Obama at Mercy of Events not Rhetoric

President Obama was on the attack again yesterday.

Comparing congressional Republicans to dangerous teenage drivers and binge-spending drunken sailors, President Obama held no metaphor back as he hit the campaign trail for the first of two stops in pivotal mid-term Senate races.

While raising money for Democratic U.S. Senate candidate Robin Carnahan in Kansas City Thursday, Obama tried out some new rhetoric, framing the fall midterm elections by blaming the GOP for the sluggish economy, and urging voters not to give Republicans another chance.

"This is a choice between the policies that got us into this mess in the first place and the policies that are getting us out of this mess, and the other side is banking on people not having a good memory," said Mr. Obama. "They're trying to bamboozle you."

This has become wonderful political theater. Obama now takes every opportunity to slam Congressman Joe Barton and thus he reminds voters that Barton showed sympathy for BP. He's also recently slammed Minority Leader John Boehner for comparing the financial crisis to an ant.

None of it makes any difference. From 2005 until the election of November of 2006, George W. Bush was in the same position. He was entirely at the mercy of events in Iraq. Rhetoric back and forth was entirely unimportant. Instead, the situation continued to deteriorate and he paid for it at the polls.

Obama will face a similar dynamic. Everything comes down entirely to what the economy looks like. So, all the political theater will only be just that. Ultimately, with only a few months left, everything comes down to raw numbers: the unemployment rate, GDP growth, etc. All of those point to an economy that is still sputtering and as long as that is occurring Obama and the Democrats will take responsibility and be punished. No speech, attack, or creative alliteration will make any difference. As long as it looks as though the economy is not creating enough jobs Obama is at the mercy of the economy.

Is Hungary the Next Domino

The Hungarian government is taking extraordinary steps to avoid having to file for bankruptcy.

Hungary's new government plans to take steps to improve public finances and also wants deep reforms and tax cuts to boost competitiveness after it reveals the "true" state of the 2010 budget, the prime minister's spokesman said on Friday.

Hungary's forint plunged and government bond yields soared by around 30 basis points on Thursday as investors financing Budapest's high debt worried about finances under the new center-right administration.

Prime Minister Viktor Orban's spokesman said the government will produce an economic action plan within 72 hours after releasing its report on the budget, which is expected this weekend or early next week.

If you add Hungary to the list, we are now looking at Spain, Ireland, Iceland and even Great Britain as potential countries that may go bankrupt soon. The stock market first started to drop when worries of "debt contagion" surfaced following Greece's trouble. There have been rumblings about this sort of problem for Hungary for nearly two years and now they've surfaced again.

On a similar note, Warren Buffett is predicting a municipal bond meltdown.

Add investment legend Warren Buffett to the list of those who warn of a municipal debt meltdown.

Many municipalities have promised overly generous retirement and health benefits to public workers without any viable plans to bring in the money necessary to pay for those benefits.

Muni bonds are chic investment vehicles for the uber wealthy largely because you can avoid paying taxes on income from them, especially if you buy them from municipalities in your home state. They've also been thought of as generally safe vehicles. Then again, the finances of municipalities have never been in the shape they've been in now.

May Jobs Report

The jobs report in April was fairly positive and in May it's a stinker.

Employers in the U.S. hired fewer workers in May than forecast, showing a lack of confidence in the recovery that may lead to slower economic growth.

Payrolls rose by 431,000 last month after a 290,000 increase in April, figures from the Labor Department in Washington showed today. The gain was smaller than the 536,000 median forecast in a Bloomberg News survey and reflected a 411,000 jump in government hiring of temporary help for the 2010 census. Private payrolls rose a less-than-forecast 41,000. The unemployment rate fell to 9.7 percent as Americans dropped out of the labor force.

Doing the quick math, this means that only 20,000 jobs were gained in the private sector. Meanwhile, the census jobs are temporary and so most of those jobs will be over by the end of July.

The unemployment rate fell to 9.7% and the pool of workers actually shrank by 286,000 people. That means that people again have stopped looking and gone back to being considered "discouraged workers".

Not surprisingly, equities are getting crushed in the pre market. The Dow may again test 10000 today. On the bright side, mortgage rates will again test all time lows. We're below 5% on the 30 year fixed and it's now pushing 4.75%. The ten year U.S. treasury is at 3.27%. That's at the very low end of the range. Watch to see if that breaks through a floor and heads toward 3%.

Some have said that the recession ended in July of last year. So, we're ten months into a recovery and jobs are nowhere to be found. This unemployment rate will continue to hover around 10% for the indefinite future. There is no spinning this. The economy continues to be stalled.

There's more coverage here. The spin is here and here.

Critical Time in Housing

The most recent housing number shows signs of an improving housing market.

The number of pending sales of existing homes in the US rose in February, giving the real estate market an optimistic outlook for the coming year.

Extended Homebuyer Tax Credit

Much of this recent increase in existing home sales has been attributed to the extended home buyer tax credit, which requires homebuyers to sign a sales contract by April 30th in order to be eligible. Pending sales on existing homes rose 8.2% according to the National Association of Realtors (NAR) Index, which now sits at 97.6, far above where economists thought February home sales numbers would be, with some actually predicting a decline of 0.5%.

There have been all sorts of so called green shoots in housing for months. Prices have steadied. Sales have increased at least slightly. Yet, none of it matters.

All that matters is what will happen over the next four to six months. That's because housing has been carried by two important stimuli and each has gone away or is about to go away. What will be critical is what will happen to the market once both go away.

The biggest stimuli was the Fed's quantitative easing that bought in excess of one trillion dollars of mortgage bonds. That's kept the thirty year mortgage at and below 5%. That ended on the first of April and now we'll see just how high mortgage rates will go without it. The market was barely motoring along while interest rates were at record levels. What will happen when rates go up? What if they only go up 1%. That's about $200 extra dollars a month in mortgage payments on a $200,000 mortgage.

