Tuesday, August 30, 2011

Barack Obama's Legacy - A Failed Recovery

There will be no significant recovery in the United States of America while Barack Obama is President. The evidence is overwhelming: everything Obama has tried to fuel a recovery (with his Democratic allies in Congress) has failed. Statistics claiming jobs saved by the stimulus package were mostly fiction, and cost American taxpayers about $275,000 each. Nearly 2-1/2 million fewer Americans have jobs than before the stimulus.

Barack Obama has been President for 30 months—2-1/2 years. He spent the first year obsessed with passing Obamacare, a program that doesn’t create jobs, but might destroy a lot of them. He “bailed out” GM, but many believe that his interference didn’t save GM; it merely cost taxpayers an extra $15-20 billion, and stole from legitimate investors to buy off the UAW. His broken campaign promises are too numerous to list. At some point, his statute of limitations on blaming Bush runs out. The latest joke is that the White House is that named the location of East Coast earthquake near DC “Bush’s Fault.”

Obama himself said, “…that after three years, if the economy wasn’t fixed he should be a one-term president.” Clearly the economic malaise started on George W. Bush’s watch. Its causes will be argued for decades, but most of them are traceable to irresponsible lending and excessive spending— both by government and the American people. The trouble that started before 2008 is directly traceable to actions (or inactions) of Bush and GOP allies in Congress. They spent America into the start of the current deficit during his eight years in the White House.

But that was then, and this is now. Since Obama took office the situation has gotten much, much worse. Obama has run up the deficit at more than twice the rate Bush did. During the first quarter of 2011, the US economy “barely grew” —at 0.4%—that was followed by second quarter’s “anemic growth” of 1%. This was during the period when the Obama recovery was supposed to be well underway. Employment data is unremittingly terrible: new jobless claims are stuck at 400,000+/- each month, with job creation well below what it takes just to absorb new workforce entrants. More Americans have been unemployed longer than ever in our history. And looking ahead, the news is not good.

This is Obama’s failed American recovery, and in the near future, Obama’s impending double-dip recession (thanks in no small part to his three consecutive years with Trillion-dollar in deficits that have inflated the national deficit to soaring heights—$14+ Trillion.) That legacy clearly belongs to President Barack Obama and with help from the Congress led by Harry Reid and Nancy Pelosi during 2008-2010. Thanks to them, our country hasn’t even had a budget since Obama took office.

Face it folks: This is Obama’s failed recovery. And if (or when) it comes to pass, this “double-dip” recession (just around the corner) is his too.
Make no mistake, there IS plenty of blame to go around. About 75% of Americans are fed up with both Obama and Congress. The conservative and liberal factions of the House and Senate behaved badly in the recent debt ceiling negotiation. President Obama wanted to stay above the fray so he provided no leadership. He didn’t even know how to bring the opposing viewpoints together. He talked about bi-partisanship and consensus, but his actions disproved his words.

Until the president saw an impending disaster, he sat on the sidelines, afraid to do anything that might hinder his reelection campaign. Then, when his intervention didn’t help, and arguably hurt the progress, he grew impatient, petulant and angry.
John Boehner, however, did an admirable job trying to build a compromise deal on the debt ceiling, and get his own Caucus to support such a plan. Except, Obama was attacked by his liberal base for even considering the “grand bargain,” so he came in and dumped another “raise taxes more” demand on Boehner. I’d have walked out too, which Boehner was right to do.

Whatever happens, this failed recovery and impending recession belong to President Barack Obama. His condescending explanations of why “we Americans” don’t get it, how “this will take a long time,” this recovery, and his “class warfare” about “millionaires and billionaires” versus the “common folk” are all wearing thin.

Sunday, August 21, 2011

The stock market is feeding the current economic fear

Instead of reflecting the current economic cloudiness, the US stock market is starting to feed economic fear. Stocks have fallen for a disheartening four weeks in a row. Some on Wall Street worry that the resulting blow to confidence, not to mention 401k statements, has set off a spiral of fear that could push prices even lower, cause people and businesses to pull back and tip the economy into a new recession.

"I'm nervous that fear will lead companies to stop hiring and people to stop spending," says Jim Paulsen, chief investment strategist of Wells Capital Management, famous for his usually bullish take on the markets.

A home sales report this past week showed that more sales than usual fell apart at the last minute, which suggests plunging stocks and dismal economic news gave buyers cold feet. At least 16% of deals were canceled ahead of closings last month.

Beth Ann Bovino, senior economist at Standard & Poor's, says that another big plunge in stocks could "push us closer to the brink." The Standard & Poor's 500 stock index ended Friday at 1,123.53, down 5% for the week. The average is down 16% during the four-week losing streak. One reason for the drop is fear that another recession, if not certain, is more likely now.

