Can it be done? And can he do it?
In a minute, we’ll get to President Obama’s speech from Tuesday night. First, a small-cap recap…
Stocks slid sharply during midday trading Wednesday on weak housing data released this morning and on further stress in the financial sector as investors remain doubtful about the U.S. government’s bank plans.
The Russell 2000 (NYSE:IWM) was down 15.26, or 3.7%, to 397.22 in early afternoon trading. Small-cap decliners were leading advancers by nearly 11 to one. Meanwhile, the Dow fell 1.83% to 7,216.17, and the S&P 500 was down 1.82% to 759.07.
The Obama administration has begun making the 20 largest U.S. banks — including Bank of America (NYSE:BAC) and Citigroup (NYSE:C) — undergo "stress tests" today to see if any can weather further recessionary pressure. If any banks fail the test, the government will require them to raise capital from private sources. If this isn’t possible, the banks will be required to swap out the government’s existing, non-voting preferred shares and replace them with new preferred shares that are convertible to common stock with voting rights.
Bad news out of the housing market was a major culprit in Wednesday’s slide, with data showing that January existing home sales fell by 5.3%, to an annual rate of 4.49 million last month from 4.74 million in December. This is the lowest level in nearly 12 years. The Mortgage Bankers Association also reported today that U.S. mortgage applications fell last week, reflecting a sharp drop in demand for refinancing as mortgage rates ticked higher.
Obama’s Plans
*****It seems pretty clear to me that Obama is proposing a re-structuring of the U.S. economy. Healthcare, education, and energy were specifically mentioned as areas where change is necessary. And I don’t think you can look at any of these areas and say that the current course is going to lead us where we want to be.
With healthcare, I have no problem with a doctor who is motivated by profits. I do have a problem paying exorbitant fees to HMOs to distribute care. With energy, I have no problem with OPEC countries getting as much per barrel of oil as they can. If we don’t like it, we can get moving on alternatives.
Healthcare costs, gasoline and energy prices, even the housing bubble and the subsequent crash, act as silent taxes on Americans incomes. Much of our resources are wasted or not efficiently used. I’m all for changing that. But the ultimate questions are: Can it be done? And Can Obama do it?
Stock market news, commentary, and analysis from Chief Investment Strategist Ian Wyatt.
