Mar 02 2009
Obamanomics – This Is Going To Be A Rough Ride, DOW Sliding Again
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As many are saying this week, we do not wish Obama to fail – too many people will be permanently ruined financially if that were to pass. But while I do not wish for Obama to fail, he is going to fail and it is going to be a spectacularly horrific failure. Gateway Pundit has been displaying some humbling economic graphs of late, I hope GP doesn’t mind I use them to make my point (and echo GP’s). First off, we can track the economic down turn to Obama’s rise to power:
Today the DOW restarted its months’ long crash again, dropping well below 7000 and now hovering around 6800 as of noon eastern. America has now lost 50% of its market since Obama started his rise. If this was global warming there would be true consensus on the cause and effect of this financial disaster.
Much of this is because Obama and the dems have declared financial war against our free market economy. He wants to punish success, businesses, etc. The entire liberal economic plan is based on fiction. Obama’s budget naiveté is simply stunning, just look at his projections used to support the liberal budget:
It is an stunning display of foolishness. The first graph is the annual debt – with an enormous spike in the two coming years from the spendulus bill (which will not add a single new job for about 12+ months). The 2nd chart is the Kool Aid chart. It assumes revenues will dramatically rise, even though all the policies are anti-economic growth. This is were fantasy meets reality.Â
If, as we will see over the next 4 years, the liberals screwed up there will be no jump in revenues. No jump in revenues will mean that deficit spike will stay at historic highs for every year out to oblivion (which economically will be when Obama is up for re-election at the rate the dems are spending).
If, as is really happening, the consumers tighten their wallets and slow spending, and investors stay on the sideline and banks hold back lending, then the economy will continue to lag. As consumers hold back, more jobs will be lost and the price of land will continue to shrink as demand drops off and supply ramps up. As the economy lags the revenues will crash and not cover the spending.
These graphs are all rose colored to the extreme. They were developed by people drunk on liberal Kool-Aid.
The liberal democrats have gone ‘all in‘ on their belief government spending can direct a free market. It is their ‘come to Jesus’ moment. If they are right (and sadly for America they are not) then these wishful fantasies are about to come true. But if they are wrong (and the DOW says they are wrong) then their revenues will drop and the deficits will balloon and the government will be seen (rightfully) as taking the money from a working economy and wasting it on liberal fantasies.
I will be posting the monthly unemployment numbers nationally and using a sampling of key states. I know what is coming, more months of deeper problems, while Washington throws our hard earned money down the drain on the political equivalent of a Ponzi Scheme . As we lose our investments and we lose jobs and we see Washington handing out money to their cronies, we will see how well unchecked socialism plays in a free market.
Most socialist models were imposed by revolution, so there was no way to compare. This is the first time in history socialism will be thrust into a working capitalistic system through political fiat – should make for some interesting fire works when it implodes.
Addendum: Is this the picture of a Modern Day Nero fiddling while the economy burns?
Since the presidency changed hands less than six weeks ago, a burst of entertaining has taken hold of the iconic, white-columned home of America’s head of state. Much of it comes on Wednesdays.
The stately East Room, where portraits of George and Martha Washington adorn the walls, was transformed into a concert hall as President Barack Obama presented Stevie Wonder with the nation’s highest award for pop music on Wednesday.
A week before that, the foot-stomping sounds of Sweet Honey in the Rock, a female a cappella group, filled the East Room for a Black History Month program first lady Michelle Obama held for nearly 200 sixth- and seventh-graders from around the city.
Cocktails were sipped during at least three such receptions to date, all held on Wednesdays.
Glad someone is having a good time, and all those tax dollars are being well spent. Party like its 1999!
Addendum: I failed to mention that the above charts neglect to take into account the retiring boomers, which are going to shrink our economy massively as they transition from workers to retirees, from driving the economy through production to a drag on the economy. And these people will be retiring a lot poorer, so their spending (now at their life time peaks) will drop off dramatically as well.
They’re not just going to be a drag on the economy because they stop their production and change their spending patterns, they’re also going to start drawing on Social Security and Medicaid benefits.
The other Ponzi scheme’s chickens will be comin’ home to roooost!
So few seem to get it. Hussein WANTS the stock market to tank. He WANTS businesses to fail and panic to set in across the nation. This is the only way Big Brother can confiscate, control and rule! Happy people making a profit do not make good Marxists or good Marxism takeover targets. Failure, despair and panic are all part of the plan and Hussein and his brownshirt cronies could not be happier with the current trend.
The business of this country is business, Howard Beale’s boss was right. Until you face that fact or move to a socialist utopia you cannot be considered a grown-up. 58 million people are voting with their greenbacks. Theory sounds good and superior in college but never seems to take into account the unintended and unforeseen consequences. Sad.
AJ,
Let me see if I understand your theories of the market.
Obama is responsible for the drop in the market “since Obama started his rise” in August of 2008. Even though the graph you cited shows that the vast majority of the drop in stocks occured before Obama won the election or took office, while Bush was still President, Obama is still responsible for the entire drop in the market. It’s funny how you consistently claim that Bush “inherited” a recession that started after Bush took office (March 2001) but Obama is responsible for a recession that started before he was even elected. Makes perfect sense to me.
