November 2009

November 12, 2009
Economics and Politics are both a game of mass psychology. They have to do with the perception of the masses rather than reality.
For example, the Masses as represented by the Consumer Sentiment and Consumer Confidence indexes are flailing. The indexes show that the consumer is scared and isn’t spending.
The confidence in Government is low as well so there is no help in the near term. Congress isn’t helping by trying to push through health care reform. No matter which side of the fence you're on with that issue, it makes no sense for Congress to be doing things that causes the public to be insecure and divided at a time when they are already insecure. We need a rallying point to bring us together.
Afghanistan and the radical Muslim issue is also making people feel insecure. The recent shootings at Ft Hood in Texas suggest that even the military is experiencing a breakdown in loyalty and discipline. Something that doesn’t spark confidence in most of us. The fact that the Administration won’t make a decision, one way or the other, on the requested troop reinforcements isn’t helpful either.
The stock market is jumpy as well. The volatility index remains in the mid 20’s. Certainly well below the 80’s of last year but well above where I’d like it in the teens. The market has rallied on earnings reports but those earnings were achieved through job cutting. Hardly a repeatable process. I don’t believe you can shrink your way to greatness. So look for earnings to stagnate if the consumer doesn’t return. The market could take a serious tumble at that point. I’m watching for signs of another major correction. There is a school of thought that says it will happen. Remember, after the great depression the market didn’t come fully back for 20 years. Part of that was, we are told, bad policy on the part of government. Are we doomed to repeat the past?
Everything I look at suggests that this recovery has begun, but it is going to be a slow, slow process. It will be a step ahead and a step back for a long time. Overall the trend will be upward but at a snails pace. We, who have no patience and want everything to happen instantly, are going to be incredibly frustrated. Politically that means next year will be the year of “It’s the economy stupid” regardless of what happens with Health Care.
I believe the smart politician stays away from forcing Health Care reform, especially with any polarizing issues, and beats the economic drum, hawking jobs creation. They will keep or win seats. All others are vulnerable and should be. They are not doing the right thing for the country at this time.
Health Care needs reform, but the reform should be focused on cost cutting not reformatting. Reformating at this time is like rearranging the deck chairs on the Titanic. Go after fraud, go after frivolous law suits, go after the unnecessary tests and procedures that are part of defensive medicine (defensive from a law suit stand point). Many of these things will cut a few percent here and there. Not huge in and of themselves but forward motion toward reform without the political fallout and the divisiveness that reduces consumer confidence so desperately needed for recovery.
Let’s move forward while we still can. The Soviet Union, the second most powerful country in the world collapsed. Could we?
China is moving forward. It spent heavily on its economic stimulus and has recovered. In the next few years China will be the largest market for automobiles in the world. The first time the USA will not be number one. Car makers the world over are ramping up operations designed to meet this growing demand, while here at home the number of car makes and models are continuing to dwindle with only Ford still standing as a non-government owned producer. They are profitable, but mostly because they are profitable around the world. They make money everywhere including the USA.
Government Motors (GM) and the now Italian run Chrysler are still struggling. Chrysler will chop models from the Chrysler, Dodge and Jeep brands, adding some Italian designs to try to reposition itself. I wish them good luck with that.