Second, the first time home buyer credit incentive is about to expire at the end of the month. That gave first time homebuyers $8000 which could be applied directly to the down payment. That's no small amount. In fact, that largely drove the health March home sales numbers. So, what will happen to housing once these two go away?

In fact, it's scary to think just how weak the housing market has been considering the enormous stimulus that's been driven into the market. In fact, we've had near record low mortgage rates for more than a year and still the housing market has done little to recover. For almost nine months, first time home buyers were given an enormous credit and still the housing market was still not moving. So, we'll see where housing will go now that both will go away.

It's Process and Policies Mr. President

The President is going through his own twelve step program. He is now acknowledging he has a problem.

What I agree with is that the public has soured with the process that they saw
over the last year, I think that actually contaminates how they view the substance on the bills, I think it is important for all of these issues to be aired so that people have confidence before moving forward on such a significant part of the economy as health care, that there's complete transparency and all these issues have been adequate vetted and adequately debated

The president is right. The public had no use for the Cornhusker kickback, the Louisiana Purchase, and the fact that the major decisions were mad behind closed doors. Most people didn't notice but Scott Brown's campaign really took off the day after news of the Cornhusker kickback.

The president continues to refuse to wake up to reality, however. The public rejected his agenda long before the process became sour. The plethora of objections heard in townhalls in August weren't made because of the process. They were made because the public had rejected the substance of the bill.

In fact, the soured process is inextricably linked to the product. After all, if the bill were good, does anyone really think that all these Senators would need to be bribed? Sometimes, perfectly good bills are corrupted by such tactics. In this case, these tactics were necessary to get the bill passed.

There is still hope, however.

Signaling he'd meet critics part way on health care, President Barack Obama said
Tuesday he's willing to sign a bill even if it doesn't deliver everything he pursued through a year of grinding effort at risk of going down as a dismal failure.

The Democrats' massive health overhaul legislation is stalled in Congress by disagreements within the party and the loss last month of their 60th Senate vote, and with it, control of the agenda. Republicans suspect that Obama's invitation to a televised health care summit Feb. 25 is a thinly disguised political trap. On Tuesday, the president tried to change the dour dynamic, indicating he could settle for less in order to move ahead.

The problem was pretty simple. The president, Nancy Pelosi, and Harry Reid are all uber liberals. They were in the lead in crafting the bill. Such a PROCESS lead to a liberal bill. When they couldn't get enough votes, moderates were bribed. The policy and process are one and the same.

If there's an open and bi partisan process for crafting the bill, the bill may in fact be open and bi partisan. First, the president must acknowledge that the tainted process lead to an atrocious bill and start over.

The Limits of Bi Partisanship

There's a new air in Washington and the president is attempting to usher in an era of bi partisanship.

Signaling he'd meet critics part way on health care, President Barack Obama said Tuesday he's willing to sign a bill even if it doesn't deliver everything he pursued through a year of grinding effort at risk of going down as a dismal failure.

The Democrats' massive health overhaul legislation is stalled in Congress by disagreements within the party and the loss last month of their 60th Senate vote, and with it, control of the agenda. Republicans suspect that Obama's invitation to a televised health care summit Feb. 25 is a thinly disguised political trap. On Tuesday, the president tried to change the dour dynamic, indicating he could settle for less in order to move ahead.

There is great debate about how much each side is serious about bracing each other and how much is for political show. I am of the opinion that it doesn't much matter. If two sides come together, eventually there will be an agreement if the two sides are close enough.

The jobs bill is just such an issue. It's relatively small, under $100 billion. It's relatively uncontroversial. After all, everyone agrees that jobs are a priority and everyone wants to do something. So, the Democrats will give a little on tax cuts and the Republicans will agree on infrastructure spending.

On healthcare, however, there is a totally different dynamic. First, the Republicans don't necessarily see a need to pass a "compromise" health care proposal. Health care is the president's issue and passing anything would give him a win.

More than that, there are fundamental differences in philosophy on health care. The Republicans want to increase competition. The Democrats want to cover all Americans. That's not merely a difference in priorities but philosophy.

Republicans want to allow insurance to be sold across state lines. Meanwhile, liberals really want health insurance to go away as a private endeavor. There is no room for bi partisanship there. The president will continue to have the same problems he's always had on health care reform. Any compromise will lose more votes than it gains. The only chance to pass comprehensive reform is to partner up the Blue Dogs and other moderates with the Republicans. The moderate to conservative philosophy is the one that is dominant in the legislature.

Obama's Goofy Bank Tax

President Obama must be realizing that the populism that he rode into the White House has turned into cynicism, and most people think he's far too cozy with Wall Street. That's the only thing that can explain this goofy idea.

President Barack Obama on Saturday pitched his proposed tax on banks to recover the cost of bailing them out during the financial crisis, saying if they can afford billions more in bonuses, they can pay back the taxpayers, too.

The banks and Republican lawmakers oppose the tax, which Obama announced this week.

"We're going to pass this fee into law," the president said in his weekly radio and Internet address.

There are so many problems with this, Constitutionally that is. This would be an ex post facto law. This wasn't part of the deal when banks took the money. You can't give someone money with one set of rules and then change it after the fact. That's an ex post facto law and it's clearly prohibited in the Constitution. Furthermore, many of the financial institutions targeted have paid the money back WITH INTEREST. How can you tax them on money they've paid back?

Worse yet, both Fannie/Freddie and the auto makers are exempt from this even though they have barely paid anything back yet. It's also a clear violation of the fourteenth amendment, which says that the law must apply to everyone equally. Clearly, this law would not.

