Bush Recession

Dow is looking ever more like it's forming a bearish head and shoulders pattern.

Remember not too long ago when it seemed we were all like "ra, ra, go Rummie! Give us another one-liner about those chocolate eating cheese-surrenderers!" Or, remember about a year ago when almost every financial guru out there was talking about how the Dow's heading north because we know that Bush is going to win the election, yippee! Well, looks like Wall Street's singing a different tune these days, which leads me to wonder if some of the rats are beginning to jump ship. Consider what Morgan Stanley has to say about the significance of the Delphi bankruptcy:

"Suffering its greatest shortfall of domestic saving in modern history -- a net national saving rate that has averaged just 1.5% of GDP since early 2002 -- the US lacks the internal wherewithal to support investment in public goods such as infrastructure, homeland security, and a safety net for the underclass. When saving-short America needs funding, it turns to the rest of the world to provide the capital. Global lenders have been delighted to so -- and, so far, have offered the flows at extremely generous financing terms insofar as the dollar and real interest rates are concerned.

The Delphi Chapter 11 filing needs to be seen in this context. It is yet another contingent liability for the shoestring economy. First of all, this is a major bankruptcy in the US, in and of itself -- the 13th largest in terms of assets and the largest auto-related filing in history. But the real twist comes in the form of potential spillover effects to GM. As part of the 1999 spin-off, GM agreed to guarantee pensions, post-retirement healthcare, and life insurance for certain Delphi UAW workers -- guarantees that our fixed income team believe amount to around $3.8 billion. For a nation that long boasted, “What’s good for GM is good for America,” this is hardly a development to take lightly."

And, as if to add insult to injury, check out yesterday's [financial news writer Mark] Hulbert writing about financial analyst Norman Fosback's recent publication:

"In a nutshell, Fosback argues that the U.S. experience in Iraq and Katrina has eroded the world's belief in U.S. invincibility and competence. What's happening in Iraq is revealing to the world 'our inadequacy of imposing a political vision on those to whom that vision is alien. Now, in the New Orleans aftermath, the world has witnessed firsthand America's extraordinary ineptitude in dealing with a purely internal, and preventable, crisis.'

As a result, according to Fosback, the 'American leadership mystique has been shattered.' To put this another way, 'the U.S. 'model' is no longer viewed by billions around the globe as the world's one best hope.'

...

[Fosback] 'To be blunt, why does anybody abroad really need us, anymore? If you were a citizen or governmental leader of a foreign country, wouldn't you now be puzzling about what competencies the U.S. could offer you, as compared with all of the international alternatives?'

The consequences of this, Fosback predicts, will be a gradual process of foreign disinvestment in the U.S. equity and bond markets.' That in turn will lead to "higher interest rates in this country and in a convergence of price/earnings multiples between the U.S. and foreign stock markets.'"

With warning flares like these going off on the libertarian wing of the GOP, is it any wonder that we've now had two SCOTUS nominations whose pro-business leanings are more than obvious while their pro-life thoughts can only be guessed at?