My Worry Factor Just Increased!

I've been reading about the so-called "Washington Hit List" in which the new administration is trying to discredit anyone criticizing Predisent Obama's policies. Okay while I understand the petty barbs between Democrats and Republicans, I was shocked to see Jim Cramer's name. First of all I have to admit I am a closet Cramer fan. I owe a couple of his books and at one point actually watched his show "Mad Money" (I still am amazed at Jim's knowledge of so many stocks and industries). It has changed in the past few years and the new style is not for my liking.

That being said Mr. Cramer has made some good points in his criticism of the administration. In Mr. Cramer's rebuttal to the "Hit List" he states:

Look at the incredible decline in the stock market, in all indices, since the inauguration of the president, with the drop accelerating when the budget plan came to light because of the massive fear and indecision the document sowed: Raising taxes on the eve of what could be a second Great Depression, destroying the profits in healthcare companies (one of the few areas still robust in the economy), tinkering with the mortgage deduction at a time when U.S. house price depreciation is behind much of the world's morass and certainly the devastation affecting our banks, and pushing an aggressive cap and trade program that could raise the price of energy for millions of people.

All this seems pretty reasonable to me. He is pretty much summing up aht every other economist / strategist not employed by the White House is saying. There is nothing out of the ordinary here. Where Mr. Cramer differs is that he talks passionately in what I call "market speak". He goes on, in "market speak" to state:

But Obama has undeniably made things worse by creating an atmosphere of fear and panic rather than an atmosphere of calm and hope. He's done it by pushing a huge amount of change at a very perilous moment, by seeking to demonize the entire banking system and by raising taxes for those making more than $250,000 at the exact time when we need them to spend and build new businesses, and by revoking deductions for funds to charity that help eliminate the excess supply of homes.

We had a banking crisis coming into this regime, but now every area is in crisis. Each day is worse than the previous one for this miserable economy and while Obama's champions cite the stimulus plan, it's really just a hodgepodge of old Democratic pork and will not create nearly as many manufacturing or service jobs as we hoped. China's stimulus plan is the model; ours is the parody.

So while his peers speak in terms of "slower growth" or "continued risk to the economy" Mr. Cramer personalizes his attack. While I have no issue with this approach it appears the White House does. Press Secretary Robert Gibbs took issue with Cramer on the Today Show and other venues last week. I simply ask to what end?

The reality is that some of the mistakes being made by this administration are the same ones we can trace back throughout history to Japan or the Great Depression. If we don't change our path I am worried that history is about to repeat itself. The warm fuzzy feeling I once had has now turned into one of uncertainty and nervousness about the direction we are going. Apparently I am not alone. The S&P just hit 680 - down 25% year to date.

The Market Is Catching Up To Expectations

Well this is sort of an unpleasant update as the S&P now has a "6" handle in front of it. It would appear that the market is quickly (actually at lightening speed would be more accurate) moving to reflect the current conditions in the world. I had talked about this in my first post. The "Obama-mania" was still holding strong and eurphoria about the latter half of 2009 was the consensus. Oh have times changed in the first couple of months of this year. The S&P is now down 23% year to date.

What has changed?

1) Chinese GDP numbers are coming down below the 8% target, albeit slowly.
2) The global banking system is still in disarray. I would suggest Geithner is clearly part of the problem and not capable of being part of the solution.
3) Equity markets do not like uncertainty and this is what we have. The line of "we don't want to nationalize" is getting old. The Government is embarking on a form of creeping nationalization. Whether is be Citi, B of A or any of the weaker regionals. All I know is that the government's stake continues to rise while the equity price continues to fall.
4) The market is beginning to realize that the concept of funding insolvent institutions with taxpayer money is NOT A GOOD IDEA. My guess is we will see a few major bankruptcies in 2009. These institutions will have received TARP (or TRAP) money and it will be lost. This could have been used to help banks that were solvent maintain strong balance sheets. Zombie banks are here to stay.
5) European banks are worse. Watch for more commentary on loans to Eastern Europe. This will not end well as leverage here was higher than in the US. This is a systemic risk. The belief that the German's will save everyone is a little far fetched. The problem is just too large.
6) The US Fiscal Stimulus is the first step toward socialism. We heard lots of talk about infrastructure rebuilding etc. Where was it in the final bill? Ok there is about $100 billion to infrastructure but this bill is to be spent over 11 year and will not contribute meaningfully to the economy when it is needed most.
7) The Great Depression and the Japanese lost decade both had ill timed tax inceases which further supressed consumer spending. The US is heading in this direction right now. Take a look at how the carbon cap and trade system will work. Investors know that in 2011 there will be a large tax increase for everyone. Markets don't like tax increases.

Really there has been no "good" news in the past month or so and in fact the rate of decline has accelerated. We need to watch how governments around the world move to solidify the financial system. This will go a long way in to determining if we make the same mistakes that the Japanese did. History has a way of repeating itself ... don't forget the "Lost Decade".