A Funny Thing Happened On The Way To 41
Tuesday, as the people of Massachusetts were busy sending Scott Brown to the United States Senate to occupy Ted Kennedy's vacated seat, a related event was taking place in New York. The Stock Market was on the rise backed by strong showings in managed care and drug company stocks. Armed with the knowledge that Health Care Reform would either be dead or greatly scaled back, investors bought into an industry that they had previously been afraid to invest in. The result saw the DOW rise 116 points to a fifteen month high.
With Brown winning the election and Pelosi signaling the death of health care reform, President Obama vowed to double down on the economy.
Washington (CNN) -- President Obama already was planning to put a heavy focus on jobs and the economy in next week's State of the Union address, but his top aides are signaling that pivot is going to be even sharper in the wake of the Democrats' stunning election defeat in Massachusetts.
White House press secretary Robert Gibbs noted the president has been dealing with the financial crisis long before Tuesday's Senate race, but he acknowledged the administration could have done a better job of conveying that message to the public and will now redouble its efforts.
Stocks fell sharply, sending the Dow Jones Industrial Average to its worst two-day percentage drop since June, as governments showed signs of toughening their love this year after racing to support financial markets last year.
The Dow fell 213.27 points, or 2%, to 10389.88. After Wednesday's 122.28-point drop, it is down 3.1% in two days. After beginning the year with sharp gains, the Dow now shows a decline of 0.4% for 2010.
Stocks briefly rebounded after Democratic Massachusetts Rep. Barney Frank, chairman of the House Financial Services Committee, said the changes could take years to accomplish, but they soon resumed their declines. Financial shares in Standard & Poor's 500-stock index fell 3%.
This takes me back to a show I did on October 3rd of last year. Here is a brief clip.
"Every time this guy touches an issue it falls apart". How on the money was that comment? Here is how Dennis Kneale put it over at CNBC.
The Democrat Debacle in Massachusetts offered a rare gift to President Obama: a premonition of the rout that was about to rack his own party in the mid-term congressional elections nine months from now.Forewarned, Obama had the chance to adjust way ahead of time, reshaping his tax-and-spend onslaught, scaling back his health plan and learning the upside of compromise.
Instead, Bam is losing it. He is squandering this gift in favor of a damaging, intensified attack on big banks—the very engine of economic growth he needs to revive the economy and get himself re-elected.
Worse, he alienates even some stalwart supporters on Wall Street and in business. Real estate mogul Mort Zuckerman, an Obama supporter, said as much moments ago on Power Lunch, saying the President is “playing games with the financial system. . . It’s more about politics than policy.”
In so doing, the President has shed his usual, becalmed visage of judicious intelligence and what-me-worry confidence. In its place is an unpleasant portrait of a sulking, vengeful politician lashing out at Goldman Sachs [GS 154.06
-6.81 (-4.23%)
] , J.P. Morgan [JPM 39.15
When are we going to shed this notion that President Obama can fix this economy? It's not that he won't, he is incapable. President Obama has a failed economic philosophy that is part of the problem, not the solution. He believes that when he attacks the banks, takes over businesses, and demands the return of bonuses that he creates some type of fairness in the economy that will somehow make everything right. President Obama doesn't believe in Trickle Down Economics, he believes in Trickle Down Failure.
The Failure must start at the top. We go straight to the banks and take more of their money. This trickles down to the investors, who realize this will hurt their investments, and they cut and run leaving even less money for the banks to loan. This trickles down to the small businesses who can't get a loan to purchase new or replace old equipment, and are forced to layoff or go into a hiring freeze. This trickles down to small business employees, who now lose their paycheck or their potential of having a job. The failure at the end leaves nothing at the bottom. Hence, it requires a new infusion of money into the economy via a new stimulus package so more money can die on the vine.
Notice how this works? President Obama derides President Bush's tax cuts as a "tax cut for the wealthy". Yet who did the TARP money President Obama voted for go to? It went to these banks and their "fat cat" wealthy bankers. Why? Because they were failing and had no capital to send back through the economy. So we infuse them with money, then when they have profits because of the money we invested in them, President Obama wants to take it back before it can trickle down to you, leaving you with a wallet full of failed economic policies, yet empty on the cash side.
This type of economics wouldn't make sense to a five year old. Let me explain, using a five year old and a ten year old as an example. In trickle down economics, a parent has a bag of candies for their two children. They give the bag to the older child knowing that he will probably end up getting more of the candy than the younger child, but he is also more mature and will make the candy last longer. It beats giving half to each child, in which case the five year old will eat all of his candy today and have none tomorrow.
Under Obama policies, we give all of the candy to the older child. We explain that he is lucky to have this candy, and we won't tolerate him hogging the candy or eating it all too quickly. We assure him we will be back periodically to check on the stash and make sure it is being distributed fairly. A week later we come back, see the bag still nearly full of candy, accuse him of hogging it, and take it back.
How are investors supposed to show any type of confidence in a system like that. President Obama has gone around citing the stock market and a few other factors as examples of how his economic policies are working. I said he was wrong, but perhaps he was right. President Obama's policy of neglecting jobs and the economy in favor of health care reform allowed the stock market to enjoy some growth while he was distracted. Now that he is back focused on the economy, be prepared for more economic setbacks.
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