See you in 2010!
NOVEMBER 19, 2009
Americans Deserve a Transparent Fed
Wall St. Journal
Opinion
By RON PAUL AND JIM DEMINT
For nearly a century the Federal Reserve has operated in the shadows, away from the prying eyes of Congress, journalists and the American people. Created in 1913, the Fed was given enormous responsibility to protect the value of our currency. Yet in the last 96 years the U.S. dollar has lost more than 95% of its purchasing power. The Fed's unprecedented actions over the past year in attempting to stabilize the financial system have now forced it into the spotlight, and caused millions of people around the country to question the opacity of the Fed's financial transactions.
While the Fed is more transparent now than it was 20 or 30 years ago, there is still a long way to go. If the Fed were fully transparent, organizations such as Bloomberg and Fox News wouldn't have to sue its board of governors to receive materials that should be available through Freedom of Information Act requests. These include information on which banks and companies received loans and for what amounts after the 2008 financial meltdown.
One puzzling assertion made by the Fed and its supporters is that the Federal Reserve has some sort of independence from the government and independence in undertaking monetary policy. Nothing could be further from the truth. The Federal Reserve is a government-created banking monopoly, and its top decision makers are appointed by the president and confirmed by the Senate. If they do not perform satisfactorily in the eyes of politicians, they will not be renominated.
The Fed has also, for the past three decades, been required to engage in monetary policy with the goal of maintaining stable prices and full employment. Since the natural trend over time is for prices to decrease, a mandate to maintain stable prices is a mandate to pursue an expansionary monetary policy and inflate the money supply to counteract the lower prices we would expect from increased productivity.
The Fed chairman is required to appear twice a year before Congress to explain the Fed's actions, and how the Fed is complying with its mandates of stable prices and full employment. However, the idea that this constitutes any sort of oversight is laughable.
Each congressman who questions the chairman receives only a few minutes in which to ask questions and receive answers. Having been on the receiving end of Alan Greenspan's notoriously obtuse "Greenspan-Speak" answers and Ben Bernanke's similarly convoluted statements, we can assure you that the process is completely ineffective at getting any real answers.
No matter how direct the questions are, Fed chairmen answer with a vagueness common to bureaucrats. The whole process is window dressing for public consumption, not any sort of attempt to exercise oversight or gain any real insight into the Fed's actions.
What is needed is a full audit of the Fed, something that has never happened. We need to know who the Fed is giving money to, what types of securities are being purchased and what backs those securities, how much money is being paid for those securities, etc.
While Rep. Mel Watt's (D., N.C.) efforts to audit the new lending facilities authorized to bail out private firms such as AIG is a step in the right direction, it is still just a first step. These facilities have the same effect on the money supply as securities purchased through open market operations. Why should securities placed on one line of the Fed's balance sheet be subject to audit while the exact same securities placed elsewhere on the balance sheet are not subject to audit? The loopholes need to be closed.
In coming weeks we plan to offer companion amendments to legislation already before the House and Senate that will open the Fed up to a complete audit. The amendments set a six-month time lag on the publication of previously unreleased audit data to address the Fed's concerns that actions undertaken in support of monetary policy would immediately be politicized. The transcripts and minutes of the Federal Open Market Committee meetings would continue to be made public at the Fed's discretion, with unpublicized details of meetings not subject to any additional scrutiny. Finally, the amendments make clear that the purpose of the audits is not to interfere with or dictate monetary policy.
As strong opponents of government intervention into the economy, we do not want to see Congress directly dictate monetary policy. But while the Fed is involved so heavily in monetary policy and its actions so heavily influence the future of our economy, it is necessary that it be fully transparent. Interventions into the economy on the order of trillions of dollars cannot continue to escape public scrutiny. American taxpayers deserve better.
—Mr. Paul is a Republican congressman from Texas. Mr. DeMint is a Republican senator from South Carolina.
Instead of listening to politicians speak about what’s best for us – let’s learn a few things from someone who understands our healthcare system and the finances involved.
jg – November 18, 2009
NOVEMBER 18, 2009
Health 'Debate' Deserves a Failing Grade
Wall St. Journal
Opinion
By JEFFREY S. FLIER
As the dean of Harvard Medical School I am frequently asked to comment on the health-reform debate. I'd give it a failing grade.
Instead of forthrightly dealing with the fundamental problems, discussion is dominated by rival factions struggling to enact or defeat President Barack Obama's agenda. The rhetoric on both sides is exaggerated and often deceptive. Those of us for whom the central issue is health—not politics—have been left in the lurch. And as controversy heads toward a conclusion in Washington, it appears that the people who favor the legislation are engaged in collective denial.
