only 1.5%. It only yields 0.9% and has virtually no tangible book value. CVS is what is known as a roll-up. It shows growth by acquiring whatever business it takes to show growth, incurring both cash and non-cash "one-time" expenses which compliant "analysts" tell you to ignore, and rewards its insiders much better than the actual owners of the company, the shareholders. In a "normal" stock market, CVS stock would have been down much more, especially because the whole company may (or may not) be little more than thin air. Could CVS be another AIG? Could GE be another AIG?
I have no idea where stock prices are going. However, for the first time, I know few people who know anything about how the financial world works today and/or how the real business world is (or is not) working who has any real interest in exposing an increased percentage of his/her financial assets to stocks. This is a major sea change from past years. This may well be more than fear vs. greed. It may just be indifference added on to the realization that most people with financial assets are already heavily exposed to "the market" and just do not want to increase that exposure. (Such is NOT the same for gold.)
Nancy Pelosi mumbled something about convening a "Pecora Commission" to investigate Wall Street abuses when the heat was on many months ago. What have you heard lately from her or Sen. Reid, or from the President who posed as a populist when he was candidate Obama, about truly getting to the bottom of the minor matter of how we got into the current mess? Nada, gornischt, nothing. Any hearings that might be held will likely not be worth the cost of the electricity needed to run your TV to listen to them or your (more valuable) time.
In any case, Team Obama would not be leaking to the press about another non-stimulus "stimulus" if it believed that the ECRI was correct and that a strong, durable economic recovery is underway. (On the other hand, a contrarian would say that Larry Summers et al may be so inept that if they are pessimistic, we should be optimistic!)
The only current beneficiary of the current situation is, sadly, gold. Since gold is money (though not a transactional form of money) - according to the Fed, the Treasury, the IMF, amongst others, for those skeptics who think it little but a barbarous relic or a raw material for jewelry- all gold can do is change relative value against other assets, such as Federal Reserve notes that Americans transact business in (i.e., dollars). It is thus not a dynamic asset as a well-priced equity can be, or as a truly undervalued junk bond can be if the underlying business is turning upwards; gold is therefore sterile and rises for the "wrong" reasons. However . . .
As the most inept Congress in memory (except for the prior couple of Congresses before it) continues to do little more than (maybe) fiddle with healthcare while the economy continues to shed jobs at an unbelievable pace, and while the geniuses at the White House who only 7 months ago forecast an 8.5% peak unemployment rate even without "stimulus" demonstrate so little imagination that apparently all they can do is think of repeating the first failed "stimulus" and failed follow-ons such as a ludicrously expensive first-time homebuyer credit but remarket these once-failed policies under a non-stimulus brand, it is hard to see the contrarians who have been bullish on the dollar primarily because everyone else was bearish stay contrarianly bullish. Sometimes the majority is simply correct.
The time is out of joint (said Hamlet). And there is a growing perception that Hamlet II is running the show in the most important nation in the world.
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