What Happened?
Steve Cook on Disciplined Investing

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Economics

   This Week’s Data

    The March leading economic indicators were reported down .3% versus expectations of a .05% decline.
    http://econompicdata.blogspot.com/2009/04/leading-economic-indicators-march.html

   Other

    The problem with stimulus spending and industrial policy:
    http://www.cafehayek.com/hayek/2009/04/mario-rizzo-over-at-thinkmarkets-explains-well-the-difference-between-economists-who-understand-that-the-modeling-tractabil.html

    The Inspector General on TARP:
    http://www.calculatedriskblog.com/2009/04/inspector-general-barofksy-on-tarp.html

Politics

  Domestic

  International War Against Radical Islam

The Market
    
   

   Fundamental
   

          What seemed to be driving negative investor sentiment was the proximity of the results of the bank ‘stress test’ (May 4) coupled with fear of what Treasury officials might do to those banks that don’t ‘pass’ the test.  Rumors circulated that the government will convert the preferreds that it received from the banks in exchange for TARP funds into common stock, diluting shareholders and basically giving it control of those banks.

     In my opinion, what drove stock prices down from late November to March was investor fear of a European like social/industrial policy in which government dominates large swatches of the economy.  In recent weeks, that concern was relieved as the economy in general and the financial sector in particular appeared to stabilize and with it the potential need for big government intervention.  However, yesterday’s pin action suggests that that anxiety has not gone away.

    The point here is that irrespective of how the ‘stress test’ and subsequent government action play out, investors are scared s***less of a command and control economy.  In the absence of a Clinton-like about-face on economic policy by our Philosopher King, the fear of a more socialist, big government, centrally controlled economy is going to be with us till the electorate gives Him His walking papers.  As long as that underlying concern lingers, it is difficult for me to envision a resurgent bull market.

    The realization of the extent of creative bank accounting may have contributed to the decline:
    http://www.ritholtz.com/blog/2009/04/magic-bank-profits/









Posted 04-21-2009 8:24 AM by Steve Cook