I haven't seen any polling on this idea but I suspect this polls about as well as most of the ideas Obama has come up with. (meaning not all that well)

Lukewarm About Reinstating Glass/Steagall

I have a slightly different perspective on Glass Steagall than most people. When I was a stock broker back in the late 1990's, suddenly my company, Everen Securities, was bought by a bank, First Union. We became First Union Securities. Suddenly, we were allowed to give checking accounts to our clients. That wasn't such a bad thing.

In fact, in theory, the repeal of the Glass Steagall Act isn't such a bad idea.Why wouldn't we allow banks to perform the functions of investment banks? In fact, only banks are barred from performing other functions. Think about how many different industries General Electric is involved in. No one is demanding a bill to stop their cross over into nearly all industries.

To say that the repeal of Glass Steagall caused the financial crisis is simplistic. At most, it contributed to it. More than that, it wasn't the repeal of Glass Steagall per se. Rather, it was the lack of imagination that followed its repeal that contributed to it. Look at how enormous Citigroup got. Traveller's, Solomon Smith Barney, Primerica, the list is endless of the companies bought by then Citibank to turn itself into a behemoth. If someone was screaming about danger, their voice was muted. Yet, the danger was obvious. Citigroup had its hands in everything and their sheer size meant the company became too big to fail. Only no one called it that during the height of the boom. Instead, it became a beacon for all others to strive for. You could do everything, financially, at Citigroup. That was good. Citigroup had a major stake in every part of the financial world, and that was bad.

It wasn't Glass Steagall's repeal that caused that. It was the regulator's lack of imagination that caused it. All mergers are supposed to be scrutinized so that the new company doesn't create a trust. Well, effectively, Citigroup was a trust. So, in a perfect world, I'd want to keep Glass Steagall repealed and get better regulators. I'm in reality and we won't have better regulators.

According to Politico, there's a growing sentiment to reinstitute it.

The populist angst aimed at Wall Street banks is already spilling into Senate deliberations on regulatory reform, and a powerful new sentiment — big is bad — is being echoed by liberals and conservatives alike.

The anger at the nation’s financial behemoths is taking shape in a variety of ways, most notably in a bill from Sens. Maria Cantwell (D-Wash.) and John McCain (R-Ariz.), who are targeting big financial institutions such as JPMorgan Chase andCitigroup.

The bipartisan duo’s bill would reinstate the Depression-era law that built a wall between commercial banking and the riskier activities of investment banking. The separation — originally set up in the Glass-Steagall Act — was repealed in 1999.

On principle, I'm against this. I don't like government telling private business what business they can and can't engage in. If banks want to engage in mergers and acquisitions, let them. At the same time, I'm a huge believer in free markets. It's clear our regulators have no idea how to create free markets without Glass Steagall. Too big to fail is the antithesis of free markets.

Clearly, our regulators have no idea how to make free markets with financial services companies, so we can't have financial services companies. We need commercial banks and investment banks.

Of course, here we're also living a dream world. We can't simply unring the bell. We now have all sorts of financial services companies that will have to be split into commercial banks and investment banks. The same regulators that couldn't figure out how to keep them competitive in their current state will be in charge of keeping them functional after breaking them up.

The real problem is that big powerful banks have far too cozy a relationship with the politicos. That's what's lead to all of this. Glass Steagall was merely a tool. Though, if we were able to reinstate it, it would take away at least one tool of too big to fail.

Rogers V Roubini

As I, along with most of the financial media, have reported, Nouriel Roubini, the famed economist who predicted our current crisis, has predicted the mother of all asset bubbles. By this, he believes that investors are using the cheap dollar to invest in assets. These investments are being driven not by fundamentals but by the weak dollar and so this is creating a bubble. One of the assets that Roubini has targeted for a bubble is gold. Now, another famed investor has taken issue with that. Jim Rogers, no slouch himself, believes that Roubini doesn't know what he's talking about.

I am most perplexed about this alleged bubble which is out there.

Rogers told Wall Street Cheat Sheet.Rogers has been bullish on gold and other commodities for the long term, often arguing that the weakening U.S. dollar will make commodities a better investment, pushing gold toward $2,000 an ounce, hundreds of dollars higher than where it is now.

Roubini, on the other hand, says investors are borrowing dollars to buy emerging market stocks and commodities, which is inflating the value of those assets.

Now, the beauty of debates like this is that while all sides have mammoth intellect they are ultimately worthless. Only time will tell whether or not there is a bubble. Both men will emerge wealthier whether they're right or not.

Roubini has earned a lifetime's worth of a reputation for predicting this crisis. He could get everything wrong moving forward and still make millions speaking and teaching. Rogers has already made his money.

For me, I'm perplexed by two things. This isn't the first criticism of Roubini's theory. Most simply dismiss Roubini's theory without giving much explanation for why. It's true that we may still be years away from the bubble popping. There's plenty of money to be made until then, presumably. Roubini's theory is based on a simple logic. Our fiscal and monetary policy is weakening our currency. Investors are using that weak currency to invest in assets they otherwise would not. That is forming a bubble. That's the theory.

We'll see if he's right but so far no one has challenged the theory. For my money, I don't know if Roubini himself is right but I do know that our policies are forming a bubble somewhere.

The U.S. as an Oligarchy

The President, in his 60 minutes interview, came out with this quote in particular that seems to have the most staying power.

I did not run for office to be helping out a bunch of fat cat bankers on Wall Street

Whether President Obama did or not, in fact, that's exactly what's happened. The only thing that is clear that's come out of the financial crisis is that our banks were on the brink of collapse, they were given a near $1 trillion lifeline, and now most are doing just fine. That was followed immediately by a $50 billion lifeline to the auto companies.

So, President Obama's populist rhetoric means little with a policy that clearly favors the connected in the business world. In fact though, President Obama is not unique. Most of those in power produce policies that favor those in power. This isn't a Republican or Democrat thing but a power thing. President Obama merely produced rhetoric that made some people believe that he would be different. When push came to shove, he showered the elites with billions like every other politicians.

