Some Opening Thoughts November 4, 2008 and a Long Digression on the Election
November 4th, 2008 8:23 am | by John Jansen |Prices of Treasury coupon securities are registering, on balance, small losses in overseas trading. The yield on the benchmark 2 year note has climbed 4 basis points to 1.48 percent. The yield on the 5 year note has edged higher by a basis point to 2.71 percent. The yield on the 10 year note is unchanged at 3.92 percent. The yield on the Long Bond has posted an increase of 2 basis points to 4.34 percent.Equity markets around the globe are, for the most part, posting solid gains. The Nikkei in Tokyo surged 6 percent as Tibor posted its largest daily decline since December 1999. Stocks in Australia are posting small losses, in spite of a greater than anticipated 75 basis point cut in the base rate by the central bank. The Hang Seng climbed about 0.3 percent as borrowing costs declined and stocks fell in Shanghai as commodity prices slumped.
Stocks in Europe have surged 2 percent. Bloomberg cites better than expected results from Clariant AG (which I have never heard about until this moment) as well as better results from UK clothing manufacturer Marks and Spenser. That seems to be a rather slender reed to credit for the early price action but that is the most informative little nugget that I discovered as I scrolled through the news.
Equity futures on US stocks have climbed more than 2 percent and indicate a robust opening when the trading day begins in New York.
I must confess to being thoroughly flummoxed by the price actions and once again suffer for viewing the world through the prism of a bond market operative. I am not about to list each of the recent data points which suggests that this recession is shaping up as the most serious decline in output since the Volcker engineered recession of the early 1980s. I can understand and comprehend some recovery in stocks from oversold territory but I can not fathom the follow through buying which continues as we speak.
I am convinced that this recession will be deeper than the conventional wisdom posits and the recovery when it comes will be feeble. The appetite to take risk has been fundamentally altered and changed. Old business models have been destroyed. A new and radically different model must emerge to replace it. That enterprise is akin to turning a supertanker in the ocean. The turn is not tight but is a long looping exercise.
So I suspect that when the recession ends, the return to growth will be slow and rates of growth will be less than the 3 percent to which the economy has geared itself during the years of boom and financial obfuscation.
There is very little economic data on tap today as only the report on September factory orders will undergo investor scrutiny.
Today is an historic election day in the US. Many will follow the exit polls to garner a glimpse of vox populi. I will wait for the polls to close and for the results to roll in.
Virginia has been a reliable Republican state every year since Lyndon Johnson won his landslide in 1964. Polls show Senator Obama leading there. If the polls are accurate and he does break the Republican stranglehold on that state in Presidential politics, it is likely to be a long and unpleasant evening for the GOP as a political exorcism chases the ghosts of Barry Goldwater and Ronald Reagan from the stage.
If Senator Obama does triumph in what was once viewed as a quixotic crusade against the Clinton regency, it will close a seminal chapter in the very long book which is American racism. Race has been the 1000 pound gorilla in the American living room since the first slaves were impressed and inhumanly floated across the ocean as cargo in the 17th century to Virginia.
Race bedeviled the founders and framers of the Constitution who crafted a scheme which counted slaves as 6/10 of a person for apportionment purposes. In spite of their allegedly enlightened outlook, the crafters of the Constitution presided over a world in which many African slaves felt that they would receive a better shot at freedom from King George than they would from one George Washington.
There was a constant tension between the Free states and the slave states and gifted legislators such as Henry Clay cobbled together compromises which saved the Union for a time. Inevitably, the compromises failed and a bloody war settled the question.
Or did it, as recalcitrant losers institutionalized racism via Jim Crow and the tortured logic of jurisprudence which sanctioned the concept of “separate but equal”?
If Barack Obama completes his remarkable journey with victory this day it will close the grand and glorious chapter in American history which began with the bold decision of the activist Warren Court in the Brown case in 1954. That activist court overturned settled law and defenestrated the concept of stare decisis when they overturned the Plessy precedent. Among other issues, it troubled the court that African Americans in the States were denied many freedoms here for which they had fought and died in the struggle to unseat Fascism around the globe during the Second World War.It was ironic that those veterans would come home and would be awarded a seat in the back of the bus.
