President Obama addresses the need to tackle long-term deficits and set out 'common sense steps to spur economic growth,' Monday, August 08, 2011.

US and European stocks rebounded Tuesday from the biggest plunge since 2008, in advance of the outcome of today's FOMC (the policy-setting Federal Open Market Committee) press briefing in Washington DC, after the European markets' close, when  Fed chairman Ben Bernanke will outline the results of the committee's meeting.

Italian and Spanish bonds were helped for the second successive day by European Central Bank buying, and the pan-European Stoxx 600 index is up 0.80% after losing over 10% in the past week. In Dublin, the ISEQ index is up 2.3% after falling more than 4% on Monday.

London's FTSE 100 Index is up 1.18% and Germany's DAX is off 0.24%; France's CAC-40 is up 0.3%.

The Dow Jones Industrial Average was recently up 155 points, or 1.43%, at 10,964. Bank of America rose 4.8% after tumbling 20% in Monday's rout. JP Morgan Chase gained 4%. The Dow dipped 635 points on Monday, the sixth-biggest point drop in its history, to close at a 10-month low.

The Standard & Poor's 500-stock index climbed 25 points, or 2.3%, to 1,144, led higher by financial and material stocks. The technology-dominant Nasdaq Composite gained 63 points, or 2.6%, to 2421.

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Peter Morici, professor at the University of Maryland comments: "The US economy and equities are worth more than current prices indicate.  This is a good time to buy companies with strong brands and decent cash positions—those are ones that weather tough times better and grow nicely when conditions improve.

The Standard & Poor’s downgrade did not cause the selloff the first trading day after its announcement—the market slide began on July 22, some 18 days earlier. That was the day negotiations between Speaker Boehner and President Obama to accomplish a grand deficit reduction bargain collapsed.

Those talks failed because the President incorrectly insisted on more taxes - - over the last four years, the deficit is up ten-fold, annual spending in excess of inflation is up $900bn, but eliminating the Bush tax cuts for all tax brackets would yield less than $300bn in new revenue.

The President’s insistence on taxes to permanently increase the size of government - - and his absolute refusal to act on business and investor complaints about rising costs imposed by health care reforms and incomprehensible new industrial regulations -- have instigated doubt about the President’s ability to grasp the challenges facing the economy, and come up with reasonable policies to jump start growth and avert a second recession.

Over the last two months, the economic data has been generally bad—weak retail sales and industrial production, jobs creation, GDP growth and other distressing news.

Business leaders—unlike Ivy League economists and Noble Laureates the Administration consults - - don’t believe big deficits - - followed by more taxes and permanently bigger government—spur growth.

Most recent Presidential missteps have aggravated business and investor mistrust. These include an announced bus tour through the Midwest to address the jobs situation—when the crisis is not one of communications but a lack of US and global demand for what Americans can make -- and his failure to personally address the S&P downgrade for three days after his knowledge of the fact.

When the President finally spoke, he rehashed old ideas that will do little to improve the situation—extending unemployment benefits and the payroll tax cuts only sustain the status quo—and strengthening universities and free trade agreements offer uncertain positive outcomes only years into the future.

The President offered no recognition that the lack of demand, which business economists believe is paramount, is caused by a huge trade deficit and in turn by reliance on oil imports and distorted trade with Asia. He said nothing about regulatory burdens that are causing American businesses to take purchases and investment abroad.
 
The good news is a President and Congress can only do so much damage—they are too rigid in their positions to agree on much further to distress the economy.

In the second half, economic growth should pick up, and the odds are better than even that a recession will be avoided.

Asia, laughing at Follies Americana, will continue to grow like gang busters and the S&P 500 companies—who comprise 80 percent of US publicly traded companies by assets—earn more than half their profits abroad and many are well situated across the Pacific.

Moderate growth at home and robust growth in Asia spell continued good earnings reports. Those will ultimately drive a recovery in stock prices.

At 62, I maintain a healthy cash position as a hedge against an unplanned retirement, but as I always do when things go sour, I am putting money into the market.

The investors will be feeling much better on New Year’s Eve than it does in the August dog days of displeasure. Don’t miss the party."