What we effectively have in this country is an oligarchy.

An oligarchy (Greek Ὀλιγαρχία, Oligarkhía) (oligocracy) is a form of government in which power effectively rests with a small elite segment of society distinguished by royal, wealth, intellectual, family, military, or religious hegemony

It's a government run by the special interests, big business, and everyone else with access to power. Long ago, it stopped being a government of the people, by the people, and for the people, if it ever really was.

This time last year, Goldman Sachs was on the verge of collapse. Now, it's making billions trading oil futures. The same could have been said of Chase. Now, it's making billions in mergers and acquisitions. Fannie Mae/Freddie Mac have stripped the illusion entirely of being separate of the government and are now just owned. Before then, powerful politicians would move seamlessly from D.C. to powerful positions within either or both (a la Rahm Emanuel) and, as a result, both have been given special treatment and perks for decades. While President Obama demands reforms of just about everything, he's doing nothing to reform either Fannie/Freddie.

After the banks got their bailout, the auto companies were next and the bailout was followed by cash for clunkers which made served as a major stimulant to sell cars. All of it has a dubious effect on the economy as a whole, but certainly it benefits the bankers and the automakers.

President Obama is not unique in this at all. For decades Republicans have protected the oil industry as though their cousins worked there. Six companies control more than 60% of the entire market. All of them make tens of billions yearly all at once and no politician finds anything the slightest bit wrong with any of it.

The insurance companies receive their own special favors. McCarron/Ferguson gave the health insurance provider a special denomination that exempts them from Sherman Anti Trust and as a result they have conducted a so called market that's actually just created a set of regional monopolies that allow the insurance companies to dominate their own regional markets and leave other regional markets for their so called competitors. In reality, it allows a series of health insurance companies to all make money at the same time all while enjoying an environment with little competition.

If it isn't big business that gets special treatment, then it's big labor. The labor unions enjoy just as many special privileges from our government as many of our biggest companies. Health care reform can't pass unless it gets its stamp of approval from the top labor unions. When I say stamp of approval, I mean that health care reform can't hurt the health care packages of the unions.

The list goes on and on. We have a government based on influence and power. In Chicago, we call this clout. Our government benefits those with clout. If you have clout, you have influence. If you have influence, the government legislates in your favor. You could just call it an oligarchy.

The New Omnibus Bill: More of the Same

The latest omnibus spending bill shows that in D.C. it's business as usual.

It is business as usual in Washington. Despite a recession and record $1.4 trillion budget deficit, Congress continues to accelerate runaway spending and pork. While families and entrepreneurs are responsibly bringing their own budgets under control, Congress is spending and earmarking as if nothing has changed in the economy. Congressional leaders are attempting to rush through a mammoth, 1,088-page fiscal year (FY) 2010 omnibus appropriation bill[1] that:

What's really important about this budget is not only the number of earmarks in this bill and how many of those earmarks are ordered by Republicans and especially Republican leadership. That's because all while the Republicans are bemoaning the out of control spending of the Democrats they are in fact no better than their counterparts.

According to Taxpayers for Common Sense, there are 5224 earmarks worth $3.998 billion. These include earmarks by stalwarts like Mitch McConnell, Richard Shelby and rising stars like Aaron Schock. About 40% of the earmarks are ordered by Republicans.

Now, the amount of money that these earmarks cost is not the issue. Here's the issue. When you're out of power, you only really have the power to criticize. So, the Republicans have crticized the Democrats on spending. One power that Republican legislators have is to power to ask or not to ask for earmarks. That's one of the few ways that we can tell if Republicans, now criticizing spending, will be any different if they're in power. These earmark statistics show that both are nearly equally bad.

On this issue, the Republicans are showing that they're good at criticizing and not all that good at showing fiscal responsibility. What we have are two parties addicted to spending because that spending keeps them in power. This latest omnibus shows that there's not really much difference between either party.

What if Roubini's Right: A Thought Experiment

Nouriel Roubini, known as Dr. Doom, is a renowned economist. He made a name for himself by predicting the mortgage, financial, and oil crisis currently going on.

"In 2005 Roubini said home prices were riding a speculative wave that would soon sink the economy. Back then the professor was called a Cassandra. Now he's a sage."[1] In September 2006, he warned to a skeptical IMF that: "The United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining
consumer confidence, and, ultimately, a deep recession."[2]

He also foresaw "homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and the global financial system shuddering to a halt". The New York Times labeled him "Dr. Doom", whereas, in hindsight, IMF economist Prakash Loungani has called him "a prophet".[2]

Now, the same Roubini is predicting a dollar carry trade bubble.

So what is behind this massive rally? Certainly it has been helped by a wave of liquidity from near-zero interest rates and quantitative easing. But a more important factor fuelling this asset bubble is the weakness of the US dollar, driven by the mother of all carry trades. The US dollar has become the major funding currency of carry trades as the Fed has kept interest rates on hold and is expected to do so for a long time. Investors who are shorting the US dollar to buy on a highly leveraged basis higher-yielding assets and other global assets are not just borrowing at zero interest rates in dollar terms; they are borrowing at very negative interest rates – as low as negative 10 or 20 per cent annualised – as the fall in the US dollar leads to massive capital gains on short dollar positions.

Let us sum up: traders are borrowing at negative 20 per cent rates to invest on a highly leveraged basis on a mass of risky global assets that are rising in price due to excess liquidity and a massive carry trade. Every investor who plays this risky game looks like a genius – even if they are just riding a huge bubble financed by a large negative cost of borrowing – as the total returns have been in the 50-70 per cent range since March.

Roubini believes that the weak dollar has been fueling a rush to risky assets as investors try and take advantage of a weak dollar. Roubini specifically identifies "risky global assets". Risky global assets are especially plentiful in the third world and the developing world.