Those justices ushered in the Civil Rights era of the 1960s with its many heroes and villains. But that court decision began and institutionalized social change which has allowed African Americans to be full participants in American society. Barack Obama stands as the fruition of the struggles of the last 54 years and his election would complete that chapter in the struggle for equality.
Racism will not be erased. Ignorant people survive and prosper. The struggle for justice and equality will continue. That struggle will never finish. It is a work in progress always. But the nomination (and possibly the election) of Senator Obama will mark an important punctuation point in American history. The chapter which recorded the struggle against institutionalized racism will close. The fight will continue in a myriad of other ways but a piece of Martin Luther King’s prophesied dream is no longer deferred but is attained.
In spite of its many faults, this America is a great country.
Vote!
23 Responses to “Some Opening Thoughts November 4, 2008 and a Long Digression on the Election”
By Fullcarry on Nov 4, 2008 | Reply
Awesome!
By John Jansen on Nov 4, 2008 | Reply
Thank you.
By Alex on Nov 4, 2008 | Reply
Nice post!
Btw, Marks & Spencer is the UK’s biggest clothing retailer (not manufacturer).
By John Jansen on Nov 4, 2008 | Reply
I am sorry about the faulty refernece
By LJ on Nov 4, 2008 | Reply
Very good piece
By Amicus on Nov 4, 2008 | Reply
I must confess to being thoroughly flummoxed by the price actions and once again suffer for viewing the world through the prism of a bond market operative.
=======
Might I simply suggest that the equity markets typically will put in a relief rally, especially if Obama wins.
The prospect of a Florida repeat or a situation in which Obama wins the popular vote handily yet loses the electoral college would be greatly politically destabilizing. The markets’ bid side reflects this worry.
A “clean” McCain win represents a _nasty_ gridlock in Washington, which is not good, historically.
On the other, LIBOR is down over 2-weeks in a row now. The markets are slowly easing, along with the global policy rates.
I see signs of pent-up demand getting generated already, especially in housing.
The auto industry is worth “saving”, as a technology shift may “create” boomtime demand for their new high-mileage, clean-cars going into model year 2010 (which is not that far away).
Expectations may bounce from “mild” to “severe” to “mild” and back again, as the data flow comes in over the next quarter. It’s easy to remain a credit market bull, under those scenarios (although, I have to say that my high-yield hopes are … slightly underwater, but I’m not throwing in the towel, yet, even though it may be wiser to fish in the ‘high dividend yield’ asset class)
By djt on Nov 4, 2008 | Reply
wonderful post. it’s easy to get caught up in the campaign minutiae and forget that this election is truly historic.
By James Wenyi on Nov 4, 2008 | Reply
Clariant is so famous, you should know
By TraderX on Nov 4, 2008 | Reply
My own opinion is that we are in a classic bear market rally. The economic reality of what has occurred and what is yet to occur has not been fully factored in. John’s point “if I can get 9% on a bond….why buy the stock?” – is, in my opinion, the real opportunity.
By LetUsHavePeace on Nov 4, 2008 | Reply
“Bold” decision of the Warren Court? The issue of race was resolved by the 14th Amendment. What was not resolved – and never can be – was the capacity of “the law” to find ways to contort plain language to nationalize lawyers’ and judges’ prejudices. How either Plessy or Brown and its subsequent affirmative decisions can be rationalized in light of the words of Section 1. of the 14th Amendment is a wonderment that only higher education can resolve. Racism will persist in the United States for the same reason that all prejudices persist: individuals will continue to have their own opinions. Institutional favor by race – now in favor of black-skinned people – will persist because of the delusion that state authority leads to “good” things. Your fellow celebrants of this Messianic moment might pause to consider that Plessy was a case brought by the railroad company that wished to avoid the State of Louisiana’s demand that seats in passenger cars be segregated by race. You then might remember that Earl Warren as Governor of California was the principal mover behind the internment of Japanese-Americans – which the Supreme Court upheld. LaDiDa.
By John on Nov 4, 2008 | Reply
best post I’ve read all morning, thanks a lot!
