So, Tim, how's it going?
Who would have thought Tim Geithner would be the last man standing on the Obama economic team?
First, let me say for those that don’t know, Lizzie O'Leary (@lizzieohreally) is a Washington D.C.-based correspondent for Bloomberg Television who covers politics and economic policy from the White House, Treasury Department, and Capitol Hill. She is officially a @Hedgeye twerp (a term of endearment).
So, Larry Summers is going back to Harvard. President Obama campaigned on the theme “change for America” and a change it is. Not the change we were promised, but one that is long overdue.
There are so many quotes from Larry, Tim or Ben that I could have used to start off the Early Look today, but I chose a one-liner from the @Hedgeye twitter feed that made me laugh, and there were many. On a serious note, this country is in need of “change” and a new economic team at the White House is a great place to start.
Keith said it best last night, @KeithMcCullough – “The dogma of the Robert Rubin/Larry Summers economic ideology has to leave the West Wing if America wants any chance.”
The popular press and the new media just skewered Larry Summers last night, which would have made him an easy target for today’s Early Look’s musing. If you have not figured it out yet, I have embraced a change in my daily process by integrating Twitter as part of it. For competitive reasons, I’m not going to say how, but Reuters and Dow Jones need to be looking at the Twitter business model very closely as it is their future.
The other one-liners that made the highlight reel on the Hedgeye Twitter feed:
- @Moorehn - Poor Larry Summers. Leaving before he could throw a proper tantrum about a woman joining Obama's economic team.
- @HowardKurtz - Larry Summers bailing from WH. Will Obama name a replacement before election and portray it as jumpstarting his economic efforts?
- @ErikSchatzker - Summers to teach job creation and stable finance at Harvard. Hmm. Reminds me of that old saying about those who can't do.
- @zerohedge - Summers to resume his job of destroying Harvard's endowment
Ok, back to reality and the euphoria that has made September performance one of the best since the 1930’s.
So far this week, we have learned that the recession has ended and after the close last night the ABC consumer confidence index fell to -46 for the week ending September 19th, down 3 points from the week prior. This news and the University of Michigan reading from last week spell bad news for consumer spending. The recession may be over, but there are structural issues that demand immediate attention. The data bears this out:
- Over 41 million Americans are on food stamps.
- 17 million children struggle with hunger in America. That's 1 in 4 kids.
- 1 out of every 6 Americans is on some kind of anti-poverty program.
- 1 out of every 7 mortgages was delinquent or in foreclosure in Q1 2010.
- Over 8 million Americans are receiving unemployment insurance.
It’s going to have to be an impressive trick if the new Obama economic team can embrace change and get us out of this mess without feeling more pain. As the saying goes - no pain, no gain!
The September month-to-date performance has been nothing short of spectacular, but it is difficult to reconcile this euphoria with the current fundamentals of the economy. So far for the month of September, the Dow is up 8.62%, S&P up 7.45%, NASDAQ up 11.13% and the Russell 2000 up 10.4%. With the Dow +0.07%, S&P (0.10%), NASDAQ (0.28%) and Russell 2000 (0.79%) yesterday, there was a clear lack of overall direction following the FED announcement; except for the direction of the dollar, which is getting crushed, down 1.1% yesterday and 3.2% over the past month. The euphoric feel comes from:
- Consumer confidence is near “the great recession” lows and investor sentiment is near multi-year highs.
- Some of the market darlings (AAPL and AMZN) look over extended.
- The MACRO risks (housing and slowing GDP) have taken a back seat in September, but will rear their ugly heads soon.
- The 2yr and 10yr yields are at record lows and the dollar is getting crushed.
The policies of the old Obama economic team were enough to keep us out of a full-blown depression, but were clearly not effectively dealing with the deficit. The question is not whether or not the next team will prove any more adept at instilling confidence in government’s ability to address the nation’s debt.
The burgeoning healthcare bureaucracy, economic stimulus spending, bailouts, and the increase in military spending have all contributed to the explosion in federal debt over the past decade. The continued growth of that debt has provided an illusion of an economic recovery.
In the chart below, we show one example of government spending providing an unsustainable crutch for government spending. As America’s unemployed make their way through the 99 weeks of benefits afforded them by Uncle Sam through the Emergency Unemployment Compensation program, it is clear from Bureau of Labor Statistics data that the economy is not yet ready to put these people back to work. Retail sales will certainly be impacted by people running out of these benefits – a stimulus that, like many others, has been financed by increased debt.
One last thought - The dogmas of the quiet past are inadequate to the stormy present. The occasion is piled high with difficulty, and we must rise with the occasion. As our case is new, so we must think anew and act anew.
Function in disaster; finish in style