In other words, domestic investors are borrowing at cheap domestic rates, moving out of dollars, and going into the third world with the potential of massive returns. One important characteristic of any bubble is the presence of a stimulant outside of fundamentals. In this case, the stimulant is the weak dollar itself. So, investors aren't making massive bets in the third world necessarily because of the fundamentals, but rather, because they're taking advantage of the weak dollar. So, once the dollar strengthens, they'll move out and back into dollar assets.

So, what we'll see is the rapid investment into the developing world and then that investment will move out, and the bubble will burst. Now, the U.S. has had its fair share of bubbles. They're difficult even at their mildest. Looking back, 2001-2003 was a relatively mild recession following the internet bubble. Yet, while it occurred, there was plenty of pain. In the third world, bubbles are much rarer since they don't experience as many booms.

Roubini isn't merely calling for a dollar carry back asset bubble but the MOTHER OF ALL dollar carry back asset bubbles. That means that third world economies will see economic pain on scales we've never seen before. After experiencing growth that will give their populations hope, they'll experience pain on scales they thought they'd never see again.

We often look at economics strictly economically. There is however a cultural, societal, and geopolitical aspect that is often overlooked. A massive bubble that hits the third and developing world all at once would lead to a sort of geopolitical instability that's frightening. In those nations, economic pain leads to coups, governments falling, and dictators rising.

Since this bubble's nexus will be tracked to a weak dollar, tracked to U.S. policy, you can bet that despots and opportunists will use the crisis to blame America. So, what we will have is a dictatorial takeover all over South America, some parts of Asia, and parts of Africa. Anti American depots and opportunists will look to use the crisis to support leftists to fill the vacuum for falling governments all over the world.

There will of course be plenty of civil wars. That's what happens in conjunction with falling government, often, in the third world. We'll see death, looting, and mass chaos all over the place. This will also give opportunities for terrorists and other American enemies like Hugo Chavez, Russia, and Iran to install governments sympathetic to their beliefs.

Chavez will almost certainly be the big winner in South America in such a scenario. He, more than anyone else, would ride the Anti American card as developing countries have their governments fall. Africa would see multiple civil wars all at once. Parts of Asia will have their governments fall. In the geopolitical climate that will likely be in place before all this, this sort of scenario is a recipe for disaster.

Obama Pitches Jobs Program

If you wanted to see politics at its most cynical, all you had to do was listen to the President deliver his speech to introduce his latest jobs bill. First, he attacked Republicans for creating the mess and standing in the way.

President Obama used his speech rolling out a stimulus-style jobs program Tuesday to point the finger at Republicans for allegedly facilitating the economic crisis and then foisting it off on his administration to solve.

While praising his own team for pioneering "ambitious" financial reform and "sweeping" economic recovery initiatives, the president took some pointed shots at Republicans who are now blasting the latest package as a spend-crazy "stimulus two" that will drill deeper into the deficit.

In the very next breathe, Obama bemoaned the corrosive partisan environment that lead to the crisis.

Obama said the crisis was caused not just by economic weakness but the "weakness in our political system" -- one corroded by the "bitterness of partisanship," and the "endless campaigns focused on scoring points instead of meeting our common challenges."

"We've seen the consequences of this failure of responsibility. The American people have paid a heavy price," Obama said, calling the nation's unemployment a "human tragedy

Now, if you're going to bemoan partisanship, it takes an awful lot of chutzpah to deliver a speech that is at the same time full of partisanship.

The meat of the plan is as follows.

The president's proposals addressed three main areas. He focused primarily on help for small businesses, targeting them with tax credits to encourage hiring and unused Wall Street bailout dollars to increase lending. He also backed a one-year elimination of the capital gains tax on gains from new investment in small business stock and other measures.

The other two priorities for the president were to call for infrastructure spending for highways, railroads, bridges, tunnels, airports and seaports, and a new program to give rebates to people who retrofit their homes so that they're more energy efficient. He also backed an extension of aid and health insurance assistance for the unemployed.

There are somethings that could work well here in theory. I am no fan of tax credits. I like marginal tax rate cuts more than credits because the first is permanent and the second is temporary. I am all for making the capital gains tax rate zero however I'd want to make it more permanent. Capital spending was a massive part of the initial stimulus and energy credits were also a part of the initial stimulus and neither has had any effect.

What's most troubling about the idea is that the Democrats and the president want to use the available TARP funds to pay for it. TARP, the Troubled Asset Relief Program, was meant to save the banks. First, we were told that we'd buy their so called "toxic assets". Then, after it was passed, the Bush administration decided to simply give banks the money. We were then told that the banks would return the money WITH INTEREST. We were told that the taxpayers might even make money on the deal.

That hasn't even come close to happening however TARP has cost about $200 billion less than what was initially projected. The original idea, as was passed in the bill in September of 2008, was to use any used funds to pay down the deficit. The administration appears to think that this money should be spent even though that's not what was stated in the bill.

Our deficit will be north of$1.5 trillion this year. The administration seems to think that since the final number will be $200 billion less than some estimates this is license to spend. Imagine you live pay check to pay check. You then max out your credit card to go on a lavish vacation. Then, you spend less than you first expected. Instead of using the savings to pay off some of the card, you buy a big screen television. That's about the logic that the administration currently has.

Point Counter Point Weekly Addresses

Carly Fiorina, former CEO of Hewlett Packard and current Republican candidate for Senate in California, delivered the Republican response. Fiorina is a breast cancer survivor. That's something she's downplayed even though most people haven't known it given her remarkable recovery and her immediate entrance into the race. She battled breast cancer bravely and with class.

That said, I'm never a fan of using such near tragedy as a tool of political demagoguery. That's what she's done with this address. A couple years back, a young man by the name of Graeme Frost delivered the Democratic address in favor of SCHIP. He said that without SCHIP he would have died.

