Stocks fell big again on Friday on resurging eurozone fears. Primarily, news that Germany’s representative to the ECB, Jürgen Stark, was abruptly stepping down, citing “personal reasons.” Though, it’s quite possible the real reason was a policy disagreement. Stark will be replaced by another German, Jörg Asmussen, who likely will represent the same positions Stark did. Further, the ECB is currently in flux anyway with ECB President Jean-Claude Trichet’s replacement (Italy’s Mario Draghi) slated to take the helm October 31.
There were also additional whispers from Greece that the nation may fail to hit key benchmarks to qualify for its next bailout disbursement. In all, our view here remains the same. This process has been and will continue to be hurdle-laden and take a long time, but there is heavy incentive for all involved to do what it takes to maintain the monetary union, at least for the near term.
Other than the eurozone news, media coverage Friday was dominated by two principal stories. Here’s a quick look at each.
(Private) planes, trains and automobiles
On Thursday evening, the President stood before a joint congressional session to deliver a jobs plan. The President called for a revenue neutral (through to-be-determined budget cuts and tax changes elsewhere) plan amounting to an estimated $447 billion to boost jobs through infrastructure projects, transfers to state and local governments and tax credits to small businesses. And he called for higher taxes on “America’s most wealthy.”
Is it possible this plan creates jobs? Sure. But it’s actually rather likely we get private-sector job creation naturally over time anyway, given continued economic growth. The idea we need jobs to get growth underpins much of the current political discourse of both parties. But it lacks historical evidence to support it, since in every expansion on record, growth preceded jobs. And so it has since the recession’s end in mid-2009.
Still, some say the plan’s bigger-than-expected size could put a dent in unemployment—but without describing the connective tissue. Private-sector hiring generally happens based on the specific conditions many thousands of employers are individually encountering and expecting.
We could get into the plan’s broad brushstrokes and point out the merits (or lack thereof) of each point. But our aim isn’t policy analysis, rather, the likely capital markets and economic impact. And the reality (which may seem somewhat counterintuitive) is jobs aren’t a leading indicator of stocks or the economy. So it lacks relevance in assessing markets.
This is more a political than economic issue. In our view, employment improvements will come with growth. Additional stimulus spending—if passed—may create an environment more conducive to growth, or it may not. (Our view is stimulus spending at this point is neither a huge help nor a hindrance.) Either way, if the employment situation improves, expect both Democrats and Republicans to scramble for the credit. If the situation doesn’t improve (and unemployment can stay elevated for a long time—well into an expansion), expect both parties to finger the other as scapegoats.
We’re sympathetic to the struggles of the unemployed, and of course, we’d prefer to see more return to work soon. But an apolitical fact is another plan—regardless of size and scope—is less useful at creating actual jobs than creating a future political platform.
Ten years past
This weekend, the nation will mark the tenth anniversary of the 9/11 attacks. Investors are understandably focused on current issues—eurozone woes, unemployment and what strikes many as particularly embittered political rhetoric (but seems very much like politics as usual to us). But this all says something about the resilience of our democracy—that we can be attacked as viciously and unexpectedly as we were and 10 years later, continue our debates as heated as ever while remaining a unified nation.
And it speaks volumes about our economy. Some simply amazing facts: When the planes struck in NY and DC and one was downed in PA by courageous citizens, our nation’s economic output was $10.6 trillion. Now, 10 years on, it’s over $15 trillion. The terrorists’ aim was to topple our country. They didn’t do a very good job of it.
Through time, always, we’ve encountered serious problems. War, recession, political unrest, inflation, bear markets, credit crises, high unemployment, terror attacks and so on. As we frequently say, there’s never a dull moment in history. Yet always, irregularly, markets rebound, as does the economy, to reach new heights. Even after the very worst events—even after a wholly unexpected, massive attack on our own soil.
Economies and capital markets are resilient because they simply represent people—billions of people making trillions of decisions each day. You can knock down a thousand buildings, but people globally will still be motivated by profit and have incentive to innovate.
So 10 years later, our age-old debates with our same old politicking and grandstanding just underscore our ability to rise and carry on—always. And that we do carry on honors the memories of all those who have given their lives for this country. So we will never forget. And we never should.