Farrell: Mr. President, It's Too Late

There'll be good times again for me and you
But we just can't stay together
Don't you feel it too
Still I'm glad for what we had
And how I once followed you.

But it's too late baby, now it's too late
Though we really did try to make it
The dream of change has died and I can't hide behind
Your coattails won't let me fake it. (Carole King gets a big apology)

I have read in the NY Times, the Wall Street Journal, and in the London Financial Times that mid-term elections are referendums (referenda?) on a President's agenda. If the papers say it, it must be so. Disaster then awaits the Democrats in the coming election. This is not my wish, it is my reading of the tea leaves. The President has turned to the agenda voters want to hear about, the economy, far too late.

President Barack Obama
Photo by: Pete Souza
President Barack Obama

The year-long struggle to enact the health care bill has battered the Democrats rather than helped them.

The only candidates who discuss the health care bill in their campaigns are those who proudly say they voted against it. The benefits of the plan, especially extended coverage, weren't designed to kick in till much later, so no credit is given.

Headlines like Medicare cuts and rising health care insurance premiums get the attention.

Financial re-regulation is complicated at best. As the arguments rage, definitions of what constitutes an MBS or CDO, or is Dick Fuld really an awful guy, fade in importance, with almost 10% unemployment and headlines about a double dip. If things have been re-regulated, why is credit so hard to get and why are bank fees rising along with bankers bonuses. Throw in a flash crash, and everyone knows the game is rigged.

"The President has turned to the agenda voters want to hear about, the economy, far too late." -Soleil Securities, Vince Farrell

And where is Washington?

If Washington were to say we are pulling troops out of Iraq or bringing Israelis and Palestinians kicking and screaming to the conference table, the electorate seems to be saying, "We don't care." The President said, "And so at this moment, as we wind down the war in Iraq, we must tackle those challenges at home with as much energy and grit and sense of common purpose as our men and women in uniform who have served abroad." All true, but with only about 50 days or so to the election, way late to be turning to the issues so many in the Democratic party have been pushing. Maybe the idea of investment tax credits and accelerated depreciation is exactly right, but not to the laid-off worker in the industrial heartland.

And while the news on a dip in initial unemployment claims was welcomed by the equity market, don't let it go to your head.

The four-week moving average for this is at 478,000.

Thanks to Dave Rosenberg of Toronto money manager Gluskin Sheff, who keeps track of these sorts of things, we can compare four-week averages to past times of stress.

The four-week moving average was 445 after Lehman failed, 350 after the Bear lost it, 400 when Enron showed its true colors, 415 after 9/11, 350 in early 2001 when the tech wreck was gaining speed, and "only" 300 when Long-Term Capital tried to prove even Nobel prize winners are human. We have such a long way to go, but the good news is it might not get any worse. It would be the change in direction the markets would respond to and the sudden weakness in the bond market last week might be implying the economy is getting better.

For now I will stay with my guess of a growth recession and GDP of 1.5% to 2% for the next few quarters. Unemployment is likely to rise, but that could happen even if initial claims fell. Earnings will be up modestly next year versus 2010, and if I am wrong (heaven forbid) it will be because I am too optimistic.

Please prove me wrong.


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