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Efficient markets problem

Budget expert Stan Collender's seven main predictions for 2012 fiscal politics are as follows:

"1. Gridlock supreme all year long on anything having to do with spending, revenues, deficit, and debt
"2. No legislated reductions in the deficit
"3. Bowles-Simpson quickly fades into oblivion
"4. No fiscal 2012 budget resolution
"5. Earmarks will thrive
"6. Government contractors will have far more influence than anyone has ever imagined
"7. Wall Street is going to be surprised by #s 1-6."

Stan, I'm sorry to have to tell you this, but while your prediction #7 works in practice (i.e., I agree that it's highly likely to be true), it doesn't make sense in theory.

The most novel point for me, since I had similar expectations anyway, is point # 6, which he explains more fully as follows:

"Government contractors will be the 2011 version of bond market vigilantes. With their payments and profits on the line, companies that do business with federal departments and agencies will be the most vocal opponents of take-no-prisoner tactics like government shutdowns and rapid, large cuts in federal spending. They?ll also have support from their institutional and other investors who won?t want profits, cash flow, dividends and stock prices to suffer. While a shutdown will be threatened and is likely, it will be difficult to keep one going for more than a few days once the contractor community starts protesting."

Full post as published by Start Making Sense on December 14, 2010 (boomark / email).