Excerpted from IBD, “Is It Any Wonder The Market Continues To Sink?”, February 20, 2009
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Last Oct. 13, in trying to explain why the market had sold off 30% in six weeks, we acknowledged that the freeze-up of the financial system was a big concern. But we cited three other factors as well:
• The imminent election of “the most anti-capitalist politician ever nominated by a major party.”
• The possibility of “a filibuster-proof Congress led by politicians who are almost as liberal.”
• A “media establishment dedicated to the implementation of a liberal agenda, and the smothering of dissent wherever it arises.”
No wonder, we said then, that panic had set in.
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Today, as the market continues to sell off , we wish we had a different explanation. But it still looks, as we said four months ago, “like the U.S., which built the mightiest, most prosperous economy the world has ever known, is about to turn its back on the free-enterprise system that made it all possible.”
How else would you explain all that’s happened in a few short weeks? How else would you expect the stock market, where millions cast daily votes and which is still the best indicator of what the future holds, to act when:
• Newsweek blares from its cover “We Are All Socialists Now”
• A $700 billion bank bailout, $75 billion to refinance bad mortgages, $50 billion for the automakers, and as much as $2 trillion in loans from the Fed and the Treasury fail to build confidence in our free-enterprise system.
• Talk of “nationalizing” U.S.’ troubled major banks comes not just from tarnished Democratic Sen. Chris Dodd, from Republicans like Sen. Lindsey Graham , and former Fed chief Alan Greenspan.
• A stimulus bill laden with huge amounts of spending on pork and special interests is the best our Congress can come up with to get the economy back on track. Economists broadly agree that the legislation has little stimulative power, and in fact will be a drag on economic growth for years to come. Throwing hundreds of billions of dollars at profligate state governments and programs — such as $4.2 billion for “neighborhood stabilization activities” and $740 million to help viewers switch from analog to digital TV— has investors shaking their heads.
• A $75 billion bailout for 9 million Americans who face foreclosure, regardless of how they got into financial trouble, is the government’s answer to the housing crunch. Many Americans who have scrupulously kept up with payments are steaming at the thought of subsidizing those who’ve been profligate or irresponsible. And. recent data shows that as much as 55% of those who get foreclosure aid end up defaulting anyway
• Energy solutions ranging from the expansion of offshore drilling and the development of Alaska’s bountiful arctic oil reserves to developing shale oil in America’s Big Sky country, tar-sands crude in Canada and coal that provides half the nation’s electric power, are taken off the table.
•• Trade protectionism passes as policy, even amid the administration’s lip service to free trade. Congress’ vast stimulus bill and its “Buy American” provisions limit spending to U.S.-made products and will drive up costs, limit choices and alienate key allies. Already, several European partners have begun raising barriers.
• A 1,000-plus page stimulus bill is bulled through Congress with not a single member of Congress reading it before passage.
• Business leaders are demonized. Yes, there are bad eggs out there like the Madoffs and Stanfords. But most CEOs are hugely talented, driven, highly intelligent people who make our corporations the most productive in the world and add trillions of dollars of value to our economy.
• Words like “catastrophe,” “crisis” and “depression” are coming from the mouth of the newly elected president, rather than words of hope and optimism. Instead of talking up America’s capabilities and prospects, he talks them down — the exact opposite of our most successful recent president, Ronald Reagan, who came in vowing to restore that “shining city on a hill.”
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All this in barely a month’s time. And to think that more of the same is on the way seems to be sinking in. Investors are watching closely and not caring for what they see. Sooner or later, the market will rally — but not without good reason to do so.
Full article:
http://www.ibdeditorials.com/IBDArticles.aspx?id=320027936229029
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