Obama’s inability to reverse the most severe recession in America’s history since the Great Depression in a little over one month in office means that Obama screwed up. Never mind that we were unable to reverse any of the prior less severe recessions in that amount of time or that virtually all economist agree that even if we adopt the right approach the earliest we will start to see a recovery is the end of 2009. Still, why the heck hasn’t Obama busted out his magic wand or fairy dust by now and fixed this problem?
The Dow’s rises and falls are based exclusively on whether the “market” has faith in Obama’s plans. For instance, I’m sure that the drop in stock’s today had nothing to do with AIG’s staggering $61.7 billion in quarterly losses announced today, fear that more banks will have to raise capital and risk depleting the value of the existing shares after HSBC PLC, Europe’s largest bank by market value, said it needs to raise $17.7 billion or the fact that investors don’t believe that Obama has a magic wand or fairy dust that can fix the recession over night.
The merits and likelihood of success of Obama’s plans are certainly subject to debate. But seriously AJ, when you advocate naive theories like blaming Obama for every daily drop in the Dow (including drops that occured before Obama even took office) you lose all credibility. No offense, but you really should stay away from the economic issues – your posts of late have made it pretty clear you don’t understand how the economy works.
As usual Conman, you can’t fathom much of anything. No wonder you’re a liberal.
AJ, they’re not partying like it was 1999…they are partying like it was 1788. In Paris.
The French Revolution took place a year later.
Personally, I think I’ll go into the rent-a-guilliotine business.
I wondered when someone would compare Obama to Nero as the market tanked. Good show.
AJ,
Yeah you’re right, we “liberals” are always getting bogged down with history, facts and logic. I’m sure it is much easier to ignore all three of these factors and simply pretend there is some instant fix out there that Obama just can’t seem to grasp. Oh, if only Palin was in charge – she would have had the Dow back up to 13,000 weeks ago! Boy, you idealogues sure do provide a lot of entertainment for the rest of us.
conman,
The facts are that it was the Democrats that decided to pursue a policy of using Fannie Mae and Freddie Mac as a welfare program to get low income borrowers into mortgages. They compounded the mistake by making hard requirements based on percentage of mortgages rather than looking at the actual ability of these people to pay.
Then the same people that ran these operations into the ground are now close advisers to Obama. The creator of the mortgage backed derivatives at Citi that caused the US housing bubble to spread to a international banking collapse is a close adviser to Obama. So we have now brought in the wolves to guard the chicken coop. The same people that robbed Fannie Mae, Freddie Mac and Citi blind are now looting our treasury.
This isn’t “change”, this is business as usual with the knob cranked up to 11.
Every time Obama opens his mouth, the market takes another tumble. Carter had the same problem.
The markets are in turmoil with few safe havens. The few safe places don’t stay safe long, sometimes weeks not months.
In a normally functioning market as investors shift out of equities, bond funds go up as the equity markets correspondingly go down and visa versa.
This relationship has maintained itself though good and bad markets for decades, including the bear market from 3/2000 to 3/2003.
The relationship between interest rates and the value of the underlying principal is inverse, as interest rates go down principal goes up and visa versa. References to bond markets refer to the principal values.
After mid Sept 2008 both equity and bond markets collapsed. The exception was the market for treasury bonds which soared. This was due to interest rates being driven down to shore up the economy and mortgage markets.
Treasury markets have now peaked (interest rates bottoming) and principal values will erode significantly over the next few months. This is because the government now has to reverse course and sell massive amounts of bonds to cover its trillion dollar deficits.
The appetite for this amount of bonds is relatively limited unless the buyers are bribed with much higher interest rates. As this sale of bonds drive interest rates skyward, both treasury and corporate bond markets will crash.
The markets are broken and will remain broken for a while. Each pundit has a different time horizon. Current markets (both equity and bond) are not for the feint of heart.
The era of buy and hold is over. The asset allocation model of maintaining a percentage relationship between equities and fixed income may best be abandoned until normalcy returns.
Unless you are an active student of the market, it would be prudent to ladder your investments (half maturing every 6 months) in 6 and 12 month Treasuries until markets gain sum semblance of normality.
So sayeth me.
My previous comment: “After mid Sept 2008 both equity and bond markets collapsed. The exception was the market for treasury bonds which soared. This was due to interest rates being driven down to shore up the economy and mortgage markets.”
This should have been: “After mid Sept 2008 both equity and corporate bond markets collapsed. The exception was the market for treasury bonds which soared. This was due to a flight to safety and by interest rates being driven down to shore up the economy and mortgage markets.”
Thanks for your indulgence.
crosspatch,
“The facts are that it was the Democrats that decided to pursue a policy of using Fannie Mae and Freddie Mac as a welfare program to get low income borrowers into mortgages.”
