The reasons?
1. We’ve had huge run from the March lows. Stocks are overvalued. I quoted the Economist on this a few days ago.
2. The extent of the horrendous commercial lending problem at our nation’s banks (especially the big ones) is becoming evident.
3. Stock market indicators showing the market has definitely turned down. The last few days of horrible trading reflects that:
The red line is the 200-day moving average. The blue line is the 50-day moving average.
4. Worsening jobs and tightening consumer sentiment. The consumer is 70% of our economy. Without jobs and without a willingness to spend, our economy will sputter along. Corporate earnings will suffer.
5. The worst is our wonderful president (whom I voted for) simply doesn’t get it. He wasted his first year pushing an agenda — health care — no one cares about. Now he’s meddling with bank bonuses and bank regulation. He continues to ignore our fundamental problem — jobs and the lack of a manufacturing base to provide those jobs.
Richard Russell, the old-time newsletter writer from Dow Theory Letters, sums it up:
January 22, 2010 — “Our new president is in trouble: Obama Seen as Anti-Business by 77% of U.S. Investors, Poll Says.”
“Bloomberg –– U.S. investors overwhelmingly see President Barack Obama as anti-business, and they question his ability to manage a financial crisis, according to a Bloomberg survey.
“The global quarterly poll of investors and analysts who are Bloomberg subscribers finds that 77 percent of U.S. respondents believe Obama is too anti-business and four-out-of-five are only somewhat confident or not confident of his ability to handle a financial emergency.
“The poll also finds a decline in Obama’s overall favorability rating one year after taking office. He is viewed favorably by 27 percent of U.S. investors. In an October poll, 32 percent in the U.S. held a positive impression.
” ‘Investors no longer feel they can trust their instincts to take risks,’ said poll respondent David Young, a managing director for a broker dealer in New York. Young cited Obama’s efforts to trim bonuses and earnings, make health care his top priority over jobs and plans to tax ‘the rich or advantaged.’ “
Russell Comment — Obama’s approval rating has collapsed. Americans are sick of Obama’s push for his confusing health bill — Americans are out of jobs and they are much more interested in finding work than fixing a broken health system with a mixed-up health bill. This is a President and a party in trouble.
What’s going on?
(1) China is now the engine of economic progress for the free world. The Chinese economy has been “on fire,” and China’s leaders want their banks to cool it, and hold back on lending. The world’s fear, and this includes the US, is that if China slows down, the whole world will slow down. Thus, China has become “the new US” as far as international commerce is concerned. When China “cools it,” the rest of the world shudders.
(2) The unemployment problem in the US has become intractable. No amount of Fed spending and stimulus programs appears to be able to jump-start the US economy. Seventy percent of the US Gross Domestic Product is brought in by consumer spending. Consumers won’t spend while they are unemployed or fearful of losing their jobs.
(3) Small business is the biggest source of hiring and job creation. Owners of small businesses are being taxed out of existence and they are totally confused as to what the government is going to do next. In other words, they are paralyzed, and when they don’t know what to do next, they do nothing.
(4) Americans have lost confidence in their government. President Obama’s approval rating has plunged into the basement. Businessmen don’t know what Obama’s going to propose next. Americans are also disgusted with the greed and conniving of Wall Street, all with the approval of the government. And Americans are furious — while they are losing their jobs they read about multi-million dollar bonuses being passed out on Wall Street to bankers who American believe have caused the economic mess.
(5) American family wealth and savings have been destroyed by the bear market of 2008-09. This has prompted Americans to cut back on spending and save. Americans are sick and tired of the whole “new health plan” that Obama appears to be obsessed with. Americans are more worried about government spending and unemployment, and they fear the nation has elected an out-and-out socialist in Democrat’s clothing. Confusion reigns in the nation.
(6) Americans sense that the US is losing its leadership in the world, and that China is the “new US.” For the first time in history, Americans fear that their children will not have a better life than they’ve had.
(7) American today are very fixed on economics and the stock market. They lost a bundle during 2008-09, and with the Dow only having recovered 52% of its bear market losses, and housing prices having been whacked, Americans are very confused and fearful regarding the future. Net family wealth has been decimated.
I did not not enjoy the weekend. I spent too much of it reading doom and gloom. Among the better pieces:
+ Up from Globalism. Detailed logic as to what the U.S. needs to re-assert and encourage its manufacturing base. And some ideas on how to do it. Click here.
+ Stop the Insanity. by Newt Gingrich. A five part call to reduce taxes. Click here.
+ They still don’t get it by Bob Herbert.
+ A Rift at the Fed over the bailout of A.I.G. How Geithner gave the house away. Click here.
+ More jobs, jobs, jobs, jobs by Thomas Friedman.
+ After the Massachusetts Massacre by Frank Rich.
+ Time to start over. Obama’s second year. BusinessWeek.
+ Stop! The backlash against big government. Cover story on the latest Economist.
All this may change. If Washington changes. If Larry Summers (who doesn’t believe small business creates jobs) is fired. If Bernanke is let go. If we see some real change. But don’t count on it.
Harry Newton, who remains supremely optimistic long-term, but has some serious doubts about the short-term. I’ll be funnier tomorrow.
Add your thoughts in a comment below, please. Am I wrong? And why?