The run of bad economic news started last month when the government said the economy grew much more weakly in the first half of this year than thought. Growth, at a paltry annual rate of 0.8%, was the slowest since the Great Recession ended in June 2009.

The economic weakness has made investors more likely to sell stocks at the first hint that things are getting worse. And last week, they got signs aplenty. A regional survey by the Federal Reserve said manufacturing had slowed in the mid-Atlantic states by the most in more than two years. Existing home sales fell in July for third time in four months. Another report showed that exports from Japan, the world's third-biggest economy, had slumped for the fifth straight month. Japan is still reeling from the effects of an earthquake and tsunami in March.

The housing market, which usually helps lead an economic recovery, keeps getting worse. The plunging stock market and scary economic news won't make it any better.

"What you're seeing with the economy, on the job front, it's scaring a lot of people," says Brian Fine, a loan manager at Mortgage Master in Rockville, Md. He says the housing market will languish until buyers and sellers feel more secure about the economy.

"People are really motivated by larger economic trends. It's all about if you feel confident enough to buy a home right now," he says.

The news from Europe got worse, too. Its economy has slowed considerably — even in Germany, which has been its greatest source of strength. Fear spread that European banks, already ailing because they hold bonds of countries that are struggling with debt, were having trouble getting short-term loans to pay for day-to-day activities.

Some Wall Street analysts say reports of trouble were exaggerated, but that didn't seem to matter. For investors, the prospect of banks scrambling for cash dredged up bad memories of the global credit freeze that hit in the fall of 2008, and they sold stocks.

"A negative feedback loop ... appears to be in the making," two economists at Morgan Stanley wrote Thursday in a widely cited report that itself seemed to beget more fear and selling. It warned that the US was "dangerously close" to recession.

Stock investors aren't the only ones worried. Martin Fridson, global chief credit strategist at BNP Paribas Investment Partners, notes that investors in bonds issued by the riskiest American companies are dumping them, too. These investors fear that in a recession companies might not be able to pay interest on these so-called junk bonds.

The selling has forced up the average interest rate on the bonds to 8.3%. If investors had faith in the economy, the rate would be 4.6%, Fridson says. "I'm nervous. I think there's a very material risk of falling into recession."

Investors are responding to the risk by putting their money where they feel safe. Demand for the 10 yr Treasury note was so high last week that the yield dipped below 2% for the first time in half a century. And the price of gold has set one record after another. It topped $1,800 an ounce last week.

Although unemployment remains stubbornly high, at 9.1%, there are signs that the economy, while not strong, is still growing. Retail sales grew in July at the fastest pace since March. Employers added 117,000 jobs last month, but far better than the hundreds of thousands of jobs lost each month during the Great Recession. Factory production rose in July because automakers made more cars.

And Wall Street analysts who analyze companies and advise investors when to buy and sell don't seem to be worried. As stocks were falling Friday, research firm FactSet released figures that showed just how much more optimistic these analysts are than the average investor.

Stocks are priced at roughly 11 times their expected earnings per share over the next year. That's a steep discount compared with the market's long-term average of 15 times. Translation: If you believe the US will avoid recession and companies will generate profits as high as the analysts think they will, the S&P should be trading at 1,560 — just below the S&P's record high of 1,565 in October 2007.

Of course, if the economy is weak and earnings don't come in as expected, it could turn out that stocks were trading today at 15 times the next year's earnings. That's what many of today's sellers seem be expecting.

And skeptics note that analysts are notoriously bullish, and tend to overestimate profits as the economy slows. Wells Capital's Paulsen thinks stocks should be trading higher, though he suggests investors will pay a steep price if he's wrong.

"If we have a recession, we'll probably break 1,000" on the S&P index, he says.

Investors will be on edge this week as they scrutinize new data on the economy. On Tuesday, new home sales for July are released, followed on Thursday by a weekly report on how many people are joining the unemployment line. On Friday, the government will give its second estimate of how fast the economy grew from April through June.

The most anticipated event, though, is a speech the same day by Federal Reserve Chairman Ben Bernanke at a retreat in Jackson Hole, Wyoming sponsored by the Federal Reserve Bank of Kansas City. The Fed pledged earlier this month to keep interest rates low through mid-2013. Investors hope Bernanke will announce, or at least preview, further steps to help the economy. But economists say it is unlikely Bernanke will unveil anything ambitious.

With all the high emotion surrounding stocks, economist Joel Naroff cautions investors not to read too much into the recent swings. He says that stocks have a habit of running from one extreme to the other, including this spring, when he thought they were far too high. He thinks stocks may be fairly valued now.

They reflect an "economy that is growing but not growing at any great pace," he says. "It is not in recession."