By cyclingscholar on Nov 4, 2008 | Reply
I suggest ya stick to the yield curve, your politics is oozing with whiteboy/richboy guilt. As the Rodney King riots demonstrated, blacks are just as racist as whites are.
cyclingscholar
By the scotsman on Nov 4, 2008 | Reply
An eloquent post sir. Anti-Americanism is rarer than some believe. The great majority across the water wish the best for a land that remains one of mankind’s best hopes. May the great Republic prosper.
By LMonkey on Nov 4, 2008 | Reply
I’d feel a whole lot better about your essay if the exemplar was United States Secretary of State, Condoleezza Rice, not Senator Obama.
We are living in the age of leverage. A nightmare is coming and if Obama wins we will have leveraged it, to the nth degree.
Popularity is not leadership.
By Don the libertarian Democrat on Nov 4, 2008 | Reply
You sent me in two directions.
First:
“A new and radically different model must emerge to replace it.”
I see risk coming back very quickly, and so I hope that you’re wrong. Our new model will be much like the old,only hopefully better, but I’m a fan of Bagehot on these banking matters.
Second, another direction, more hopeful:
“Racism will not be erased. Ignorant people survive and prosper. The struggle for justice and equality will continue. That struggle will never finish. It is a work in progress always. But the nomination (and possibly the election) of Senator Obama will mark an important punctuation point in American history. The chapter which recorded the struggle against institutionalized racism will close. The fight will continue in a myriad of other ways but a piece of Martin Luther King’s prophesied dream is no longer deferred but is attained.
In spite of its many faults, this America is a great country.
Vote!”
Couldn’t agree more. Cheers. It’s pretty clear which team I’m on.
By John Jansen on Nov 4, 2008 | Reply
I hope to respond to some of the comments. I am busy doing my closing pieces. I am especially grateful that every comment was well thought out and well written and that even the one which was mildly ad hominem was rather soft about it.
Thanks so much for contributing.
By Rev. Joe Jansen on Nov 4, 2008 | Reply
Well said!
By John Jansen on Nov 4, 2008 | Reply
Joe,
Thanks and I hope you are well.
John
By Charles on Nov 5, 2008 | Reply
I have to say that this blog reminds me every time I read it that civility on the internet is not an impossibility.
If I were you John I would be quite proud of the community I’d built.
By cyclingscholar on Nov 6, 2008 | Reply
Just in case ya wanted proof that blacks are no more open minded, or are overtly racist, than us honkies are, I would like to point out that blacks provided the margin of defeat for the Gay Marriage bills across the country.
keeping it within the bounds of economics/markets/investments, you can rest assured that affirmative action programs will be confined to blacks, and not extended to other minorities.
cyclingscholar
By John Jansen on Nov 6, 2008 | Reply
I do not understand your point. It seems as though you are stating that two wrongs make a right.
I have not scoured the papers since the election black racism. Human beings are fraught with frailty and fragility. So I do not doubt your point but I firmly believe that it does not in any way shape or form diminish the historic nature of Mr Obama’s achievment.
I do not think any of us should take time to denigrate his success but should be thankful that as an overwhelmingly white European based society we were able to judge Senator Obama as a very capable man who ran for President and who happened to be black.
By cyclingscholar on Nov 6, 2008 | Reply
OK. let me write a more encouraging letter that may surprise you. I think in the next year or so there will (I hope) be a veritable caravan of world leaders coming to visit our first black president, bearing goodwill that, even forgetting the simple comparisons to Bush, will stagger the world stage. I didn’t vote for Obama, but i (1) felt he won all three debates, (2) felt he ran a marvellous campaign, and (3) think his ability to articulate positions is long overdue on the world stage. Lets see how long his honeymoon and “100 days” last!
Now relating it to investments (as i think all letters should do, so that this forum doesn’t become purely political in nature)…i think the chief threat Obama represents to a resumption of a bull market is his willingness to restrict international trade. Remember the famous quote of Friedman about 1994: “Of course, nobody wants to write a second Smoot Hawley act, but then again, no one wanted to write the first one, either.”
cyclingscholar
By John Jansen on Nov 6, 2008 | Reply
Thanks for all your comments.
I am also concerned about his economic policy. To raise anyone’s tax even a penny at this point in time qualifies one for membership in the Herbert Hoover Hall of Fame.
Thanks for supporting the blog with your comments.