The economy and outside markets
May 15, 2009
Today I want to talk a little about the outside markets, specifically the stock market, crude oil and U.S. dollar relationships. We saw a week with some very disappointing statistics, but the equity market and oil held their ground. Some would actually say the stock market has acted remarkably strong in light of the bad data. I heard two advisory services on TV [today] arguing about the next 9-month trend. One was a technical study and suggested the bottom is in and a big rebound is ahead. The other was a fundamentalist. He suggested new lows are just around the corner because over 9 million households in the first part of 2010 are expected to see their interest rates explode. Another reason cited was increasing commercial loan defaults, as well as the growing shaky ground that state budgets are coming under. Tremendous short fallings are being seen, which imply personal cutbacks and reduced services.
It seems to me that the federal government is going to be forced into another program of intervention to help the housing market and the states. This will force the Fed to pump massive levels into the system, and the continued heavy borrowing by the government is going to have a devastating affect on the U.S. dollar. Eventually, holders of the U.S. dollar will rebel, but just how they rebel is to be played out.
As uncertain about the future as this may sound, I am even a more concerned about other factors: I would suggest that the current administration’s central assumption is the current pressing needs for borrowing will be reduced once the economy starts to rebound. As consumers regain confidence, tax revenues go up and the problem is corrected.
The problem with this assumption is that business and investors must be willing to invest. Remember the reason businesses exist is to make a profit for its investors. This thinking is hearsay in today’s environment; the primary mission of business is to employ people and pay benefits. Since this has been the rules of the game since the start of our country, in the future I sense capital investors electing to move very slowly until the dust settles, resulting in far fewer private sector jobs. Granted, in the short-term the government jobs created by the stimulus money will help a little, but it will not get the core long-term jobs that private industry creates. Who wants to invest when all you see is higher taxes, more regulation, limits on how much you can make and finally you are told how and what product you can produce?
Bottomline: Until the administration shifts its direction away from treating businesses as an evil that must be slain rather than supported and promoted, the possibility of the U.S. economy for significant future growth potential is significantly reduced, in my opinion. I find it depressing that the capitalistic system that has made the U.S. the marvel of the world is now completely wrong and the federal government (people who most likely have never run a business) are going to make things right. All it needs is a little more money and control and everything will be all right!
I know these comments seem a little harsh, but sitting back and simply saying there is nothing we can do about the direction we are going is not a position I choose to take. I look forward to your comments; contact me at firstname.lastname@example.org.
If you need any help in implementing a speculative or hedging strategy give us a call at 1-800-832-1488 or email me at email@example.com or firstname.lastname@example.org. Tomorrow we will talk a little about the bonds, gold and crude oil.
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