CNBC Guest Blog

Published: Monday, 29 Jun 2009 | 9:36 AM ET

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Vince Farrell
CNBC Contributor

Before adjourning the House passed the "Cap and Trade" bill which probably has no chance of getting through the Senate in its current form. But it has enough inanities in it to make you glad they left town for a while.

There is a provision that would levy tariffs on any country that didn't match the goals this bill calls for. This is just protectionism cloaked in self righteousness. The Congressional Budget Office figures this bill would cost the average family a mere $175 by 2020. There is no way that is anywhere near accurate. Jason Trennert of Strategas did some digging recently and came up with an unbelievable fact. When Medicaid was passed oh so many years ago the long term cost projections figured it would cost $9 billion by 1990. It cost over $100 billion by then. The government was off by a factor of more than 10! They are always woefully off in their cost estimates. Additionally, organizations can use "offsets" to ease the burden of cutting emissions. An offset could be planting trees in Costa Rica in place of reducing emissions here. They do some of this in Europe and they will admit they don't know the economics of the idea nor do they know if things really are offset. This is just so lacking in substance.

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Our President needs to lead these efforts if they are to make any coherent sense. Peggy Noonan had a very interesting piece in Saturday's Wall Street Journal. She says successful Presidents are described in one sentence. Lincoln freed the slaves and preserved the Union. FDR guided the nation through the Depression and WW II. President Obama is trying to write an essay, not a sentence. And he is letting Congress dictate the language. The health care proposals are all over the place and come from Congress not the White House. This is not leadership. President Obama needs to spend his political capital on his programs, not a patchwork of Congressional ideas that don't hang together.

Americans don't know how confident to feel. The University of Michigan sentiment survey was up for the third month in a row last week but is still woefully below prior peaks. Most would be in favor of health care reform, environmental initiatives, and financial reform. But there is growing fear as to the cost and what they might lose in the transition. While many don't have health coverage those that do are generally very much satisfied and fear they will lose what they have and be taxed heavily besides. Distrust of Congress is so pervasive that many are not persuaded as to the merits of these programs. Also, there are limits as to what can be done financially and President Obama needs to take command of what I see is a situation starting to get out of control. Doug Kass (my granddaughter's honorary uncle!) phrased it very well last week when he said there is a big difference between being popular and populist. Obama is popular but his programs are expensively populist. He will, in my opinion, waste his popularity by not taking control of the populist programs he wants to enact. And, he needs to realize there are limits to what can be afforded.

As to the stock market, most post profit recessions see a rebound in earnings of some 36% following the trough year. The market averages a 43% bounce. We have had a 40% move in stocks from the March trough to the recent peak. I see no way earnings will experience an average rebound with the deleveraging the system is going through and with a rapidly rising savings rate. It continues to make sense to me for the stock market to consolidate.

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Vincent Farrell, Jr. is chief investment officer at Soleil Securities Group and a regular contributor to CNBC. 

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