Our health-care system suffers from problems of cost, access and quality, and needs major reform. Tax policy drives employment-based insurance; this begets overinsurance and drives costs upward while creating inequities for the unemployed and self-employed. A regulatory morass limits innovation. And deep flaws in Medicare and Medicaid drive spending without optimizing care.
Speeches and news reports can lead you to believe that proposed congressional legislation would tackle the problems of cost, access and quality. But that's not true. The various bills do deal with access by expanding Medicaid and mandating subsidized insurance at substantial cost—and thus addresses an important social goal. However, there are no provisions to substantively control the growth of costs or raise the quality of care. So the overall effort will fail to qualify as reform.
In discussions with dozens of health-care leaders and economists, I find near unanimity of opinion that, whatever its shape, the final legislation that will emerge from Congress will markedly accelerate national health-care spending rather than restrain it. Likewise, nearly all agree that the legislation would do little or nothing to improve quality or change health-care's dysfunctional delivery system. The system we have now promotes fragmented care and makes it more difficult than it should be to assess outcomes and patient satisfaction. The true costs of health care are disguised, competition based on price and quality are almost impossible, and patients lose their ability to be the ultimate judges of value.
Worse, currently proposed federal legislation would undermine any potential for real innovation in insurance and the provision of care. It would do so by overregulating the health-care system in the service of special interests such as insurance companies, hospitals, professional organizations and pharmaceutical companies, rather than the patients who should be our primary concern.
In effect, while the legislation would enhance access to insurance, the trade-off would be an accelerated crisis of health-care costs and perpetuation of the current dysfunctional system—now with many more participants. This will make an eventual solution even more difficult. Ultimately, our capacity to innovate and develop new therapies would suffer most of all.
There are important lessons to be learned from recent experience with reform in Massachusetts. Here, insurance mandates similar to those proposed in the federal legislation succeeded in expanding coverage but—despite initial predictions—increased total spending.
A "Special Commission on the Health Care Payment System" recently declared that the Massachusetts health-care payment system must be changed over the next five years, most likely to one involving "capitated" payments instead of the traditional fee-for-service system. Capitation means that newly created organizations of physicians and other health-care providers will be given limited dollars per patient for all of their care, allowing for shared savings if spending is below the targets. Unfortunately, the details of this massive change—necessitated by skyrocketing costs and a desire to improve quality—are completely unspecified by the commission, although a new Massachusetts state bureaucracy clearly will be required.
Yet it's entirely unclear how such unspecified changes would impact physician practices and compensation, hospital organizations and their capacity to invest, and the ability of patients to receive the kind and quality of care they desire. Similar challenges would eventually confront the entire country on a more explosive scale if the current legislation becomes law.
Selling an uncertain and potentially unwelcome outcome such as this to the public would be a challenging task. It is easier to assert, confidently but disingenuously, that decreased costs and enhanced quality would result from the current legislation.
So the majority of our representatives may congratulate themselves on reducing the number of uninsured, while quietly understanding this can only be the first step of a multiyear process to more drastically change the organization and funding of health care in America. I have met many people for whom this strategy is conscious and explicit.
We should not be making public policy in such a crucial area by keeping the electorate ignorant of the actual road ahead.
—Dr. Flier is dean of the Harvard Medical School.
I mentioned in an earlier post that there will be a battle for control of our monetary system (money). The blog post below by Karl Denninger is what I’m referring to – there will be some of our leaders who are honorable (Ron Paul) and will try to rest control from this international cartel of bankers. There will also be leaders who are not at all honorable – who will only look at what they can gain from the current system – and will fight for the bankers (Watt). It doesn’t matter to them if this destroys the United States. They can only see wealth, power and glory for themselves. They are most likely aware of the coming global government – and are attempting to solidify their place within it.
This is only the beginning. As our economy continues to decline – this will change from a battle over an audit of the Federal Reserve – to a battle for the system itself.
jg – November 18, 2009
Wednesday, November 18. 2009
As I noted on Blogtalk a couple of weeks ago, Representative Watt is doing his level best to derail the "Audit the Fed" bill and amendments introduced by Representatives Grayson and Paul.
Representative Watt's "alternative", however, doesn't open The Fed's books - it further snaps them shut! It not only leaves all the existing restrictions against an audit in place and refuses to mandate audits it also places four new restrictions on any such audit activity.
The most outrageous new restriction is that an audit, under Watt's proposal, may not examine the loans or liquidity arrangements that The Fed enters into or the impact of those deals on the reserves, balance sheet or financial condition of either a Fed-regulated bank or The Federal Reserve itself.
It isn't hard to figure out why Watt would want such blanket secrecy. One need only look at his heavily-gerrymandered district, which happens to contain the corporate headquarters of Bank of America.
