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I Know What Keeps Obama Awake at Night II
While Obama spent the weekend shorting through contradictory primary results, trying to figure out what next to say about the Gulf oil spill, and basking in the afterglow of his Senate win on financial reform, a potential nightmare is giving him sleepless nights.
The $887 billion stimulus wad has now been mostly spent or committed, delivering us with a couple of quarters of decent growth. The effect was no doubt help by the Fed’s ZIRP strategy and massive housing subsidies. The “V” is in. Once the effects of this spendfest wear off, we slip back into a deep recession, setting up the classic “W.” Unemployment stays stick in the high nines, and around 18% when you throw in discouraged job seekers, jobless college graduates, and those with expired unemployment benefits, and the underemployed. This afflicted Franklin D. Roosevelt in the thirties.
So Congress passes another $1 trillion reflationary budget. Everybody gets wonderful new mass transit upgrades, alternative energy infrastructure, smart grids, and bridges to nowhere. But with $2 trillion in extra spending packed into two years, inflation really takes off. The bond market collapses, as China and Japan boycott the Treasury auctions. The dollar tanks big time, gold breaks $2,300, and silver explodes to $50. Ben Bernanke has no choice but to engineer an interest rate spike to dampen inflationary fires and rescue the dollar, taking the Fed funds rate up to a Volkeresque 18%. %. The stock market crashes, taking the S&P well below the 666 low we saw in March. Housing, having never recovered, drops by half again, wiping out more bank equity, and forcing the Treasury to launch TARP II.
The bad news accelerates into the 2012 election year. Obama is burned in effigy; Sarah Palin is elected president on a “Tea Party” platform, and immediately sets to undoing all of his work. Republicans, reinvigorated by new leadership, and energized by a failing economy, retake both houses of congress. National health care is shut down as a wasteful socialist mistake, boondoggle subsidies for alternative energy are eliminated, and the savings are used to justify huge tax cuts for high income earners. We invade Iran, and crude hits $500.
If you’re over 50, and all of this sounds vaguely familiar, it’s because we’ve been through it all before. Remember Jimmy Carter? Remember the “misery index,” the unemployment rate plus the inflation rate, which hit 30, and catapulted Ronald Reagan into an eight year presidency? A replay is not exactly a low probability scenario. This is why virtually every category of risk asset has melted down in the last two weeks. It’s also why the investing public is gun shy, favoring bonds over stocks by a ten to one margin. Are the equity markets pricing in these possibilities? Not a chance.
The risk of economic Armageddon is still out there. Personally, I give it a 50:50 chance. Batten the hatches, and please pass the Xanax.
To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on the “Today’s Radio Show” menu tab on the left on my home page.
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Please, let's be clear. The Tea Party didn't put in Palin. One small group of Tea Parties had a convention, falsely billed it as a national effort, and crowned Palin queen. It was an early attempt by Republican sympathizers to corral and claim the movement. No one was fooled, except maybe you.
+!!
"It was an early attempt by Republican sympathizers to corral and claim the movement...."
there is a lot of very stealthy money (koch) being spent to spin the illusion of a spontaneous political uprising via the tea party when it fact the truth is simply more deep capture..........
I don't know of any of this stealthy money; my local group is broke, so it must be pretty darned stealthy.
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Yes, be clear, you misread my post.
I just re-read it, and see I misinterpreted it. Apologies.
Spot on...but the continued association with the GOP chaffs my posterior.
Keep and eye out for a charismatic Republican
http://www.house.gov/ryan/
http://bachmann.house.gov/
http://en.wikipedia.org/wiki/Dana_Perino
These people are being groomed. Emphasis seems to be on attractive young white people, kind of Palinesque. Perino, who is a no one and knows virtually nothing about anything, inexplicably gets tons of free air time on Fox.
Bachmann!!?? You are fucking joking right?
Hank, my Golder Retriever can outwit that stupid bitch.
Your Golden isn't running for office. And I'll take "that stupid bitch" 8 days a week over that phucking &^*%(&^$^% (*^&(*^(^ that occupies the Oval Office now.
What a phucking joke indeed.
Thanks for that. No he isn't because he is a dog.
Bachmann is an alarmist wingnut.
But you are not a hard core racist hater at all?
Oh shut up. Someone who thinks Obama sucks (he does) must be a "hard core racist"? You're a joke. Go back to HuffPo.
P.S. Bush sucks too.
Sadly, your last comment is relevant for the last 20-30 years of American politicians (and perhaps longer, depending upon exactly how smart your goldie is...).
She keeps Rupert's harem in line when they get catty.