Notes From Underground: Obama’s Honeymoon Speech was Over-promised and Undelivered

This was a State of the Union that was hyped with so much HOPE for restoring real growth and JOBS to America. As I read the entire leaked speech–which was leaked in entirety–I kept waiting for the real thrust to stimulate growth and I missed it. Simplifying the tax code is a noble endeavor but we have all experienced the inability of Congress to crush the self-interests that without presidential leadership it attempts fail under the weight of lobbying dollars. Ending the tax breaks to energy companies so as to finance the switch to clean energy is nice but oil explorers will lobby or else move to exploring in nations that require the advanced technology that U.S. energy companies thrive on and they will entice them with all types of incentives.

Again, we heard about the need for improving our educational standards but nothing about taking on the teachers unions and their hold on American children and the educational system. The talking heads in the electronic media were giddy over the importance of this STATE OF THE UNION and its plan for regenerating the dynamism of the American economy. I am very underwhelmed but the markets will tell us what global investors think. Oh well, tomorrow the FED takes center stage and, unlike the president’s speech, very little is expected. Nothing is promised but to maintain its present course of QE2. Oh well, nothing like the predictability of a collegial board married to its models.

In today’s news, the big surprise was the GDP number out of the U.K. The market consensus was for a 0.5 percent increase and the actual number showed a contraction of 0.5 percent. The British POUND had been strengthening of late as investors were thinking that the BRITS would be raising rates to curb their rising inflation. Early movers into the POUND were disappointed by the data and many new positions were liquidated. The austerity plan is having a bigger impact on U.K. growth, even though some analysts blamed the weak GDP number on the snow during the Christmas shopping season.

The British economy is now worried about a new slowdown as prices rise, which is a nightmare for the central bank. The GILT market rallied due to the economic slowing but I advise watching the long-end of the British debt markets to see when investors begin to truly lose confidence in the BOE. Tuesday’s selling of the POUND was merely prologue, the BOND VIGILANTES are saddling their horses and getting to ready to ride as the drawbridge is being lowered.

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