The Other McCain

"One should either write ruthlessly what one believes to be the truth, or else shut up." — Arthur Koestler

Black Friday?

Posted on | June 4, 2010 | 27 Comments

OK, it’s not a complete meltdown, but the release of a jobs report today showing a weak employment picture — temporary Census jobs making up most of the gain — evidently punched a hole in investor hopes of recovery. As of 3:30 p.m., the Dow Jones Industrial Average was below 10,000, more than 300 points down for the day.

On days like this, the TV in my office stays on CNBC and even the usually bullish Jim Cramer was singing the blues. We’ll wait and see whether the market rallies before the close, but I just want to point out that my persistent pessimism was somewhat prophetic this week:

  • June 2: Report: Bottom Falls Out of Housing After First-Time Buyer Tax Credit Expires — “The point is that this one-time injection of federal money into the housing market is like ‘Cash for Clunkers’ — essentially buying short-term economic ‘good news’ that won’t last because such artificial intervention does nothing to address the underlying economic fundamentals.”
  • June 1: Second Half of the ‘W’? — “For the past two weeks, the Dow has been struggling to stay above the 10,000 level. To close below that level would be to give back everything the market has gained since Feb. 8. . . . What investors must wonder is whether the past month’s declining trend on Wall Street is merely a short-term correction . . . or the onset of the second wave in a W-shaped (‘double dip’) recession.”

Long-term, I have been predicting the failure of Obamanomics since before Obama was inaugurated:

The failures of Keynesianism were entirely predictable. But being liberal means never learning a lesson. Robert Reich clearly sees the evidence of a double-dip recession, but . . .

So what’s the answer? In the short term, more stimulus . . . .
In the longer term, we need a new New Deal that will bolster America’s floundering middle class. Expand the Earned Income Tax Credit and extend it up through the middle class. Finance that extension through higher marginal income taxes on the wealthy, who have never had it so good.

Great — more stimulus and a new middle-class entitlement. The exact opposite of sound economics.

UPDATE: OK, the market closed with the DJIA down 324 points. More to the point, the Dow is now off 1,274 points (11.4%) since April 26:

Despite obvious signs of continuing weakness in employment and other key indices, Daniel Gross at Newsweek is still pushing the “recovery” hype. Right. And assuming his 401(k) were all in stocks, Gross would have lost 11% in the past five weeks, just like everybody else. His net loss since October 2007 would be 29% and — oh, by the way — the money-losing magazine Newsweek was just put on the auction block by its parent company, Washington Post Co., which has seen its stock decline by 49% since 2005.

UPDATE II: Reuters summarizes the day:

Stocks cascaded to their lowest close since February on Friday after May’s jobs figure slammed investors already reeling from worry over another developing debt crisis, this time in Hungary. . . .
“It was extremely disappointing,” said Robert Froehlich, senior managing director of The Hartford Mutual Funds in Simsbury, Connecticut.
“We know that employment is the lagging indicator, but … we’ve been saying that for a year. There comes a time where we’re really going to have to see that number pick up.”

Right. Employment is a lagging indicator of recovery, but if you’re thinking “recovery” and waiting on employment to pick up, where are you going to be when the recovery fails to materialize? And did somebody mention Hungary?

PRAGUE — Fears that the debt crisis could migrate to central Europe were stirred Friday after a senior Hungarian government official said the previous government had manipulated budget figures and lied about the state of the economy . . .
The official, Peter Szijjarto, a spokesman for Prime Minister Viktor Orban, was quoted by Bloomberg News and other news agencies as saying that the Hungarian economy was in a “very grave situation.” He even raised the specter of a default, saying such speculation “isn’t an exaggeration.”
His comments followed similar warnings on Thursday by Lajos Kosa, a vice president of the governing center-right Fidesz party, and other officials that Hungary was in danger of suffering a Greek-style crisis, with budget deficits — officially 4 percent of gross domestic product in 2009 — possibly reaching 7.5 percent of G.D.P. this year.

The New York Times notes the suspicion that Hungary was trash-talking their economy in order to gain “a stronger negotiating position with the IMF,” which may be the case, but it was a reminder of the general shakiness of the European economy. And the Euro fell to $1.20.

UPDATE III: Guess what actually gained Friday?

Gold priced in euros reached a record. Futures in New York surged to an all-time high of $1,249.70 on May 14, and the metal has outperformed equities, bonds and most commodities this year on escalating demand for a store of value.
Gold may reach $1,700 in the next year, partly on demand from Asian central banks, Michael Lewis, the head of commodities research at Deutsche Bank AG, said today in an interview in Lima.