This gives new meaning to "kneel before Zod."
The Dishonorable Representative Watt must resign - there have been ridiculous and outrageous claims made in the past, but any representation that his amendment would somehow "open the books of The Fed" is an outrageous lie, and further, it appears to be intentionally designed to protect one of the very "too big to fail" banks that likely has caused The Fed to get in trouble in the first place - Bank of America.
First, we're happy to announce that the team has identified and fixed the issue with the YouTube conduit; you can now find and add videos from YouTube to your library and posts. As always, thanks for your patience!
The other news we have today is about a new addition to the Six Apart family: TypePad Micro, a new free level of TypePad that is streamlined for microblogging. We see a new form of blogging emerging that lives between the quick status updates of Twitter and Facebook and the long-form posts of "classic" blogging; TypePad Micro is designed to meet that need. You can read more about TypePad Micro in Chris Alden's post on the Everything TypePad blog.
A lot of the new capabilities we've added to TypePad this year were actually inspired by some of the best things about Vox: favoriting, member profiles, a dashboard to follow other bloggers, and easy ways to post content from other social media sites. But the things that make Vox different from TypePad are still there: Vox has always been -- and still is -- the best place for "friends and family" blogging, where you're in control over who sees what. TypePad, on the other hand, is built for the blogger who wants, no, craves, attention.
Do you have a passion or interest you want to share with people beyond your Vox neighborhood? If so, we'd love it if you tried out TypePad Micro. Maybe you've always wanted to start that obsessive blog that's just about waffle restaurants. Or want a place to share videos of your favorite band (Jonas Brothers, anyone? Anyone? ...). TypePad Micro's great for those topic-specific blogs. Take it for a spin and let us know what you think.
On the Vox front, our designers are working on some cool new themes (coming soon!). We'd also love to hear your thoughts about where we should take Vox in the coming year. What are the key things you'd like to see for Vox? If you've had a chance to use TypePad this year, what are the features there that we should bring over to Vox? And, if you're thinking big thoughts, how could we connect the Vox and TypePad communities in order to bring together bloggers and their shared passions? Your feedback is really important to us, so please leave a comment here, or shoot me a message.
And again, thanks for your patience as we found and fixed the YouTube bug!
~ daisy
What do you do if you’re the Fed chairman and your actions are destroying the value of the dollar? If you wanted to disguise your actions – you might lie to the American people and tell them that economic growth will continue next year. You might also lie and tell the American people that this ‘growth’ coupled with the Fed’s actions will stabilize the dollar – in an attempt to momentarily stabilize our falling currency.
What is the truth? To find the truth (as I’ve said before) – we must look at actions and the results of those actions. We cannot depend merely on what we’re told – because we’re being told many lies on a daily basis.
Let’s disregard what Bernanke is saying since he’s only trying to prop up the dollar with meaningless talk – and look at what he’s actually doing. As you’ve seen – the Federal Reserve is propping up Treasury auctions, the Stock Market, the Banking system and Housing. Due to all of the recent Fed ‘actions’ over the past 1 ½ years – the Fed has basically become our economy. How do they do this? They do it by printing trillions of new dollars to buy assets. What affect does this have on our fiat currency? It erodes the value of the U.S. dollar. Anyone who is paying attention (China is certainly paying attention) can see that the Fed is directly monetizing our debt – on a massive scale. There’s only one way for the dollar to go – down - and it’s now heading in that direction at a quickening pace.
Is the real economy (jobs, housing, corporate sales/revenues, tax receipts – things we can actually measure) really growing? No – it’s not. Is there anyway under current conditions that the dollar will ‘stay firm’? Of course not.
You can see how ridiculous Bernanke’s statements are – they are nothing more than well concealed lies - lies that give us a false sense of security.
Remember Bernanke’s comments when things begin to head south – and then compare his new lies with the old ones.
Also notice the media spin on this article. What is causing the current decline of the dollar according to the article?
In a rare move, the Fed chief made several remarks on the U.S. dollar, which has fallen in value recently as global economic activity picked up and investors no longer sought the safety of dollar assets.
The reason we’re given for the dollar’s decline is that investors no longer seek the ‘safety of dollar assets’. I’m sure there are investors fleeing the dollar – but this isn’t the underlying cause of the dollar’s decline. You’re not going to see a mainstream media article telling us the truth. There is a coordinated deception playing out here.
The Federal Reserve is causing the decline of the dollar – plain and simple. Remember this.
jg – November 16, 2009
NOVEMBER 16, 2009, 1:07 P.M. ET
Moderate Economic Growth to Continue in 2010, Bernanke Says
Wall St. Journal
By LUCA DI LEO
WASHINGTON -- The U.S. economy will continue to grow in 2010 and this expected strength will help ensure the dollar stays firm, Federal Reserve Chairman Ben Bernanke said Monday.