You need to stop rejurgatating GOP talking points and think for yourself. Do you really believe this entire economic crises is a result of housing regulations that pushed for more minority loans at Frannie and Freddie? The government didn’t and couldn’t force the private lending institutions to make these loans, so maybe you can explain how it is that the entire private banking industry has been hit so hard? Based on the Federal Reserves own statisitcs, Fannie and Freddie held only 15% of the subprime loans. Only one of the top 25 subprime lenders in 2006 was even subject to the housing law you are referencing. http://www.mcclatchydc.com/251/story/53802.html
Maybe you can also explain how these housing regulations allowed for the unregulated securitization of these loans, allowing banks to bundle the bad and good loans to hide the risky ones, get the ratings agencies to give them inflated ratings, thereby creating the current mess where none of the banks really knows how bad the loans are that they hold? So unless you are suggesting that the so-called Citibank creator of mortgage backed derivatives (sorry, they have been around since the 1930’s – look it up) also was in charge of regulating the market, you might not want to bring this point up.
Maybe you can explain how these housing laws led to the problems with the Credit-default swap market? The 2000 Commodity Futures Modernization Act, championed by Senator Phil Gramm and passed by a Republican controlled Congress, exempted over-the-counter derivatives like credit-default swaps from regulation by the Commodity Futures Trading Commission. It is currently a $60 trillion market that is literally unregulated. The credit-default swaps was what caused Lehman to fail and almost took down AIG, which has cost the U.S. $150 billion so far and counting.
Maybe you can explain how the housing regulations forced the SEC to fall asleep at the switch over the last 8 years? Do the names Enron, Worldcom, Madoff, standford, to name but a few, ring a bell?
Once again, I know that ideologues such as yourself like simple answers to our problems that neatly fit into your “the Democrats are responsible for all of our problems” ideology, but the world doesn’t work that way. The problems with our economy are much more complicated and cannot be blamed on a single regulation or some dude at Citibank. But since understanding the actual causes of the economic recession would require you to consider history, facts and logic, I’m sure you are not interested. It is much easier to surf the conservative blogs and ejurgatate what they tell you to think.
“The era of buy and hold is over.”
I couldn’t disagree more. Now is the perfect time to be buying. You want to buy when everyone else is getting out. THAT is how you make money.
“You need to stop rejurgatating GOP talking points and think for yourself.”
Conman, do you actually know what you are talking about or do you just spew stuff in order to get a rise out of people. Congress put specific mandated on Fannie Mae and Freddie Mac that at least half of their mortgages had to be “low income”. That happened in 1999 during the Clinton administration when Obama’s current pals were then running Fannie and Freddie and Citi. There was a rather long newspaper article by the NYT at the time (in 1999) that warned that what we are seeing today could be a possible result of what they were doing.
And so it came to pass. Exactly what was foreseen in 1999 came to pass in 2007. Bush left those Clinton appointed morons in their offices when he came into office as a show of “bipartisanship” and didn’t act to change those regulations. We are being crushed under a Clinton program, not a Bush program. And Obama has the architects of it managing its bailout. Absolutely nuts.
Conman, you really ought to read more. You might learn something.
Oh, and conman, here’s the other important paragraph from the article:
So you have HUD in July, 1999 directing directing Fannie Mae to provide 50% if its mortgages to people who would (and did) default when interest rates rose.
Dangit, what happened to the edit function?
Anyway, I am not “regurgitating GOP talking points”, I am regurgitating the New York Times circa 1999.
conguy, pssst……reality….
as soon as the markets saw it was going to be the bad guy elected, they started the relatively quick tanking that has continued through today and will continue for a while. Had it become evident in Aug or Sept that Obama would lose, the market would have continued upward,, and there would be no recession.
See why it’s so easy to say that I hope O’s policies fail. for if he fails, the USA succeeds.
Crosspatch,
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Buy and hold vs. buying in a trough ARE dissmilar strategies.
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Since 10/9/07 people have been selling. There have some bear market bounces followed by new lows. Reversals are the bain of the trading class.
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Be that as it may, you are not alone in feeling now is a good time to be long. A long time bear on Kudlow tonight predicted the low for the S&P for the year would be in only 2 or 3 days.
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There are a lot of ways to make money in any market. Making big bets is one of them. Even Buffett can screw up his timing and lose big with his bets.
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Avoiding further losses in a bear market works for those looking for a strategy that will preserve capital until conditions settle down, the above, along with the rationale, will serve that purpose nicely.
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It’s a rocky road ahead. Good luck with your timing.
[…] noticed. Gawker’s gawking, but can’t quite figure what to make of it. Strata-Sphere’s glad someone’s having a good time. On our dime! … And not just with that boring […]
Well, VA Voter, I tend to do things like this …
I buy and hold but when the market nears record highs, I stop buying. Actually, I might even start a small “reverse” dollar cost averaging and start selling regular amounts back into cash when the market is in record high numbers.
I stopped making contributions to my 401K in about August of 2007. I am ready to start making them again. But I haven’t sold. All that I bought, I held. I do buy and hold, its just that I buy more when the market is down and stop buying when it gets to record highs. I don’t sell much.