In the same way, Fiorina claims that if the recent mammogram recommendations had become policy she would likely have died. This is the sort of cheap stunt that is too often a part of politics and it's politics at its most cynical.

This recommendation came from the U.S. Preventive Task Force. It recommended that women under 50 don't need regulary mammograms and women over 50 should get them every two years. Fiorina pointed out that this task force had no doctors that were experts in breast cancer: oncologists and radiologists. Furthermore, she said that the Senate's health care bill would give all sorts of new powers of recommendation to this very task force for what procedures to be covered by insurance.

It's a very real fear that everyone should have that expanding health care would give the government more power. More power would lead the government, not doctors, to decide what is and isn't an important medical procedure. That's something most Americans have now realized and it's one of the main reasons why health care reform continues to crater. All of this are fine points. I still could go without using the cheap prop of bringing out a cancer survivor to do it.

This week's address sounded a lot like a stump speech. President Obama started out by touting the latest jobs report though he never gave the bottom line number. That's curious since the jobs report isn't viewed by most of the public. Instead, he said "the pace of jobs losses has diminished". He then went on to point out that "diminished job losses" doesn't pay for the rent, put food on the table, or pay for college.

He took credit for the improving economy in the form of the stimulus and other economic programs he's implemented. He then spent the last three minutes of the speech talking about his platform of health care reform, education reform, and energy reform and how this will lead us to a brave new world.

In his chutzpah moment, the president said that it was his responsibility to make sure our debt is under control. Apparently, he's bringing it under control by running our deficit up to nearly $2 trillion first. He also said that many of his economic policies: bailouts, stimuli, etc. were "unpopular" but "necessary". I won't argue with the first though the second is very debatable.

Conservatives: Be Careful in Talking Down the Jobs Report

Following the release of the jobs numbers yesterday, the folks at Powerline blog met the news with a post called Reasonably good news on the economic front .

The November report on jobs is out and it contains reasonably good news. The best news is that the number of jobs dropped by only 11,000 and the job loss number for
September and October was revised downward by 260,000. In addition, the weekly
number of hours worked and overtime worked jumped, and the temporary-hiring
sector expanded for the fourth month in a row.

The economic news isn't "reasonably good" but stunning. In fact, CNBC called it "too good to be true" and a game changer.




Meanwhile, the folks at Hot Air were as begrudging in their reporting of this news as the folks at Power Line.

The Obama administration gets a little good news this morning. The unemployment rate eased back two-tenths of a point to 10.0%, only the second decline in unemployment since the start of the Obama presidency. However, the number of chronically unemployed rose again, indicating that the front-line decrease does not capture the full direction of unemployment:

At Hot Air, they didn't even bother to report the real story. The real story was that the economy only lost 11000 jobs. It had lost 700,000 jobs in February and so this is a stunning recovery. The news isn't good for the Obama administration but everyone looking for work. Considering the best month up till now in two years we still lost six digits each and every month MINIMUM this news wasn't reasonably good but excellent and stunning. It may in fact still be a game changer.

Here's how a business reporter for the Chicago Tribune reporter covered the story.

the latest jobs numbers are any indication, Americans can worry less about pink
slips and look forward to a year of economic healing.With layoffs easing
sharply, as the Labor Department's numbers suggested Friday, people with jobs
might feel a little more comfortable about spending money, and that could prompt
employers to add a few workers if they are having trouble meeting greater demand
with a tight staff.

The tenor of the coverage at Fox News was largely the same as it was at Hot Air and Powerline. Conservatives had better be very careful here. This is just one month. Next month, we may still lose 100,000 jobs again and be back to misery. It may also be a painfully slow recovery even as job growth enter positive territory. Keep in mind that the country adds about 150,000 people into the job market every month and so that's really the zero number.

That said, I hate Obama's economic policies as much as the next conservative. I don't believe for one second that government spending that leads to trillion dollar deficits will do anything but stunt economic growth. At the same time, when you stop reporting reality and report what you want the news to be, you stop being a journalist and start being a propagandist.

When the jobs number goes from a loss of 140,000 to 11,000 in a month, that's not reasonably good news. It's not a "little good news". It's simply great news. It's certainly no time to celebrate and it takes months to form trends. There is no trend yet but if jobs are positive next month Conservatives had better start to face reality and begin to acknowledge the recovery.

The economic outlook is much better than I thought it would be at this point. I thought we'd lose about a million more jobs for the last six months than we did. That's why I try and make as few predictions as possible. I'm not afraid to acknowledge the mistake, however, and report reality as it is, not as I predicted it.

If conservatives and Republicans are still talking down an economy that's recovering, that would put them in big time hurt. We're still a long way from there. While the economy has bottomed and is beginning to recover, we have no idea what sort of recovery it will be. If it's a slow and painful recovery that doesn't help the president much. That gives his opponents plenty of opportunities to attack.

Furthermore, the economy still has plenty of pitfalls left. Foreclosures are still rising. Commercial mortgages are still on the verge of their own cataclysmic collapse. Banks are still not lending. All of that is also a reality. That doesn't mean that we fail to acknowledge of the stunning news on the jobs front.

Stimulus Two... The Jobs Bill

Words matter, as President Obama might say. So, instead of calling his latest round of spending a stimulus, he'll call it a jobs bill.

After talks with Treasury Secretary Timothy Geithner and other administration officials, congressional Democrats are eying up to $70 billion in unused borrowing authority from last year's $700 billion Wall Street bailout for jobs-related legislation, two House Democratic aides said. The aides required anonymity to describe the private talks.

Democrats say the Troubled Assets Relief Program money would "pay for" any jobs bill. But the move is largely cosmetic since tapping the bailout money would require issuing billions of dollars in new federal debt. The White House had hoped to lower deficit projections by not using the full $700 billion in TARP authority approved during last year's economic meltdown.

