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The Big Bang

Posted February 2, 2009

Topics: Global Business, Finance & Investing


This week, we can all look forward to the "Big Bang." This is the eagerly anticipated range of measures the Obama administration is going to announce to solve the credit crisis and provide relief to homeowners facing foreclosure.

BodyWhether the term "Big Bang" is ultimately going to refer to the creation of a new healthier financial universe or something done dirtily in the dark to taxpayers remains to be seen. Regardless, I do expect a market rally on the policy news that should be propelled by the financial sector and perhaps even homebuilders.
Watch any Big Bang rally that may materialize very carefully. If the rally holds, it could mark a turning point in the economy by signaling appropriate policies are now in place. However, if my forecast rally fails, we are likely to be in for an exceedingly long haul down the recessionary road.
Readers of this column will know that what worries me the most about the current situation is not the state of the United States economy but rather the basketcase countries of Europe and Asia. In Europe, the troubles in Ireland, Spain, Great Britain, and elsewhere are likely to weigh very heavily on the continent. In Asia, former dragons like Singapore and Taiwan and South Korea are experiencing an unprecedented implosion that makes the 1997-98 Asian financial crisis look like a cakewalk.
My bottom line this week: Day traders and swing traders get ready for some very interesting volatility on the Big Bang news. And look for analysis of the actual policies we wind up with in this newsletter in the coming weeks.
Last take: The failure of the Obama administration to win a single Republican vote in the House of Representatives on its fiscal stimulus bill is reminiscent of the Clinton administration's failure to win Republican support for its tax hike when it took office. That tax bill, of course, set the stage for the Gingrich revolution. This time, Republicans are playing a very dangerous game by refusing to vote in favor of the stimulus. That said, shame on Harry Reid and Nancy Pelosi and Barack Obama for letting that Christmas tree of a bill ever get to the House floor.
On this point, one would do well to remember that the vast majority of members of Congress, particularly the House of Representatives, are far more skilled at raising money from special interests and pressing the flesh than actually doing the people's work. Marginal intelligence coupled with suspect ethics is a lovely recipe for pork bill politics. Memo to the Democratic Party: this is the worst crisis we will have in our lifetime. Please get the fiscal stimulus right. You are off to a very very bad start.
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