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Dow Closes Below 10,000 for First Time Since Feb. 8
“…The market is stuck in a violent trading range of wide swings without any particular conviction and the market is now dominated by momentum trading.”
A great part of this is due to uncertainty: when the government keeps throwing stuff at the economy the way the Obama administration has been doing for the past year, with no end in sight, investors are uncertain of what’s next.
For instance, TigerHawk points out,
1) Our economy is at a very uncertain crossroads. We have thrown a fiscal hail mary pass. Not only did we pass emergency measures like TARP, but we passed irresponsible measures, like the healthcare reform bill. We can’t afford it. We are running $1.5 trillion deficits. We are accumulating crisis levels of debt. And we have a short maturity profile.
If our country’s CFO Timothy Geithner knew better, he might be alarmed. Our unemployment levels are mired at high 9s%. Our markets have turned south with Europe’s fiscal and currency difficulties. At this moment we have corrected about 10% from the recovery highs, and are down 3.7% year to date.
The rising bond market and the equity markets are signalling a recessionary double dip. M3 monetary statistics are down 5+% in the latest twelve months, signalling deflation. This is urgent stuff.
2) On the domestic front, we have recently been subject to a series of failed, but nonetheless troubling terrorist atatcks. While the attacks themselves were incompetently executed, our intelligence capabilities failed us. If we suffer a significant domestic terror attack, the economic and social consequences will be awful.
And the administration continues to barrage us with more bailout, more spending, more debt. James Pethokoukis takes a glance at the proposed American Jobs and Closing Tax Loopholes Act (emphasis added):
…for a government running trillion-dollar budget deficits, at least every billion or so should count. And it’s hard to argue that this bill is optimized for job creation or economic growth.
1) For instance, the bill includes a one-year, $6.7 billion extension of the federal research and development tax credit. By not making it permanent, the credit is less likely to foster long-term investment. The bill also extends tax breaks for NASCAR and Hollywood, ensuring both Red and Blue state residents get fed their respective helpings of pork.
2) More than a quarter of the spending — $47 billion over 10 years — goes toward extending unemployment insurance benefits. Economists worry the increased availability of such assistance may reduce the intensity with which the jobless look for work and lengthen the duration of unemployment by nearly 10 percent. It’s also tough to pin down the job-creating impact of spending $63 billion to increase Medicare payments to doctors and $24 billion for higher Medicaid spending.
3) Even worse, the proposal enlarges the budget deficit. Less than a quarter of the tab is paid for, showing again just how easy it is for Congress to avoid self-imposed limits on deficit spending. And increased Medicare spending was excluded from healthcare reform so the bill could get a better score from the Congressional Budget Office.
4) The White House will argue that given the high unemployment rate, bringing down the deficit is less of a priority. But listen to what economist Carment Reinhart told the president’s deficit panel today (via The Hill):
The gross U.S. debt is approaching a level equivalent to 90 percent of the country’s gross domestic product, the level at which growth has historically declined, said Carmen Reinhart, a University of Maryland economist. When gross debt hits 90 percent of GDP, Reinhart told the commission during a hearing in the Capitol, growth “deteriorates markedly.” Median growth rates fall by 1 percent, and average growth rates fall “considerably more,” she said.
Reinhart said the commission shouldn’t wait to put in place a plan to rein in deficits. “I have no positive news to give,” she said. “Fiscal austerity is something nobody wants, but it is a fact.
Pethokoukis concludes,
5) Barack Obama’s original stimulus plan was $787 billion (though costs have pushed it up to $862 billion). While some advisers argued for $1.2 trillion, the president sided with those who believed an amount of such Brobdingnagian size would alarm financial markets — and probably voters, too. This latest legislation, combined with a $17 billion jobs bill passed in March, would put the tally at around $1 trillion, not counting interest. In due course, the math will be easy enough for the markets to understand.
Let that 90% of GDP number sink in for a moment, and then tell me, How’s that for an Act?
(and, yes, that “Closing Tax Loopholes” part means you get to keep less of your hard-earned money)
Douglas Elmendorf, the head of the Congressional Budget Office, has stated plainly that his team’s estimates do not measure real-world outputs (just inputs), that they do not serve as an independent check on its success or failure, and that if the stimulus had not created jobs, the CBO’s figures would not reflect that fact.
