Friday, February 20, 2009

The Market Is Shorting Obama's 'Stimulus'

Yet, from Nov. 4, 2008 through Feb. 12, 2009, the DJI overall fell 18% -- a larger drop than during the Sept-Oct plunge. In January, when the Obama plan, promising far greater deficits than the two much smaller "emergency stimulus" plans signed by Pres. George W. Bush in 2008, was unveiled, the market tanked – the worst January performance in 113 years.

More pointedly, key political victories for the Team Obama spending plan have not been viewed as buying opportunities on Wall Street. A string of negative market reactions began with the December 18 announcement of a stimulus bill of $700 billion (Dow down 2.5%), continued with the January 7 announcement that the actual plan would be "on the high side" (-2.7%) and continued with last week's 61-36 Senate vote supporting the Administration's fiscal plan. The White House victory and the new bank bail-out plan announced the following day by Treasury Secretary Geithner were met with a 5% wipe-out in the DJI, and a decline in Treasury bond yields, indicating a "flight to quality."

Government deficits are nonetheless being sold as doctor's orders, an elixir that – while it looks ugly and tastes bitter – will propel us back to economic health. Yet the best forecast currently on the table is the one made by investors risking their own money. They are shorting the "stimulus."

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