Dartline – Closing Comments
Reprinted with permission. Full commentary at Beat the Dart (“Market Outlook” link on the left)
The Standard & Poor’s 500 index fell 12.07, or 1.6 percent, to 752.83, as confidence in the solvency of the government, the solidity of the currency and the soundness of the economy — spells FEAR. What lies ahead is not the end of the world, but until the American public get straight answers, our existence as a functioning democracy may end.
You have schemers like John Asshole Thain, who took for himself $1.7 billion, while given purported bonuses to his coconspirators for a total of $3.2 billion as the government was giving Merrill’s merger partner Bank of America (BAC) – $50 billion in TARP funds.
To date over $1.1 trillion has been misused by bankers and insurance executives, while still earning millions of dollars as they collectively cry to Washington for more funds. Conversely, the average citizen is worried about obtaining the basics for living.
Obama Nation has submitted its $3.55 trillion budget plan for 2010. Dartline projects the budget would be increased to $5 trillion as the full extent of toxic bank assets are finally, but still not fully disclosed.
How can anyone be comfortable with a stock market like this, when the purported “leaders of industry” are a bunch of incompetent idiots? Apparently, Obama thinks they are going a good job and given them an additional $750 billion for the toxic banking system.
Why should investors buy stocks when durable goods orders fell sharply, initial and continuing jobless claims soared, and sales of new home plummeted? Obama nation assumes that the crisis has reduced potential output by one per cent, while Dartline’s view is that further reduction in expectations has drastic implications for the fiscal position: in 2009-10, the structural current budget would operate at a deficit of 6.1 per cent of gross domestic product. To get the budget under control, the government must reduce spending. How can it be done, when Obama has the printing press working overtime?
The government must borrow its way through the crisis. What what the pundits are saying as the reason to buy stocks and not miss the 500 point rally. BULLSHIT! … We predict the public sector net debt will peak at 71 per cent of national income. If the cost of rescuing the financial sector were to be 12 per cent of GDP, this would rise to 77 per cent of GDP. If the world economy is about to fall into a depression, losses in the financial sector could be far higher. Not good if you consider buying stocks for the long term.
Soaring real interest rates on public debt would add more pressure on funding and cause the Federal government to step in. A vicious spiral would then ensue. In short, Obama Nation would suffer the sort of crisis so many emerging economies have experienced — a currency collapse and a public debt crisis.
Right now, the government is okay: The fall in the external value of the dollar, combined with low rates of interest on government debt, despite the huge fiscal deficits, and the continued ability of the central bank leverage its balance sheet are the right moves to keep the good ship USA afloat. Indeed, keeping it above water would become much harder for longer than almost anybody imagined two years ago. But we can, with tough discipline and common sense.
But if you have hard assets in equities that are not positioned against these shocks, you will lose all your money. Obama Nation has already failed. In times so dangerous, we have a president that doesn’t have a clue what the real priorities are. Obama cannot disown responsibility for his inheritance; he knew the deal when he ran for president. If he fails to act decisively, Obama risks being overwhelmed, like his predecessor. If Obama does not fix this crisis, all the hopes from his presidency will be lost. Hoping for the best is foolish. We should expect the worst and act accordingly…
Continued at the source
Subscribe via RSS