Capital Commerce

Last night's GOP debate also confirmed for me that Mitt Romney is a closet sci-fi geek. He answered a question about foreign policy saying that it was like "three-dimensional chess," a game that exists in the universe of Star Trek:

Today, foreign policy is no longer like it was in the last century, which was more like a game of checkers that was our side and their side. We tried to get friends and allies and go after each other. Now foreign policy is more like three-dimensional chess, where we have to understand all the players throughout the world and develop strategies to help move the world towards more stability and safety for ourselves.

Now remember, Romney has also said his favorite book is Battlefield Earth, an L. Ron Hubbard novel about an alien invasion. Moreover, he claims his favorite TV show is Lost. Indeed, when Romney gave his big religion speech a few weeks back, his words seemed to echo character Jack Shepherd, the show's heroic doctor. Here's a line from that speech: "Freedom and religion endure together or perish alone." And now a famous line from the character on the show: "Live together, die alone, man." Think about it, people.

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From Michael Darda, chief economist at MKM Partners:

It would appear the [Federal Open Market Committee] has decided to throw inflation caution to the wind and countenance aggressive further easing action, which may include a 50 [basis point] rate cut on or before January 30. We think this will be bullish for sectors and countries that benefit from reflation, a weak dollar, and a steepening Treasury yield curve. These would include, but are not limited to 1) emerging markets, 2) Treasury Inflation Protected Securities (TIPS), 3) junk bonds, 4) equities vs. Treasuries. Within the equity market, we favor energy, materials, industrials, technology and financials.

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From the AP:

Federal Reserve Chairman Ben Bernanke pledged Thursday to slash interest rates yet again to prevent housing and credit problems from plunging the country into a recession. The Fed chief made clear the central bank was prepared to act aggressively to rescue a weakening economy. 'We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks,' he said.... Bernanke has come under criticism for not acting more aggressively to deal with the economy's problems."

My take: Interestingly, former Reagan administration economist Martin Feldstein—a longtime skeptic of fiscal stimulus—is so worried about the economy that he has advocated temporary tax cuts and rebates to boost the economy. He was on President Bush's short list to replace Alan Greenspan as Fed chairman, as was Glenn Hubbbard, formerly the chairman of the Council of Economic Advisers and currently dean of the business school at Columbia University. Both men might want to start donating some campaign cash to Hillary Clinton and Barack Obama, since the odds are growing that the next president—particularly if it's a Dem—will not renominate Helicopter Ben.

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Goldman Sachs, now firmly in the recession camp as of last night, might have been a bit hasty in throwing in the towel on the economic expansion. This from the Associated Press: "The Labor Department reported that 322,000 persons filed applications for jobless benefits, down by 15,000 from the previous week when claims had declined by 20,000." A nice data point for those of us who still doubt a recession is on its way. As economist Bruce Kasman of JPMorgan notes: "It is the norm for claims to have increased by roughly 20 percent in the year before a recession begins and before the unemployment rate begins moving higher. Thus far, the rise in jobless claims is modest, more consistent with a sustained growth moderation than a recession."

Ed Yardeni of Oak Associates also makes a good point about recession fears, arguing, for instance, that analysts totally misinterpreted an AT&T earnings report:

No busy signal at AT&T? The stock market sold off...partly on news that the giant phone company said that consumers aren't paying their bills and are getting disconnected. Is the economic situation really deteriorating so rapidly? I don't think so.... I read a transcript of the company's presentation. The CEO said, "So we're really experiencing some softness on the consumer side of the house from the economy." That's all I could find.... It's OK to be pessimistic about bad stuff that is happening in the economy. It is OK to be optimistic about the good stuff. But we should be realistic, and objectively analyze the incoming data, especially during such a controversial period as now. In other words let's not exaggerate either way. The U.S. economy isn't booming. It is slowing, but it isn't in a recession yet, though it does seem to be heading in that direction. December's survey of small businesses was surprisingly mellow, with virtually no indications that small businesses are being forced to retrench as a result of a credit crunch. Most of the recent weakness in the Small Business Optimism Index is based more on anticipated rather than actual conditions: "Two-thirds of the decline in the Index since September came from two components: the outlook for real sales and expectations for business conditions six months from now. The deterioration of expectations triggered a pull-back in the labor market indicators that accounted for the remaining third of the decline."

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