Stop reading Newsweek. Start listening to Glenn Beck.

UPDATE IV: Welcome Instapundit readers!

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Category: Economics

Comments

  • http://www.whitehouse.gov Joe Biden

    Ahhhh, ahhh, ahhh…well to those people out of work…

    God love them!

  • http://www.whitehouse.gov Joe Biden

    Ahhhh, ahhh, ahhh…well to those people out of work…

    God love them!

  • http://getalonghome.com Cindy

    “the wealthy, who have never had it so good.”

    The middle class has never had it so good, either. Or, come to think of it, the “poor” in this country. Greed and envy are destroying this country. I’m eating well, but that guy over there is eating better, so let’s take his money. Oh, wait. He’s paying me…

  • http://getalonghome.com Cindy

    “the wealthy, who have never had it so good.”

    The middle class has never had it so good, either. Or, come to think of it, the “poor” in this country. Greed and envy are destroying this country. I’m eating well, but that guy over there is eating better, so let’s take his money. Oh, wait. He’s paying me…

  • http://www.helenthomas.org Helen Thomas

    Happy Sabbath Jews. Go back to Germany!

    And you Goldman Jews stop messing with the stock market.

  • http://www.helenthomas.org Helen Thomas

    Happy Sabbath Jews. Go back to Germany!

    And you Goldman Jews stop messing with the stock market.

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  • Estragon

    The reason gold priced in euros is hitting highs is because the euro is falling like a stone. But those who rush to buy commodities or equities which are hitting all time highs usually end up sorry.

    Reich has no understanding of economics whatever. He evidently believes whatever comes out of the printing press is just free money. If his policies were enacted (not that Obama would be unreceptive), when they inevitably led to shortages and starvation, Reich would be the first one clamoring to catch and eat the rich.

  • Estragon

    The reason gold priced in euros is hitting highs is because the euro is falling like a stone. But those who rush to buy commodities or equities which are hitting all time highs usually end up sorry.

    Reich has no understanding of economics whatever. He evidently believes whatever comes out of the printing press is just free money. If his policies were enacted (not that Obama would be unreceptive), when they inevitably led to shortages and starvation, Reich would be the first one clamoring to catch and eat the rich.

  • ToHayekWithYou

    Keynesianism – the belief that throwing good money after bad is wise economic policy

  • ToHayekWithYou

    Keynesianism – the belief that throwing good money after bad is wise economic policy

  • http://theothermccain.com Robert Stacy McCain

    Reich has no understanding of economics whatever.

    Well, he at least recognizes that Obamanomics has failed, which is a lot more than most liberals are willing to admit. On the other hand, I think Reich’s ideological commitment to egalitarianism is just so complete that it blinds him to certain realities. Reich has made a career of hating “the rich,” and it’s probably too late now for him to start rethinking that.

  • http://theothermccain.com Robert Stacy McCain

    Reich has no understanding of economics whatever.

    Well, he at least recognizes that Obamanomics has failed, which is a lot more than most liberals are willing to admit. On the other hand, I think Reich’s ideological commitment to egalitarianism is just so complete that it blinds him to certain realities. Reich has made a career of hating “the rich,” and it’s probably too late now for him to start rethinking that.

  • Henry Bowman

    Gold priced in dollars rose only $6.10, about 0.5 per cent. It has been close to $1200/oz for about a month.

    On the other hand, one year ago it was $980/oz.

  • Henry Bowman

    Gold priced in dollars rose only $6.10, about 0.5 per cent. It has been close to $1200/oz for about a month.

    On the other hand, one year ago it was $980/oz.

  • Blake

    I suggest the recent runup in gold prices is not due to a weakening dollar.

    More than likely, the price is going up due to increased demand from Europe.

  • Blake

    I suggest the recent runup in gold prices is not due to a weakening dollar.

    More than likely, the price is going up due to increased demand from Europe.

  • mark l.

    reagan: 25 million jobs created, and the dems complained about the ‘nominal’ deficits he created. Expanded govt, adjusting for inflation by 20%, while increasing govt revenues by 70%(inflation adjusted).

    obama: no jobs created, larger nominal and comparitive deficits, compared to reagan.

    note to libs:
    it’s over. there isn’t ANY tale that you spin to explain how expanding our deficit is going to prove successful, in the long run.

    for 20+ years you wanted us to be like europe, which kinda looks like a leper, right now. each country, with the exception of poland and estonia, is a body part and they are going to keep falling off for the next decade.

    socialism is now brain dead, but in a complete reversal of roles from a recent event, conservatives are telling the libs to pull the plug, while the libs are telling us that socialism can still smile and respond to light and voices.

