Sep 9, 2011

The President Speaks, Does Anyone Care?

September 9, 2011

Sunday marks the 10th anniversary of the 9/11 terrorist attacks. Unfortunately, I remember 9/11 like it was yesterday and the friends I lost that morning.

The markets are down this morning after the President’s jobs speech last night failed to inspire confidence fitting of the stage he occupied-a joint session of Congress. As we discussed on Wednesday, the President discussed payroll tax cuts, unemployment benefit extensions, payroll tax incentives for new hiring, infrastructure spending for schools, transportation, and the rehabilitation of vacant properties. In a case of "I'll gladly pay you Tuesday for hamburgers today", the President promised offsetting cuts to be enacted over the ensuing decade to offset the spending and tax cuts today. He will announce the offsets in a couple of weeks. While he avoided a specific number, estimates are the programs would cost $447 billion.

The President's plan is more of the same hogwash he has been selling for almost three years. Tim Geithner was bold enough this morning to say that the President was responsible for the bump in economic activity that began eight weeks into his Presidency, but bears zero responsibility for the slowdown that has occurred two-plus years into his term. You can't have it both ways Mr. Secretary!

As if the news from Washington wasn’t bad enough, Fed Chairman Bernanke was also on the dais, speaking Wednesday about the “unconventional measures” he could implement to prevent the US economy from slipping back into recession. There has been quite a bit of speculation that the Fed will begin selling short term paper (2 year) and buying longer dated paper (10 year) in an effort to lower rates underlying consumer loans. This would also result in a further flattening of the yield curve, which is negative for the banks which have been benefitting from the Fed’s free lunch steeper curve. This could also help FLAT, the ETF which bets on a flattening of the yield curve (see chart below).

There’s an old adage on Wall Street that markets may not repeat, but they certainly rhyme. As commodities break down and the dollar breaks out, the market is beginning to rhyme a lot like 2008, just before the financial crisis made its full presence known. Let’s hope the pattern ends soon, but until then caution is warranted.

Bank of America continues to show signs of a company in trouble. They are planning to close 600 branches and lay off up to 40,000 employees. The financial services sector, which still has 200K fewer positions today than four years ago, continues to struggle through consolidation and rationalization.

I know people were mesmerized with the President’s speech last night, but the really important, and much more entertaining event last night was the opening of the NFL regular season. The Packers held off the Saints 42-34, in one of the more entertaining opening day games I’ve seen in a few years. If the rest of the season looks anything like last night’s game, I’ll bet the owners will consider having a lockout every season.

Have a great weekend


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