Fear of Bush
February 5, 2004
"The reason we are where we are in terms of the deficit is because we went through a recession, uh, we were attacked, and we're fighting a war. And, uh, these are high hurdles for, uh, a, uh budget and a country to overcome. And yet we've overcome them, because we have a great country full of decent people."
And that my friends is the President explaining our lovely deficit as quoted verbatim from a speech shown on Nightly Business Report on Monday, Feb 2, 2004 (they did not name the venue or the occasion for the appearance). Those of you that know me are not surprised that I HAD to include the "uh's" sprinkled throughout this treatise as it serves as a wonderful reminder of the brilliant speech patterns of the speaker. Anyway, the logic is so simplistic, it appears unassailable in its purity - a type of "idiot savant" artistry. After all, how could decent people not deserve the self-sealing logic of guns and butter? Sadly enough, these same decent people may actually be starting to feel scandalized by some indecent kind of exposures perhaps only surpassed by a Superbowl halftime show (can you believe the claim that this "indecent" incident has become the most searched event in internet history - even more than 9/11?!?!). Suddenly decent people everywhere are beginning to fear that a Bush might be messing things up again. Bush has gone from a Wall Street darling and guaranteed bet for four more years to one goat of a liability who threatens to pull defeat out of the jaws of victory. A recent poll even shows Kerry comfortably ahead of Bush if voters were to select a president today. It is certainly much too early to believe such preliminary pulse readings, but it is enough to make the betting-types hesitate and fear that not even a friendly court could dress this ugly duckling back into decency.
The most frightful aspect of the President's logic explaining his performance to date is that the war on terrorism seems to engulf everything. It is the carte blanche excuse for everything and anything. It is the universal constant, dare I say the life force, of the White House's agenda. Nothing is too costly or too precious if it means helping Americans feel safer. Budget deficits? Civil liberties? Common sense? Forget about it! They are all expendable when we have become enthralled with a martial law type of psyche. There is a "gathering danger" alright (that quote should go down as a highlight of pro-active, pre-emptive war-like paranoia), but it ain't Saddam no more!
However, as is typical with Americans, there is one thing that we fear more than anything and that is a weak economy. The glitz of anti-war mongering has quickly gone out of style amongst the Democratic contenders for President, and they are hearing from the electorate that they need to gather around the fire of jobs, jobs, and more jobs. We over-estimate the government's ability to do good for the economy but that never stops us from asking the government to spend prolifically to help everyone feel that better days are coming. At least we have a capitalist economic system that is usually flexible enough to make the proper corrections to government interference.
And that finally brings me back around to the financial markets. It seems that the markets have finally seized upon the stark possibility that all the stimulus that has been pumped into circulation has had quite a temporary effect. I suspect that the markets are reaching for the panic button a bit early, but I would agree with the general theme, if not the timing. The bears have recently had one of their more triumphant moments since this marvelous rally began almost a year ago. After nine straight weeks of nothing but net, the markets feel like they are seizing up. Wednesday was particularly nasty. The selling was broad-based, heavy, persistent, and convincing. Looking around, we witness several indices and indicators in more trouble than they have been in a long time:
On the verge of violating major up-trend lines: SOX, Nasdaq, S&P 600, the percentage of stocks still above their 40-day moving averages
Quick and ugly collapse: Dow Jones transports, the percentage of stocks still above their 40-day moving averages
Major up-trend broken: Dow Jones transports
It is a wonder that through all the recent chaos the Dow has essentially just meandered as if nothing is wrong. It is truly one of the few islands of hope left. Either it is going to drag things back up out of the muck, or it is simply the last soldier to fall. Time will soon tell.
I suspect that the bears are going to over-reach, but, at a minimum, we have been served noticed. Things are not going to be so easy for the bulls from here. Indeed, we should expect that the wonderful tailwinds that have propelled us for so long are either breaking down or have disappeared altogether. This is another one of those moments that the bear in me would suggest that the market has finally put in a top, but I will once again resist the temptation. I am sure there are many more surprises ahead that will make most prognostications seem silly. And besides, decent people do not make bets and gamble, especially with such high hurdles of logic left to leapůJ
By the way, expect the market to become near-obsessed now with the jobs numbers. Everyone, especially over-optimistic economists, are desperately looking for signs of life in the job market. At least very few are still using the lame excuse that jobs are a lagging indicator of economic woes. But just remember that part of the stellar financial performance in our beloved corporations has come from their remarkable ability to squeeze more output per worker all the while shrinking their cost base (including some reliance on cheap imports and cheap overseas labor markets). If and when the jobs numbers finally start to turn for the better for the common man and woman, the financial markets may not celebrate for too long, especially if job growth begins to raise the specter of inflation. Just something to keep an eye onů