Monday, May 24, 2010

Washington Certainly Isn't Helping Matters

It’s been a rough ride for stocks since the recent April high. Last week’s trading wasn’t pretty, and today’s 126-point drop late in the afternoon certainly didn’t help any. That said, at around $90 a share for the next year, stocks are starting to look pretty cheap after this correction. Maybe it's time to jump in, even with all this blood in the street.


Leave it to Washington to make matters worse. We’ve got a big, fat tax hike on private investment partnerships and foreign earnings of U.S. companies staring at us right now. Thanks Washington. That will of course ensure that we have less private investment. What a neat idea.

Let’s be clear about the consequences of tax hikes: They are nothing but a negative for future growth. Never forget: Growth is the key.

The best social policy we can develop is a capital formation spur that will supply jobs to those that need them. For dignity, to raise the human spirit, and to help folks produce and spend. All of these left-wing, anti-growth, “spread the wealth” attacks on opportunity and economic freedom are Europeanization—something we must devoutly avoid.

One plus I am highlighting right now is the greenback. King Dollar’s rise means a lower energy tax cut. This is a very good thing for American consumers and retailers. It’s also good for industrials, manufacturing and transports. And don’t forget about lower mortgage rates.

Across the pond, this whole Greece and European debt crisis mess remains largely unresolved. Fear is still out there. And while Germany's parliament voted “yes” to the trillion-dollar rescue package, France won’t vote until May 31st. Heck, Italy and Spain haven't even set parliamentary authorization voting dates yet. Huh? Hello? Anybody home? Don’t they know there's a crisis?

As far as the credit markets are concerned, the short-term funding markets for bank-to-bank lending are still stressed with Libor and the TED spread still widening. Not good. Banks are afraid. No one wants to lend. Incidentally, Libor, for three-month loans in dollars recently rose above 0.5 percent for the first time since July 24th. I wouldn’t call that a healthy signal.

Look, I’m still convinced the Europeans need a big-blanket, bank debt guarantee. That would buy them time to get through this chaos, and on the way to much needed, alleged, welfare-state cost cutting. That said, I’m not convinced Greece could even paint the Parthenon on time, let alone afford the paint.