The "Stimulus" is Working

This edition of Market Musing finds us recovering from something everyone ought to do at least once, but probably only once,  in their lives: a drive across West Texas in the summertime. A few weeks back, we had the good sense to exit this desiccated  patch of caliche and take refuge at a much higher elevation, i.e., hard by the Colorado/New Mexico border. It has been my distinct privilege over the course of a long working life to visit more than my fair share of the nooks and crannies of this vast, prolific and incredibly enterprising county. This trip enabled me to add a few more to the list. West Texas is as oppressively empty as advertised, though a fair number of its ridge lines are now festooned with sprawling arrays of wind turbines. (It’s going to take an awful lot of infrastructure and just plain space, of which believe you me there is still plenty out there, for wind energy to make any kind of dent.)  Parts of southeastern New Mexico present a whole different place, thanks to abundant groundwater, John Deere et. al.,  and a few tourist attractions like Carlsbad Caverns and the UFO “research center” in Roswell. Of course, the biggest economic fact of life for both appears to that oil & gas formation known as the Permian Basin. One can certainly see why the area encompassing Santa Fe and Taos started attracting artists and writers almost as soon as internal combustion locomotion made it accessible. That artistic influence has certainly defined Santa Fe, in ways that I think would have bemused the young men whose names and faces I saw in a museum billed as a “Bataan Memorial”. (Apparently, elements of the New Mexico National Guard were a part of the U.S. Army in the Philippines when it fell to the Japanese.) I saw a lot of hurt and broken dreams along the way, the sort of flotsam that washes up every time economic “good times” give way to recession, but I also saw a heartland still firmly rooted in a heritage worth occasionally fighting for. 

Fighting was very much in the air as R&R gave way to a very long day at the wheel and then reconnection with all the blather which drives share price fluctuation. (Truth be told, we did not achieve the total disconnect reminiscent of vacations past, owing to surprisingly ubiquitous Wi-fi connections, in our case at least fifteen miles removed from cell phone coverage. But if one is going to such trouble to get away, such a tether must be indulged sparingly.) It did not take much of a refresher course in current events to see that the People are some kind of fired up, animated by an intuitive sense that this time, the double-talk just might take us in chillingly unpleasant directions.  Real climate change is happening, but not the kind that gasbag from Tennessee wants us to believe in. The political climate has just seen the equivalent of one of those Blue Northers which bring a bit of Alberta air crashing into the Gulf Coast from time to time. The idea that the State should insinuate itself into as many facets of people’s lives and livelihoods as possible seems to have hit a tipping point in terms of wearing out its welcome. As I wrote on February 17, about the first legislative salvo fired by the new regime:

They call it a stimulus package, and what, how much and when exactly it is going to stimulate is already a well furrowed journalistic dirt patch. Again, my fair-minded nature informs me that despite the protestations of the economists I most respect, this is one highly stimulative piece of legislation. It will stimulate a resurgence of the Meddling Class that Clinton’s welfare reform had managed to tamp down at least a little. It is stimulating a lot of skilled workers and business owners with dim but visceral memories of when the overripe fruits of New Deal and Great Society programs were like so many banana peels on anyone’s path to prosperity to just say to Hell with it and downshift into a less materialistic but also less productive lifestyle. Others will migrate into that shadow economy that gets stimulated into existence whenever collectivism has been on the rise (see Italy, or the US circa 1979.) The creepy-crawlies who occupy the lower, actual-work-doing positions within that extortive enterprise we might call Tort USA, Inc. are certainly receiving memos stimulating them into action against newly minted “targets of opportunity” that our insurance premiums will be underwriting for the rest of our lives.

One also suspects that this “package” being doused with the lighter fluid of urgency and slipped onto our collective front porch is stimulating outrage among Republicans and dissonance among voters of an independent cast. Of the latter, you have to think there is a whole lot of “Is this what I voted for back in November?” going on. I strongly suspect that not a few registered Democrats, and not just the kind who might have preferred a Reagan to a Dukakis, have woken up in a cold sweat after a visit from that particular specter. If properly channeled, and if credible alternatives can be presented, reaction to this monstrosity will indeed stimulate the beginnings of a power shift in November 2010; especially if “We won” continues to be used as justification to “do as we damn well please”. Democracy based on mere plurality and unencumbered by the edifices of (note the lower case) republicanism has never been very effective or successful for very long. Indeed, it tends to piss people off to a degree that sometimes get messy in a sanguinary way (see ancient Greece, where the beta versions were tested). 

What we have seen over the last few weeks is the ground giving way underneath all kinds of political calculus. It would seem that this latest crop of “best and brightest” has achieved stimulation alright, but not in the manner intended. Their self-inflicted undoing is coming to pass sooner than I had dared to expect. It still nearly fifteen months away, but the specter of midterm elections just hove up into view. A specter is not the same as a Spector, but it is close enough to bring to mind a long list of names of despicable characters who unless the present mood somehow subsides will quite likely be out on their ears when we sit down to celebrate Thanksgiving in 2010.  (I like to say “Thank God for Jimmy Carter!” because it probably took the suffering under that exemplar of failed Progressive ideology to make President Ronald Reagan possible.) In the mean time, expect a heightened level of hate & discontent between the politicians who are in such safe seats that they can hold to their ideological bent and the others who will be redefining “pragmatism” back in the direction of “maximizing one’s own job security”. We are being treated to the spectacle of an Administration that was handed every possible advantage reduced to blaming the opposition. It’s like a little boy whose parents spared no expense on his education blaming his lousy grades on the fact that another little boy, much smaller and with none of his advantages, doesn’t seem to want him to succeed.  

I think that this indomitably robust summer rally has been the Market’s way of applauding the steady degradation of a threat to the freedoms which undergird prosperity. Markets care about regimes and their commitments to honest governance. With apologies to Mssr. Hope & Crosby, there seemed for a time a distinct possibility that we were on the road to Rio, an expressway to a junta controlled economy. It was never really highly probable, but possible enough in a season of high anxiety to seem that way. That nightmare is ending. That said, I look for some bumpy patches in road just ahead. One will likely revolve around how important “health care reform” is to all those unions who are on the hook for commitments they have made to their members. This would include the majority owner of Government Motors. One suspects that “reform” was going to find a way to foist that entity’s biggest liability onto the taxpayers, a real windfall for well-situated stakeholders. I am also concerned about what is already proving to be a new driver of short term volatility. Days and weeks at a time, its all about Price Reality, money flow as much as anything reacting to short term excesses in the opposite direction. It appears that this time around, China has grown to become a factor in setting day to day sentiment. That market has about doubled off of its November low and as such is vulnerable to increasingly robust bouts of profit taking. It appears that whatever mood du jour holds sway in that market on any given day follows the sunrise around the world until it reaches the U.S. It’s a lot of dumb flighty money to begin with, but apparently massive enough to convince many traders as to what the path of least resistance is going to be for the next few moments. Someday it will  boil up into something that lasts for more than few hours. The Chinese economy has too many long standing systemic weaknesses to keep track of. Far be it from me to handicap when General Tso’s chickens finally come home to roost, but I suspect that if anything derails the next couple of years being splendid time to own equities, it will have something to do with another heavy handed regime pushing its people beyond a breaking point. I have started to trim a few holdings (stuff inherited from my previous “situation”, but nothing on the List.), and the way forward will of course get trickier, but this upthrust which started not quite six months ago still has some strong legs under it.