Is The White House Telegraphing A Decline?

Economic politics is a reality. But it wasn’t always so.  Back before the Great Depression, some might say there was a ‘let them eat cake’ mentality in Washington. Politicians had their sphere and bankers had theirs. That distinction is gone. In recent years, the Executive branch has seized a more prominent role in private finance. Now, most Americans expect such intrusion, and Obama is trying hard not to disappoint.

This weekend the Obama economic team pontificated about our financial future. On Saturday, senior economic advisor to the President Paul Volcker spoke at Vanderbilt University. Brushing aside a possible Second Great Depression, Volcker said we were in the midst of a “great recession”. He added the U.S. economic recovery would be a “long slog.” Admitting further weakness, he said “The financial system “is not quite comatose, but it’s on life support.”

In a one-two punch, National Economic Council director Larry Summers seconded Volcker’s comments on NBC’s “Meet The Press.” Summers commented yesterday, “But it is a long road and it is going to take time. It is going to take creating jobs again … it is going to take supporting the financial system.” In short, Summers and Volcker were talking down the market.

Whatever the motivation for such predictions, it doesn’t sound positive. The last time Obama’s economic advisors were this negative, the indexes moved sideways and then collapsed for 3 weeks straight. Once Obama passed his stimulus, he turned positive. In apparent response to White House promptings, the market rose.

This week, more earnings will either confirm or deny political opinions. With another round of first quarter earnings to report, many wonder if the market will extend the 6-week old rally. According to the AP, 3M, Bank of America, Boeing, Coca-Cola, DuPont, IBM, McDonald’s, Merck, Microsoft and United Technologies are all set to report this week.

In addition, existing and new home sales will be reported on Friday, which touches on the critical housing market. If investors are unimpressed with these numbers, it could confirm Volcker’s and Summer’s suspicions. The market will fall.

Whatever happens, we should remember that we’re not out of the woods yet. Last week, Ron Rowland reviewed the possibility that we’re still in a Bear Market rally. In his last newsletter, Ron showed how Bear Market rallies often surpass double-digits. Whatever similarities this rally has to the 1938 recovery rally, it’s no guarantee this one is a recovery. Buckle down, watch your indicators, and do your best. We may be in for a bumpy ride.