While the Obama administration and Congress face a week of photo ops and talking points on sequestration, Wall Street’s laser focus is on announcements coming from Washington’s Marriner S. Eccles Building, which houses Ben Bernanke’s office.
As the Fed chief released the board’s latest minutes last week — which said there is a growing number of Fed governors wishing to slow down the printing presses sooner than 2014 — spooked investors started running for the doors.
But the markets aren’t terribly spooked by the specter of severe sequestration budget cuts.
They’ve seen this play before in DC: Wait till the last minute and then kick the can down the road. Wall Street saw the fiscal cliff and treated it like a speed bump.
Right now the market players just want budget and spending cuts, although that could change if the tone gets worse.
The markets are essentially a giant calculator. Whether the government saves $85 billion on ice cubes or on lightbulbs makes no difference on the Street; it’s the same math.
However, if there was a legitimate long-term debt reduction deal that was growth-oriented, the market would move much higher.
A “grand bargain” would remove the biggest impediment to both the market and the economy: Washington.
True tax reform — lowering corporate taxes — so companies can hire and do more business here, along with legitimate entitlement reform and intelligent spending cuts that rapidly bring down unemployment, could move equities.
Corporate America has loads of cash to deploy in a more tax-friendly environment. Apple, for example, has billions on the books. It could use that cash to help grow our economy, and the markets would applaud loudly if a plan were in place to do so.
Isn’t it time for the denizens of DC to get to work on spending reforms? Wall Street is looking at them out of the corner of its eye.