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The stock market is pricing in another down leg in the economy with policy and legislation slated for development and likely passage leading to another round of uncertainty.
At the top of the scary stuff list are congressional plans for a busy summer of legislation. According to The Hill.com: "Congressional Democrats have planned an ambitious July, stacking healthcare reform, climate change legislation, annual spending bills and a potential Supreme Court nomination battle on the “To Do” list before the August recess."
The Hill suggests that this could be the final push of "the busiest stretch of Obama’s first term," which makes us wonder that means, exactly. Is is a sign that the onslaught of "change" is done? Or are they alluding to the fact that it will take a year to get agreements on all the upcoming legislation? To be sure, the 2010 election campaign for Congress will put a damper on any significant activity. And by the time that's over, the presidential campaign will be in full swing.
That means that if anything is going to get done, it's going to have to get done right now. And with a Democrat majority in both houses and a Democrat president, the odds are high that many of the targeted legislative initiatives, such as higher taxes, changing America's health care model, and increasing government control of industry are likely to pass.
According to The Hill, Republicans don't have much of a chance to oppose anything the president and the congressional Democrats want to do, noting: "Senate Republicans have expected Democrats to roll the bulk of their 2009 agenda through the chamber in the next few weeks and have been testing possible weak spots in the Democratic front while working to strengthen the unity of their own conference."
With regard to health care: "Congressional leaders and White House officials aim to iron out the differences between the House and Senate bills and send Obama a bill to sign before the end of the year."
China: Developing Its Own Trading Block
China has been buying up commodities of late, propping up prices in the futures markets. The conventional wisdom suggest that China is stocking up on supplies, such as metals and crude oil, in order to keep its domestic economy going.
But another take is worth looking at. According to Investor's Business Daily (IBD): "It’s also a bold bid to lock up markets for Chinese products and broaden the international use of China’s currency," a dynamic that may directly affect U.S. trade in the future as "may hold long-term repercussions if China successfully builds an alliance of trading partners in the developing world that’s separate from its trade ties with advanced countries."
In other words, China is setting itself up as an alternative producer and supplier of goods to the non-U.S. and non-Europe worlds. According to IBD, if the current moves are successful: " China will be in an enviable position to sell its products in growing markets such as Latin America if the U.S. or Europe throw up future trade barriers to Chinese products. For example, if Americans stop buying Chinese electronics, perhaps Latin America will. And that’s currently a $4.2 billion market for U.S. consumer electronics makers."
According to IBD: "Much of it has to do with the feeling that China must act strongly to build a unique system of trade and influence that will protect the nation’s prosperity, say sources close to its Communist Party leaders, as well as outside analysts. Top party officials are said to be angry at what they view as anti-Chinese discrimination when Chinese companies try to invest in or sell their products in the U.S. and Europe."
Obama Home Owner Rescue Plan Yields Mixed Results
It was supposed to keep people in their homes, but the results of the Obama "Making Home Affordable" plan has had mixed results, as lenders have applied the program unevenly, reports The Washington Post.
The issue is highly complex, and is being influenced by the current marketplace. According to The Post: "The demand from distressed borrowers has overwhelmed many lenders and nonprofit organizations, which have hired more staff to cope. And there is a growing concern about whether the plan can reach its goal of helping 4 million homeowners without tackling the issue of borrowers who owe more than their home is worth."
According to a recent survey by on line real estate hub Zillow.com, 1 in 5 homes are under water currently. Yet, the situation is worsening. According to The Post: "Last week, Fannie Mae, the government-controlled mortgage financing company, obtained a temporary restraining order from the South Carolina Supreme Court to stop the foreclosure sale of more than 1,000 properties there so it could give the program more time to work" as implementation of the program is very slow.
One well placed source told us that business in home refinancing has been "very busy" but that as banks start to catch on to current government regulations, a new ream of paperwork, adding layers of bureaucracy is issued by the government, again slowing down any process that has to do with moving any mortgage related process forward.
Another source told us that new government regulations now require banks to "set aside reserves" when issuing lines of credit to customers, even though the customer may not actually access the line of credit. The banks are charging fees now for the "unused portion" of the line of credit.
As with anything else, there are always unintended consequences.
Conclusion
How quickly things change. Before yesterday commodity prices were pointing to an economic recovery. Then reality set in as retail sales plummeted.
Unemployment was rising at a slower pace and mortgage activity was on the rise. Now we find that the White House's mortgage rescue plan is delivering uneven results, and that oil demand is projected to slow, according to an IEA report.
Our sources tell us that the government, by increasing regulation, is making it harder for banks to lend money to credit worthy clients, and that as banks catch on to current regulations, new ones are piled on, again gumming up the works.
Finally, the unintended consequences machine, Congress, is gearing up for a busy summer of legislation on issues with the potential to influence the American way of life for generations.
Say hello to a new Wall of Worry, and to the inevitable retrenchment in stock prices, at least in the near term.
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