    EPIC failure.

  • mark l.

    reagan: 25 million jobs created, and the dems complained about the ‘nominal’ deficits he created. Expanded govt, adjusting for inflation by 20%, while increasing govt revenues by 70%(inflation adjusted).

    obama: no jobs created, larger nominal and comparitive deficits, compared to reagan.

    note to libs:
    it’s over. there isn’t ANY tale that you spin to explain how expanding our deficit is going to prove successful, in the long run.

    for 20+ years you wanted us to be like europe, which kinda looks like a leper, right now. each country, with the exception of poland and estonia, is a body part and they are going to keep falling off for the next decade.

    socialism is now brain dead, but in a complete reversal of roles from a recent event, conservatives are telling the libs to pull the plug, while the libs are telling us that socialism can still smile and respond to light and voices.

    EPIC failure.

  • http://theothermccain.com Robert Stacy McCain

    The reason gold priced in euros is hitting highs is because the euro is falling like a stone.

    And expectations of U.S. currency devaluation — given the incredible level of current deficit spending — are unrealistic?

    But those who rush to buy commodities or equities which are hitting all time highs usually end up sorry.

    1. All commodities are not created equal.
    2. To compare gold to equities is to compare apples to oranges.

    The prediction that gold prices will go yet higher in the next two years is entirely plausible, given that the dim near-term economic prospects will likely limit the performance of stocks.

    The tax incentives that lead people to squirrel away money in mutual funds via 401(k)s provide an artificial support to equities. At some point, however, the continuing underperformance of the stock market outweighs those incentives. Furthermore, with unemployment near 10 percent — no one is predicting it to improve anytime soon and many people have already maxed out their extended unemployment — more and more people will be forced to tap their 401(k)s to make ends meet, taxes be damned. That will slowly drain capital out of the stock market.

    It is therefore not surprising that more people are looking at the recent performance of gold and saying, “Hmmmmmmm.”

  • http://theothermccain.com Robert Stacy McCain

    The reason gold priced in euros is hitting highs is because the euro is falling like a stone.

    And expectations of U.S. currency devaluation — given the incredible level of current deficit spending — are unrealistic?

    But those who rush to buy commodities or equities which are hitting all time highs usually end up sorry.

    1. All commodities are not created equal.
    2. To compare gold to equities is to compare apples to oranges.

    The prediction that gold prices will go yet higher in the next two years is entirely plausible, given that the dim near-term economic prospects will likely limit the performance of stocks.

    The tax incentives that lead people to squirrel away money in mutual funds via 401(k)s provide an artificial support to equities. At some point, however, the continuing underperformance of the stock market outweighs those incentives. Furthermore, with unemployment near 10 percent — no one is predicting it to improve anytime soon and many people have already maxed out their extended unemployment — more and more people will be forced to tap their 401(k)s to make ends meet, taxes be damned. That will slowly drain capital out of the stock market.

    It is therefore not surprising that more people are looking at the recent performance of gold and saying, “Hmmmmmmm.”

  • http://www.wcvarones.com W.C. Varones

    Jim Cramer is a giant buffoon and should be ignored at all costs.

  • http://www.wcvarones.com W.C. Varones

    Jim Cramer is a giant buffoon and should be ignored at all costs.

  • ThatsReich

    Reich says the wealthy have never had it so good. Well the Dems, and in particular the Left Wing of the Dem party, have had complete and total control over the Exec and Legislative branches of gov’t for a year and a half now. Therefore, he is admitting that the Leftist Dems are under the control of the Rich and govern for the benefit of the Rich to a greater extent than the Republicans, otherwise how could the wealthy have it better now than in the past, when Repubs were in charge?

    The truth accidentally slips out….

  • ThatsReich

    Reich says the wealthy have never had it so good. Well the Dems, and in particular the Left Wing of the Dem party, have had complete and total control over the Exec and Legislative branches of gov’t for a year and a half now. Therefore, he is admitting that the Leftist Dems are under the control of the Rich and govern for the benefit of the Rich to a greater extent than the Republicans, otherwise how could the wealthy have it better now than in the past, when Repubs were in charge?

    The truth accidentally slips out….

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