March 2009

We Need To Focus!

By Brad C. Stewart, Senior Vice President/Chief Investment Officer

The new Treasury Secretary, Timothy Geithner delivered his one day delayed Rescue Plan on February 10, and the stock markets voted with their feet. As I have stated previously, I believe the stock markets are the heart monitor and the economy is the patient. Unfortunately this patient is on life support. We need to see some real tangible solutions and we need to see them now.

As has happened in the past, a much delayed answer to the current crisis was announced. It lacked the substance or details to make the markets believe a true solution was forthcoming. When I first read an overview of what was being proposed, it didn’t seem as though a great deal of work went into it. Remember, even though Secretary Geithner has only been on the job for a few weeks, it is not as though this problem just appeared.

He has been directly involved for quite sometime as President of the New York Federal Reserve. I, along with thousands of others, expected he was postponing his announcement because he was about to come out with something new. I was wrong.

I do not have all the answers, nor am I foolish enough to think I even have a few of the answers. I do know that the root of our current crisis is the housing market. The housing market morphed into a credit crisis, which I believe is a consumer confidence crisis. The consumer confidence crisis causes not only the housing market to slow down dramatically, but retail spending, in general, also slowed. As retail spending slows, a natural recourse is for companies to layoff workers and the unemployment rate increases. This in turn decreases the level of consumer confidence and the crisis continues to spiral out of control.

This is why a solution or even a more detailed course of action would have been better received by the markets. I was disappointed in the fact that it sounded a great deal like earlier solutions. Even the caveat that the details were being worked on and would be announced in a few weeks was weak. While the Secretary is new on the job, I would imagine, the staff has been there for years. If there is a solution, let’s try it. Something would be better than empty promises.

Another one of my fears is of a tactical nature. I believe we are trying to execute this war on “The Great Recession” by opening too many fronts. We need to focus on one or two items at a time, such as housing and the confidence in the financial industry. They could set aside a certain amount of the TARP to address other issues and focus on the big picture, without turning every request into an act of Congress.

As the title of this month’s FYI states, “We Need To Focus!” If every Senator and Congressman wants to force his or her own agenda on the will of the people, we will never get this issue put behind us. What is that old saying, “Too many cooks spoil the soup.” In this case too many solutions that never get implemented risk a very nasty outcome.