Three-Ring Circus in Washington
As a matter of principle, I do not spend much time thinking about politics. I don’t listen to the radio shows (you know the ones). I don’t spend any time at all on sites such as POLITICO, the Drudge Report, etc. And I don’t squander time talking to friends, colleagues, and/or family about the goings on in Washington. To clarify, I am not an apathetic voter; I simply don’t spend much energy on the game of politics. And from a professional standpoint, I’m of the opinion that my job is to identify what IS going on in the markets, and avoid any discussion of what I believe OUGHT to be happening – either on Wall Street or in Washington.
However, as I have stated a time or two, I do get involved in the political scene when it affects the markets. And there is no question whatsoever that the current driver of the action in the stock market is the three-ring circus going on in Washington. The 4-D debate (Debt, Deficit, Default, and Downgrade) in D.C. has pushed stocks lower four days in a row, with a fifth almost assuredly on tap as investors are unlikely to want to hold long positions over the weekend due to the massive degree of headline risk out there.
As the 4-D debate began, investors of all type, shapes and sizes were outwardly confident that a deal would get done. The parties involved with the “grand bargain” looked to be close to a deal and the “gang of six” appeared to be working together to avoid what most believe would be a financial catastrophe. But after four days of red ink in the stock market, it has become clear that the word debate may be a little too pedestrian to describe what is going on in Washington. No, from where I sit, this appears to be more a case of full-on political warfare with some players seeming unconcerned about the casualties they are racking up.
As I have opined, the REAL problem isn’t the debt or the deficits – heck these issues have been around literally for years – but rather the potential impact on the currently fragile economy. It is clear that after the administration’s not-so-stimulative stimulus plan that approached $1 trillion, the Fed’s move to ZIRP (zero interest rate policy), QE1, QE2, and now talk of QE3, the economy is still struggling. As such, the Japanese-style deflationary spiral that Ben Bernanke is so afraid of, is still on the table. The bottom line is another shock to the system could easily put the economy back on life support.
This brings us back to the political brinkmanship that is happening in D.C. I don’t know about you, but I am growing tired of the “stuff” that passes for politicking in our nation’s capitol. I’m tired of hearing each party come to the microphone and slam their opponents. Hey guys, how about a plan that ACTUALLY does something? How about somebody in any of the four contingents stepping up and offering up a plan that will keep the ratings wolf from the door? In short, how about some leadership here instead of all the finger-pointing, chest thumping, and name-calling?
Where is the President’s plan? And since they are making such a fuss, where is the Tea Party’s plan? What happened to the bipartisan “Gang of Six?” In short, since we seem to be moving closer and closer to more economic distress with each passing day, where is the leadership?
Please accept my apologies for the soapbox speech this morning. However, I am growing weary of the crisis environment in which programs move the market violently in one direction and then the other, and then back the other way – all in response to each and every headline. But, as the saying goes, we have to play the hand we are dealt, not the one we want. And as such, I guess we will continue to spend our days watching the game in D.C. in the hope that the professional politicians somehow, some way, put their campaigns on hold long enough to come up with a deal – before we see another “TARP moment” in the markets.
Turning to this morning… As if the three-ring circus in D.C. weren’t enough to keep investors in de-risking mood, the report that Moody’s has placed Spain’s sovereign debt on review for a possible downgrade is putting more pressure on the markets both here and across the pond.
On the Economic front… The government’s advance report (first look) of the nation’s second quarter GDP shows the economy did not improve to any great degree during the April-June period, growing at an annualized rate of +1.3% during the quarter. This was below the estimates for a growth rate of +1.8% but actually above the first quarter’s downwardly revised growth rate of +0.4% (from +1.9%).
David Moenning
Editor: The Daily Decision