You are so right!!! I don't think our president is living in the same country as us or he is in great denial. Over the weekend I went to a very modest fund raising event. it cost $ 5.00 to get in and this amount bought you as much soup as you cared to try ( there was 18 different ones) soft drinks, bread and butter and great diverse conversation! Last year this event was a great success raising lots of money and food donations for the pantry. This year forteen people showed up to sample, twenty-five that cooked and sixteen for support and clean-up. The shocker was that in this small community 90% of the folks that showed up were unemployed!!! No fooling!!! Real eye opener,very sad, I really thought things were looking up but apparently I've been looking through rose colored glasses again so hoping things would turn around.Harry, I have been reading your column every day for quite some time now and thought maybe you were a bit gloomy, unfortunately you are right on. Whats a small community like ours to do, how do we make government see who really is suffering and what can we do to improve our own situations?
Harry-
I remember your great call to get out in October 2007 and I wish I'd listened then. This time, I'm already almost out.
I spoke with a friend today who works as the counterman at a local Ace Hardware. He said that this January is 20% down year-over-year from last January–which was horrendous enough.
He told me one of their customers owns a bar and said he's down 38%. In Milwaukee, that's pretty bad.
Harry: I see the same growing frustration in today's comments as I hear on the street. Time, um, make that past time, to stop rewarding sloth, apathy, failure, greed. Time to start rewarding hard work, effort, success, generosity.
Hello Washington, DC. and Wall Street. Can you hear me; Are you listening?
Jimmettler: Not many “adults” anywhere. Goes back to our outdated industrial revolution, cookie-cutter education. Too bad this last year was not spent on courageously revamping education.
Gary: The pittance spent on advancing the education of gifted students should be a major embarrassment. The very kids that could be the engineers, scientists and tech specialists you mention are too often given busy work in the classroom to 'keep them quiet' . They become discipline problems, then dropout. The dropout rate in this country is due to acute boredom.
These kids do not want a 'free' education. They want an opportunity to get a real education, then a job at which to use their skills. No reason to forgive student loan debt if jobs are available. Jobs equals income. Income equals ability to repay the loan for an education worth having.
Commonsensepete: Read Tragedy and Hope, by Carroll Quigley.
Unfortunately, Pres. Obama is anti-business. He has no experience with or in business and hence no understanding of it, and has no real businesmen/women in his Administration to guide and educate him. If this wasn't obvious from all his pre-presidential activities and friends (it was), then it certainly is now. FDR II he may be (he's not), but from an economic point of view as we now know, FDR was a disaster extending and contributing to the Great Depression. Let's pray that Obama does not.
What is the real reason for giving 30-40 million uninsured medical insurance?
What is the real reason for wanting amnesty and citizenship for those who broke the law and snuck into the country?
What is the real reason for these increases in entitlements?
Future Votes and a dependent population!
Why are not more people asking 'how are we going to pay for all of these expensive programs?'
Also, 'who's going to pay for it?'
Now, Obama will focus on jobs. Infrastructure and more government jobs. He's talking of forgiving college loans if students choose public service. What about forgiving college loans for engineers, scientists, and other technical specialties?
When's the payoff to come from investing in electrical grids? Is he paying people to dig a hole and then pay others to fill it?
Are those the type of jobs America needs? How about more government employees on fat pensions?
Unfortunately, we have a man with socialist beliefs in the White House. He's like Robin Hood where he's taking from (taxing) the productive and wants to give to the poor (distribute the wealth to those less productive)..
We're in trouble!
Gingrich makes some sound suggestions, especially about curtailing govy spending, in the Forbes article you point to above. But cutting all taxes is not the best policy – I cannot agree with these two points:
Fourth, to encourage investment, we should match the Chinese rate of tax on capital gains. That rate is zero.
Fifth, we should abolish the death tax. This tax punishes Americans for working, saving and creating wealth–exactly the opposite of what we need to encourage economic growth. Repealing the death tax would create hundreds of thousands of new jobs.
I agree entirely. Our elected are far, far more interested in their imperium then they are in the citizens. They will tell any lie, make any deal as long as they can continue their plush life. Wall Street is only taking what has been offered to them by their government. Of course they in turn realize they must return some of the loot to the providers. Just consider Schumer, some of his pronouncements are sheer insanity in the face of the national crisis. I am sure Wall Street will support him with spoils beyond measure. . You too will either get on the government band wagon with your contributions or rather I say levies or you will be swept off the board. I bet you are already feeling a chill..
Thank you for the ability to comment, Harry. Thank you also for the great content in this particular column.
Neither political party has done much good for the country for a long time. One point I would like to make is that if you depend on China to support your economy, then they have you by the short hairs. Nothing new; Shakespeare understood it. What is the pound of Antonio's flesh? What else do Saudi Arabia, China, and our other support groups get from us in return for dollar-denominated oil and purchase of our debt? Perhaps CIA / US Military intrusion into Yemen to protect the Saudi Border? Perhaps a blind eye to human rights abuses stretching from Google to Tibet? Perhaps Taiwan? What other hidden costs does the US pay in the real world for the excesses and immorality of the politicians?
There are very few people behaving like “adults” in the current administraton and congress. Our leaders are acting like “kids” in a candy store. Unfortuantely, they are spending our money/credit card without care.