This weekend rooted for I'll Have Another to win the Belmont and become the first horse since 1978 to win the Triple Crown.
The stock market is also rooting and saying I'll have another but for the moment the Federal Reserve has joined with the European Central Bank with keeping the covers on money-printing machines until legislators get their act together. I still think these central banks will try to do something if for no other reason than eventually there is a pop in the economy and they can take credit. Let's face it, Ben Bernanke has taken more bows than anyone this side of President Obama for saving the economy.
At some point it would be wise for Presidents and Fed chairmen to wait for the patient to walk out of the hospital before proclaiming the operation a success.
Considering there is an election in November it's unlikely anything can be done in this country to give Bernanke the green light so it's all about Europe where there is a countdown to a flat line. The ball is in Angela Merkel's court and she must take care not to blink. I've written about her resolve but those folks in other countries demanding the earnings of Germany also have resolved (in part because they don't have anything else to do) to get that money. I read yesterday where the top Tweeter hash-tag in Spain was #stopmerkel as if somehow all that stood between that country and bliss was the leader of Germany.
Yet, when we do have another typically it's part of a string of things and soon thereafter we want another again.
The point is we are already in the midst of a series of quick fixes that simply do not work. Here at home there was debate over a survey of economists where 86% agreed it stopped the job bleed in 2010, but when it's all said and done will it prove to have worked or not was it a different story?
46%: costs will exceed the benefits so that means higher taxes to pay for the plan
27%: not certain what will be higher when it's all said and done
12%: agree the benefits, even in the end, outweigh cost
This is a difficult time in the world and also the perfect opportunity for real solutions instead of Band-Aids designed to deliver votes instead of paving metaphoric roads for real future prosperity. There are a few important things coming up in Europe over the next two weeks that could seal their fate or open the door to real reform. The thing is, walking through that door will be painful. Yesterday Wall Street salivated at the possibility the Fed would print more money and even after Bernanke said he wouldn't, conventional wisdom held he will sooner or later.
Consumers Join Voters
For all the hype of money money-printing at the Fed, this week will go down as the one when it was revealed that the general public gets it more than government and short term traders. You can't keep spending what you don't have. Moreover, it might be wise to clean up balance sheets even more. Yesterday, the rally finally ran out of steam right after the latest consumer credit number was posted. The report is backward-looking and the media doesn't cover it despite the fact that 70% of the economy is consumer spending. The number was less than expected and down a lot from the previous month.
I think consumer are looking for elbow room and not using their credit cards with the same vigor. Perhaps it's intuition or a built in clock of sorts, like the one that awakes a cicada after years of slumber, but consumers are doing the right thing. The implication for retail and the overall economy is worrisome. For the last couple of weeks retail spending has surprised as wages have remained flat while and savings have plunged. While it's not great to see people dip into savings to hit the mall, it's better than hitting the credit card. Of course this is all about confidence as well. Consumers are sending the same kind of message as voters in Wisconsin about not trusting government officials.
While revolving credit decreased by $3.44 billion non-revolving credit surged by $9.96 billion as the federal government pumped out $6.10 billion in college loans and looked the other way as subprime loans drove auto sales.
It's not a good mix.
This goes to show it's not just banks and corporations hoarding money. Everyone is hoarding money and I'm beginning to wonder if the real rich have run out of money or are they just worried as Election Day comes. (Lululemon is the latest retailer where stuff isn't cheap to see its shares get crushed after posting earnings). This economy needs a lift that only comes from confidence or short-term elixirs- free money, anyone? The only place this can play out is in Europe.
Of course China is a player, too, as witnessed with the reaction to a tiny rate cut that got the US stock market popping early. The idea is this is the tip of the iceberg and definitive policy change in China that sees the focus shift from a myopic worry about inflation to a maniacal desire for growth - at any cost. Nobody said slowing down their economic locomotive would be easy. There is no doubt China has the horsepower to carry the world but so, too, does bunch of fresh cash from Fed & ECB.
There is a source of horsepower greater than all those things—America's economic might! It has to be unleashed. The dark clouds of higher taxes and punitive action for succeeding and returning money to investors has to be removed. I know it's not happening, not even close. So, we are back to the drama in Europe, hoping for central banks and maybe China to save America.
We are drunk on temporary solutions but at this point I think I speak for most people that would like to see their retirement stop bleeding and stocks to trade on merit not emotions when I say "I'll have another."
There is an interesting piece on Yahoo Finance that covers the decline in debt to GDP by everyone in America but the federal government. This speaks to responsible actions by many but also debunks the notion that citizens will fight austerity when in fact once pushed to the wall they enact it on their own.
In eleven quarters since the end of the recession, domestic debt increased $702.0 billion or 1.4% versus the eleven quarters before, when debt increased $10.7 trillion or 28% of GDP.