February 17, 2009
NYC Letter: Overwhelmed By Awesomeness, Part V
Day 29 of CHOPE
Causes.
PRESIDENT OBAMA SIGNS MASSIVE STIMULUS
DENVER February 17, 2009 (MSNBC)
OBAMA SIGNS $787BN BILL, AND IT MAY NOT BE LAST
WASHINGTON February 18, 2009 (Guardian) - Obama is pinning his hopes of saving America's tumbling economy on the $787bn package. But if that fails, he is prepared to bring forward another one.
Effects.
US STIMULUS BILL DOESN'T STIMULATE
February 16, 2009 (IBT) - Stocks ended lower on Wall Street on Friday as investors considered the US House of Representatives passage of the US$787bn economic stimulus plan and geared up for the Senate's vote tonight. News of the passage was greeted with an initial 60 point drop on the Dow in the mid-afternoon before the gauge clawed back the loss only to drop again in the last 10 minutes of trade, closing at near intraday lows.... But it wasn't really a day about stocks, it was much more a day about philosophical beliefs. Is government intervention good? Will the stimulus package actually help, or will it eventually come back and kick us in the behind? Optimism about the home loan plan was a definite feature of the day, but more so was indecision, then fear, then optimism, then fear again when it came to the passage of the stimulus package.
One thing's for sure, the rules of the game are changing on a daily basis and investors seem reluctant to take any sort of long-term position on stocks. And that seemed to be the problem with the passage of the bill. What should have been perceived as good news was actually taken as bad, given much of the spending is scheduled so far into the future that it wont give the short-term economic boost that is hoped for.
DOUBTS ABOUT STIMULUS DRAG STOCKS DOWN SHARPLY
NEW YORK February 17, 2009 (AP) - Doubts that the government's stimulus and bank bailout programs can stop the global economic freefall dragged Wall Street to within a fraction of a point of its lowest close in 5 1/2 years Tuesday. Henry Herrmann, chief executive officer, Waddell & Reed:The government has their hand on the tiller. They're steering. And that's the problem. The markets are not confident the proper course has been set yet.... The Dow Jones industrial average closed down 297.81 points, or 3.79 percent, at 7,552.60 — just 31-hundredths of a point above its post-meltdown Nov. 20 close of 7,552.29, which was its lowest close since March 12, 2003. The Standard & Poor's 500 index fell 37.67, or 4.56 percent, to 789.17.
... Tuesday's trading session followed sharp pullbacks on overseas exchanges as investors around the world considered the likelihood of a delayed recovery.
... The biggest fear in the market is not that the stocks of banks and automakers will get wiped out. If all the Dow companies involved in financial services or automaking — American Express Co., Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co., General Electric Co. and General Motors Corp. — saw their shares sink to zero right now, the Dow would only lose about 400 points, or 5 percent.
Rather, the concern is that these ailing [bailed out] industries will keep hobbling the broader financial system and the economy.
A related argument was advanced earlier by the Congressional Budget Office:
CBO, the official scorekeepers for legislation, said the House and Senate bills will help in the short term but result in so much government debt that within a few years they would crowd out private investment, actually leading to a lower Gross Domestic Product over the next 10 years than if the government had done nothing.
PRESIDENT OBAMA’S 2,000-POINT TUMBLE
February 17, 2009 (MM) - On Nov. 4, after Barack Obama clinched the White House, the market closed at 9,625.28.In mid-morning trading today, the day President Obama signs his massive Generational Theft Act into law and a day before he unveils a massive new mortgage entitlement, the Dow dropped to to 7,606.53.
Mr. Obama thinks the government can spend America back to prosperity. Financial analyst Martin Weiss offers some damning observations why this won't work.
THE OBAMA STIMULUS: TRUTH AND CONSEQUENCES
February 16, 2009 (M&M) - In addition to the $152 billion Bush stimulus package in the spring of last year and the $700 billion Troubled Asset Relief Program (TARP) in the fall, the U.S. government has loaned, invested or committed $200 billion to nationalize the world’s two largest mortgage companies, Fannie Mae and Freddie Mac … over $42 billion for the Big Three auto manufacturers … $29 billion for Bear Stearns, $150 billion for AIG, and $350 billion for Citigroup … $300 billion for the Federal Housing Administration Rescue Bill to refinance bad mortgages … $87 billion to pay back JPMorgan Chase for bad Lehman Brothers trades … $200 billion in loans to banks under the Federal Reserve’s Term Auction Facility (TAF) … $50 billion to support short-term corporate IOUs held by money market mutual funds … $500 billion to rescue various credit markets … $620 billion for industrial nations, including the Bank of Canada, Bank of England, Bank of Japan, National Bank of Denmark, European Central Bank, Bank of Norway, Reserve Bank of Australia, Bank of Sweden, and Swiss National Bank … $120 billion in aid for emerging markets, including the central banks of Brazil, Mexico, South Korea, and Singapore … trillions to guarantee the Federal Deposit Insurance Corporation’s new, expanded bank deposit insurance coverage from $100,000 to $250,000 … up to $500 billion in Fed purchases of asset-backed securities … plus trillions more for other sweeping guarantees.Grand total: Over $9 trillion … and counting!
These efforts were designed to stimulate the economy, avoid a housing bust, restore public confidence, contain the credit crunch, reduce the danger of a global debt collapse, and shore up sinking banks.
But based on the overall net results to date, every single one is an outright, unambiguous, proven failure.
Worth the full read, especially his refutation of Mr. Obama's comparisons to Japan's "Lost Decade" and the Great Depression.
CHOPE.
Little stimulus. Little confidence. Big spending.
Posted by Damian at February 17, 2009 11:45 PMCertainly one reason for the negative reaction by Wall Street is the testimony by the Congressional Budget Office from their January 8, 2009 report. In it, they state, if nothing is done to stimulate the economy..
"...CBO assumes that current laws and policies governing federal spending and taxes do not change. This forecast, therefore, does not include the effects of a possible fiscal stimulus package. On that basis, CBO anticipates that real GDP will drop by 2.2 percent in calendar year 2009, a steep decline. CBO expects the economy to begin a slow recovery in the second half of 2009 and to grow by a modest 1.5 percent in 2010."
Yes, you read correctly. If the Government does nothing, the economy will begin its recovery by the end of 2009.
But the picture gets cloudy when you consider that, because of the massive Government involvement in the economy, it will be competing with the private sector for resources. We don't know yet what effect that may have or when the effects will be felt. Combine that with the overhang of toxic assets on the bank balance sheets and you have VERY UNCERTAIN TIMES aggravated by an ideologically rigid administration and a power-grabbing Congress.
As you say, Damian, CHOPE. But I'm beginning to ask myself if that is a combination of CHUMP and DOPE?
Posted by: Duncan at February 18, 2009 01:58 PM