I, and many like me, will ask what exactly we spent $787 billion on if not JOBS. Sometimes pols get so caught up in their own ideology that they're simply blind as to how it all looks.

First, if we spent $787 billion and that didn't create jobs, what in the world will another $70 billion do? Second, if this $70 billion will be the force to create jobs, why did we spend $787 billion in the first place? Let's face it. The current crop of Democrats are more in love with tax, borrow and spend than any political dynamic in history. There's almost nothing, short of defense, they aren't willing to throw money at: newspapers, struggling home owners, banks, highways, schools, pet projects, studies, you get the idea. They've suggested a tax on just about everyone and everything.

The Treasury borrowed to pay for TARP and our deficit is stunning. The folks are growing more and more concerned with the deficit daily. Yet, the Democrats have created another spending program. Of course, there's a reason why tax and spend has such a negative connotation. It doesn't work. It's counter productive. It's even worse than that. it stunts the growth of the economy. It burdens the private sector. It leads to higher interest rates and a weaker currency. Here we have the latest in a series of tax and spend policies.

The Jobs Summit

The President held his jobs summit today.

Chronic unemployment isn't merely academic but rather "a struggle that cuts deep and touches people across the nation," President Obama said at a much-anticipated jobs summit Thursday where he acknowledged skepticism over the ability to produce results.

Still, the president claimed progress toward an economic recovery while saying much more work needs to be done -- even as the left wing of his party accused his administration of not doing enough to increase employment.

Obama sought fresh ideas from the 130 corporate executives, small business owners and labor leaders who attended the jobs forum. The president said the leading question of the day is "how do we get businesses to start hiring again."

After his opening remarks, the group broke into smaller study groups. Obama planned to address the entire group again at day's end.

I've said it before. Politicians hold summits, councils, and advisory committees when there's a problem they know they need to address and they have answers. Instead, politicians want the folks to think they're making every effort on this matter.

That's what's happening here. The optics on this thing, however, are horrible. In reality, it's the president's policies that are horrible. Wasn't the stimulus supposed to create jobs? Why has he been in office for nearly a year and only now getting ideas to create jobs? Wasn't job creation a top priority? Wouldn't a jobs summit have been the first thing he convened?

Of course, when things are going bad the optics are always bad on everything. The real problem is that we've spent record amounts of money and have a 10.2% unemployment rate to show for it. If he hadn't held a jobs sumit, his opponents would be complaining that people are struggling and the president isn't doing anything.

Now, they'll complain that it's either worthless or ten months too late. Either way, their complaints will resonate only because the unemployment rate is so high and there's a reason to complain.

Back when the stimulus was about to pass, Bill O'Reilly said that Obama was staking his presidency on its success. He said that there was something admirable in taking that large a gamble on such a policy. I suppose there is something admirable in believing so much in a policy that you stake your presidency on its success. It's even more admirable, however, if said policy actually works.

Back at the beginning of his presidency, Ronald Reagan faced a unique problem. He faced high unemployment and high inflation. While he was working on cutting taxes to stimulate the economy, Paul Volcker was raising interest rates to reverse inflation. Of course, the second stunted the first and it was driving factor in the double dip recession that occurred. Reagan never wavered and he never questioned Volcker as he was stemming inflation. I was too young to remember so I don't know if Reagan held any jobs summits in 1982 when things looked bleak. Reagan wound up watching his Republican allies suffer heavy losses in those mid terms. Then, in 1983, the economy began a remarkable turnaround that ultimately only ended in 2008. Reagan indeed, also, staked his presidency on a bold policy, dropping the top rate from 72% to 28%. It's even more admirable that he risked everything on a policy that worked.

The jury is still out on whether or not Obama's gambit will work. It may still shake out that running up a near $2 trillion deficit will create jobs. We're still years away from making a final judgment. That said, Obama is now married to his stimulus. The fate of his presidency rests entirely in it working and leading to economic prosperity. It will be that success or failure and not any jobs summit that will matter. This is the story of the day but the real story is the fate of the stimulus.

The President is F&*ked II

Going into the speech tonight, the President has put himself into a position that is so untennable it's at this point nearly impossible to see how he can get out of it. At this point, there's no doubt that the president will ask for more troops tonight.

That will tick off the left which is now growing ever more impatient with him. It's still yet unclear if he can even sell more troops to get funding but even if he does, it will come at a major price politically. The conservatives will back him but they aren't going to be happy unless he gives McChrystal all the troops he asked for. As such, he will likely please no one with his decision.

At the same time he is selling this, he will also have to maneuver on health care. That's even less popular than an escalation of troops in Afghanistan. On top of this, liberals will already have to swallow more Afghan troops. So, what if there's no public option in health care? Are they really going to swallow that as well? Yet, it seems clear that the bill won't pass in the Senate with the public option. So, what's he to do?

Meanwhile, ACORN is continuing to embarrass him. It's stunning that Holder would come out and say that ACORN would get paid for back contracts. The optics on that look awful. Unemployment is past ten percent. Our deficit is north of $1.5 trillion. His approval rating is in the high 40's and dropping.

Carl Cameron said yesterday that in candor Democratic lawmakers are now targetting Valentine's Day for passing health care reform. The country simply can't take another two months of this. I said yesterday I was sick and tired of the debate and I don't think I'm alone. The approval for the bill is low and dropping and forcing the country to listen to it for another three months will only make it worse. As such, either the president passes nothing or passes something deeply unpopular.

At the same time, he's going to escalate a deeply unpopular war policy. Even if it ultimately works out, it will be a year or more before the public sees progress. In the middle of it all, it doesn't seem as though he can actually get Congressional approval for either let alone both. Already, some of the Democratic leadership have assumed their own role as Commander in Chief. They are making demands for how the war effort will go in order to back funding it. His base is turning on him just at the time he'll have to sell health care reform sans the public option.

