Sunday, January 11, 2009

Strong Opinion --- timing is everything

A major flaw in the the U.S. responses to its economic challenges is more in its timing than in its methods. It is a well known if ignored fact that we live in a global economy and a world that has been through a technology and communications revolution . This is really boring stuff. That there are remote villages in Turkmenistan, Sumatra, and upstate New York that are unaware is not relevant to this discussion. That there are senior members of Congress who could care less is.

A patronizing primer --- public markets for securities adapt promptly to current news. These securities are for public companies, private companies, and governmental entities. These markets are fixed income, equity, fx, commodities, and derivatives on all. When news happens or does not happen today they react almost immediately.

When the United States cannot deliver on arguably necessary economic actions in a timely manner, they may as well just forget it. At least half of the efficacy of such actions is lost unless it is done decisively. With TARP, those several weeks of delay destroyed the validity of the entire concept and led to such a minimal impact that the original plan, the only really exceptional proposal to date, had to be scrapped in favor of bank preferred injections.

With public companies, huge public companies, the smart ones learn that their smartest investors know what the company knows about the economic environment, and that procratinating about needed reforms or actions, using words instead of seeking results, is not a neutral approach, that it is a negative approach. The investors lose confidence in management if there is not action.

While the fx markets have always had an intuitive but flawed way of keeping score among countries, bond markets in the last decade or two have moved forward to more rigorous focus. Equity markets trade like razors held lightly on wrists. It's all very sensitive.

The United States Congress has been dysfunctional to the point of destroying any possible chance of success on any action. It's gratifying to those who slow each effort to a snail's pace, because not only do they get the attention as skeptics, they also get the "I told you so" attention when the delayed actions are less than effective.

Only decisive timely bi-partisan action can be effective today. At this point, the smart Barney Frank and the sour Richard Shelby are both kamakazi's, willing to give it all up. That's a horrible comparison given Frank's competence and wit, so substitute a Pelosi and McConnell or a Levin and Boehner comparison and it's the same. No matter what we as a country do, the markets will vote based on their view of management, clear management that they can invest with. If what we decide promptly is wrong at least there will also promptly be a clear reading. What has gone on to date has been too slow, muddled, and politicized to mean anything.


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