Will the NHL save its season before the U.S. government goes over the fiscal cliff? This week was a little disappointing as maturity and patriotism took a back seat to gamesmanship. People think the United States is nothing like Europe. I got news for you. Get over it: we are exactly like Europe.
We’ve put up with two rounds of politicos and banking officials rumor monger and jawbone the markets into a see-saw frenzy in Europe only to see Greece and Spain not become the next Lehman moment. Now the same sad saga is repeating over here. It’s unfortunate in many ways, but one way most people haven’t put their brain around is the fact this roller coaster action is keeping the public’s money on the sidelines. We had dinner with a couple the other night who have no interest in trading but decline to invest in the market because of all the up and down action.
How many other people feel this way?
For those of us engaged in the market all the time, this is getting to be old hat. Early in the week Boehner comes out and says they are not even close on a deal. The market gets hit. The market was at a high and I figured they’d leave it alone for the majority of the week. Not even a week but 24 hours goes by and both the GOP and the White House express optimism a deal could be done. Market rebounds as bears cover again. The very next day Boehner says they haven’t made any progress since the bridge partners smiled for the cameras nearly 2 weeks ago. Is this any different than the way European leaders managed their crisis? If anything its worse. Let’s face facts, with a VIX down near 15 the politicians are a lot more concerned about the market than the market is about the politicians. But we can’t seem to break the cycle of spinning good news after a down sequence and putting on the breaks after a recovery. It’s enough to keep the average investor far away from this mess. I believe it was last Monday they asked Senator McCain if its possible to wait for the new Congress to hammer out a deal. His reaction shocked me. He said, “The market won’t let us.” These politicians are terrified of a major selloff. Good, I’m glad, something has to bring them to reason.
But for traders, it’s the same old story. Bears remain non committed at these levels and real buyers are nowhere to be seen. The only people taking this market up has to be the high frequency crowd because fund managers won’t come up until they know the water is warm.
So what are they fighting over? They are trying to figure out which deductions have to go and whether the GOP sticks with Grover Norquist. The founding fathers never intended for one segment of the government to hold the rest hostage. For those who’ve suddenly fallen in love with the Constitution need to realize that in socionomic terms this fixation on the Tea Party is nothing more than a manifestation of an angry social mood after a generational bottoming process in the markets. As the country continues to heal and the financial crisis goes further back in the rear view mirror Norquist will take his place in distant American history with the likes of Joe McCarthy. In other words, if the President remains somewhat reasonable and allows the GOP to save face by not raising too many taxes the GOP will have to cave in the last minute and we’ll have a deal in time. One other thing, there is no such thing as a balanced budget in times of economic hardship. If you think there is I have a bridge for you.
Now about the other adults in the room. There’s such a parallel between the hockey negotiations and the battle in the government it boggles my mind. You have the moderate forces against those in favor of austerity. The powers that be in hockey wish to turn the clock back to a time when there was little if any free agency (a concession won by players in collective bargaining). There’s a small group of owners who are hard liners who have hijacked an entire sport much like the Tea Party held the government hostage in the debt ceiling negotiations of 2011. If the hard liners in hockey get their way not only will this season be history but next year 250 players will come off the books and there will be little money to pay them. The average team will have something like $2 million left in the budget to sign 7-10 players. The shame of it is teams that have spent years developing players and are on the cusp of winning will have to break up those teams because they won’t be able to keep them because of salary cap limitations. It’s the same thing in the government. What services are going to get sacrificed?
Right now the hot debate is whether they cut down or eliminate the charitable deduction. We have a society where unemployment is at a generational high and let’s face it; a lot of people are still hurting. How do I know? Turn on any religious programming and you’ll see the prayer requests. Just one healing ministry receives 3000 prayer requests a day! How many international ministries is there that take these kinds of requests? Let’s say there are 10 but there are probably more. That means there are at least 20,000-30,000 prayer requests a day! That’s what we know. We can’t quantify what we don’t know. The point is the government says the job of taking care of the homeless, poor and less fortunate is the job of the church. Okay, I can buy into that. But to do the job properly the church depends on the goodwill and generosity of the public at large. Who takes care of the battered women? That’s just one area our charitable deductions are put to good use. It was just Saturday morning we woke up to the news that an NFL star blew away his girlfriend and then himself in the parking lot of Arrowhead Stadium. If that wasn’t bad enough he did it right in front of the coach and general manager no less. This kind of thing happens all the time but in this case it happened in the NFL so everyone knows about it. Where else does the church help?
Who takes care of many who get released from prison but have no place to go? If you are a convict nobody wants to rent to you. Who helps? It’s the church. Cut that funding and you increase the potential for crime and social unrest. That’s a cost to society we can’t quantify because there aren’t enough police to deal with all the small stuff that goes unreported. I can go on but the only time this stuff gets to the light of day is when some nut goes and shoots up a movie theatre. Or an NFL player goes off the deep end. Then the politicians blame it on the gun laws and nothing ever gets done.
And I drove past the Glendale arena on Friday night and asked my wife what the implications were to the lockout. She had a brilliant answer, it was NOTHING! Just like the politicians. The parking lot was empty; the businesses at West Gate (a world class eating and entertainment destination) are suffering because the adults in the hockey business can’t figure out their issues, just like the government can’t figure out theirs. The theme in our society? Leadership is failing us.
Next page: Market impact