Just think about it. Soon, there will be no group all that happy with the president. Conservatives are already in ODS mode. Moderates have been leaving for months. Now, it's the liberals that are beginning to turn and on the two main issues of the day, they're about to be disappointed.

It is all a result of the president totally misreading the mood of the country, the ideological make up of the Congress, and the so called mandate he received in 2008. He's trying to govern as a liberal, at least certainly on domestic issues, in a center right country. The make up of the Congress is center right even though it's more Democrat than Republican. The country didn't want a massive expansion of government and debt.

For him to succeed, he'll have to reinvent himself as a moderate. Health care reform could pass but it would have to be totally transformed into a moderate reform package. To do that, he'll have to show plenty of political acumen and courage. Neither of which he's ever shown in his career. Soon, he'll have no choice. He's created a political dynamic that is almost impossible to stop at this point. That dynamic will lead to huge shifts in 2010. He doesn't have the votes to govern as a liberal now. He certainly won't have them then.

The president is well on his way to becoming the fastest president to reach 30% approval ratings. Nothing is working. Worse yet, he's set himself up to make things even worse. He's about to alienate the left on Afghanistan without really appeasing the right or middle either. Health care is in chaos. The economy is in tatters. Our deficit is enormous, and blaming Bush no longer works. Like I said, the President is F*(ked.

A Mixed Bag from the NABE

The National Association for Business Economists is the gold standard in economic projections. In fact, we've dismissed such "trivialities" as waiting for two consecutive quarters of actual job growth in favor of these 48 economists telling us when recessions begin and end. They've come out with their forecast for jobs.

Leading economists who just last month declared the end of the recession, which began in December 2007, but warned of continued job struggles, said today in a new survey the economy is poised to add jobs "within the next few months."

The survey from the National Association for Business Economists reaffirmed the October assertion the recession is over.

"While the recovery has been jobless so far, that should soon change. Within the next few months, companies should be adding instead of cutting jobs," said NABE President Lynn Reaser, chief economist at Point Loma Nazarene University.

The news isn't all good. The NABE predicts that unemployment will still be at 9.6% by the end of 2010. It predicts that we won't gain all our jobs back until 2012.



Now, let's put some context to this. The same NABE predicts the monthly jobs number along with a plethora of other economic statistics. If you follow the jobs number or just about any other economic statistic, then you know the real shock is when they actually predict it right. I am not knocking any of the NABE. Predictions are very difficult. Just look at any so called experts' prediction pre season for the World Series, Super Bowl, etc.



Predictions are almost always worthless except that reality is always measured against them. Markets turn not simply based on a number alone but on how that number fared against the prediction. The latest jobs' number wasn't good or bad, most importantly, it was slightly worse than expected.



So, the markets will digest this number and then they'll digest reality. If reality is better than the prediction the markets will go up and vice versa. If these numbers eventually reflect anything near reality, the Democrats have serious problems. Going into mid terms with near double digit unemployment having spent trillions and telling America that unemployment won't pass 8% is not a place I'd want to be.



2012 is significantly more difficult to believe. Most people look at the current situation. If unemployment is between 5.5%-4.% as the NABE predicts, that will be good for the party, no matter how long it took to get there. Still, 2012 is a long way away. Much will happen between now and then.

November 2010 is much closer. If the NABE is right, I predict that Republicans will challenge for majorities in both chambers.

The Coming Asset Bubble

The weak dollar and it's potential to create an asset bubble is even concerning the Federal Reserve.

US Federal Reserve officials are stepping up scrutiny of the biggest US banks to ensure the lenders can withstand a reversal of soaring global-asset prices, according to people with knowledge of the matter.

Supervisors are examining whether banks such as JPMorgan Chase & Co., Morgan Stanley and Goldman Sachs Group Inc. have enough capital for the risks they take, how much they know about the strength of their counterparties and whether risk managers have authority to influence bank practices and policies.

..

The policy is raising the ``systemic risk'' of new asset bubbles, Bill Gross, who runs the world's largest bond fund at Pacific Investment Management Co., said in a note posted on the Newport Beach, California-based company's Web site yesterday. Finance officials in Asia say a bubble fueled by the Fed's low rates has already arrived.

There's a few things of note here. First, I've recently noticed, and been pointing out, that equities have been moving in the opposite direction of the dollar. So, strength in equities has come at the expense of the dollar.

Second, having the Federal Reserve be concerned about this is rather ironic. If in fact a bubble is forming then Federal Reserve is the first, second, and frankly only culprit in creating it. The weak dollar can be attributed to 1) artificially low rates and 2) the expansion of the money supply. Both of those are caused entirely by the Federal Reserve.

Third, Nouriel Roubini and his dollar carry back asset bubble theory are NOT mentioned in the story. That's peculiar because the story described his theory to a T. Roubini believes that the weak dollar is causing investors to borrow dollars and invest them in foreign markets where returns are potentially much higher. What is being described here? That's exactly what's being described.

The Fed isn't about to raise rates or sell back some of the assets they've recently bought to increase the money supply. Instead, they want to monitor the capital of banks and make sure that domestic banks are aware of their "counter parties" strengths. In other words, the Federal Reserve will monitor more closely to make sure that banks aren't overextended and that they're dealing with banks of good repute in the third world.

That's all good and well, but the Federal Reserve pumped the system with trillions in new dollas and lowering rates to zero causing this concern. Now, they want to monitor banks to make sure don't take too much advantage of the situation. That's sort of like your crack dealer making sure you aren't sharing needles. The right thing to do is to take away the crack, the massive amount of dollars and the obscenely low rates, not to make sure the banks are operating properly in the environment they've created.