In a rare move, the Fed chief made several remarks on the U.S. dollar, which has fallen in value recently as global economic activity picked up and investors no longer sought the safety of dollar assets.
"Our commitment to our dual objectives [of maximum employment and price stability], together with the underlying strengths of the U.S. economy, will help ensure that the dollar is strong and a source of global financial stability," Mr. Bernanke told the Economic Club of New York.
The Fed chief stressed the central bank will keep a close eye on the dollar's recent slide, but at the same time reiterated that the key federal funds target rate is expected to remain at record lows for some time due to a fragile recovery.
To lift the dollar's value, the central bank would need to raise rates, thereby increasing the return investors get on U.S. dollar assets.
However, that could hurt the economy's recovery, which Mr. Bernanke cautioned was threatened by weakness in the labor market and tight bank lending.
"I expect moderate economic growth to continue next year. Final demand shows signs of strengthening, supported by the broad improvement in financial conditions," Mr. Bernanke said.
Holding his first official speech since the Fed voted to hold its key interest rate at a record low earlier this month, Mr. Bernanke said jobs are likely to remain scarce and inflation low for some time.
The Fed kept its benchmark interest rate at a record low Nov. 4, citing a sluggish recovery. The central bank said it expects to keep its federal funds target rate close to zero for an "extended period" in the face of high unemployment and low inflation.
For the first time, the Fed's rate-setting committee earlier this month spelled out the three key indicators it will be looking at to set rates: unemployment, core inflation and inflation expectations.
"Both the decline in jobs and the increase in the unemployment rate have been more severe than in any other recession since World War II," Mr. Bernanke warned.
The U.S. economy is slowly recovering from its worst recession since The Great Depression. Although the economy expanded in the third quarter for the first time in more than a year, the recovery remains fragile, with unemployment at a 26-year high of 10.2% in October.
Later Monday, Fed Vice Chairman Donald L. Kohn will talk about the central bank's policy challenges.
Write to Luca Di Leo at luca.dileo@dowjones.com
As many of you have noticed, the YouTube Conduit is not working. I am so sorry about this; I know how frustrating it is.
The team is looking into how to get this fixed and I will update you as soon as I hear something. In the meantime, not all is lost... There is a work-around for posting videos.
When you're in the Compose Screen, just click on "embed." Ignore the fact that it says "Widget" before everything because you can definitely use this to embed videos as well. You'll just need to input the embed code from the video, enter a title (if you want) and hit OK.
It might not show up perfectly in your compose screen, but when you hit "Save," your video should appear just the way you wanted it to.
Hopefully this will allow you to keep posting videos while we figure out what's happening on our end.
As always, thanks for your patience.
This is ridiculous.
Where did we get the $700 billion dollars for TARP? We borrowed it.
What would be the impact on our deficit if we paid back all $700 billion dollars today? The impact on our finances would be negative. Since we borrowed all of this money – even if we paid all of it back today – we would still have paid interest on this money - for months.
So – the comments below are simply ridiculous. I can’t believe they are even printed. I wonder if these people are laughing at us behind closed doors.
The Obama administration, under pressure to show it is serious about tackling the budget deficit, is seizing on an unusual target to showcase fiscal responsibility: the $700 billion financial rescue.
If the Obama administration was serious about tackling the budget deficit – they would not spend money we don’t have. They would not have created a budget with a deficit of over $1 trillion dollars. They would not be borrowing billions of dollars to throw away on our failing banking system.
A $210 billion surplus in TARP funding could be used to reduce the U.S.'s towering national deficit.
As I stated above – this is a misleading statement. Yes – the deficit could be reduced with the TARP surplus – but it would only be paying back borrowed money. This little piece of information is somehow forgotten.
The idea is still a matter of debate within the administration and it is unclear how much impact it would have on the nation's mounting deficit levels.
I hope this ‘debate’ didn’t last very long. If it’s still being ‘debated’ – I’ll give you the correct answer now. Paying back $200 billion of borrowed money will have almost no effect on a deficit of $12 trillion dollars. Besides – we’ll need that money to throw away when commercial real estate collapses.
This is simply a political game – to give the appearance that the administration is concerned about our nation’s finances. This is our leadership in a nutshell – no substance – reality takes a backseat to politics. People wonder why the American people are angry?
The sound you hear is our nation falling off a very large cliff.
jg – November 12, 2009
NOVEMBER 12, 2009
White House Aims to Cut Deficit With TARP Cash
By DEBORAH SOLOMON and JONATHAN WEISMAN
WASHINGTON -- The Obama administration, under pressure to show it is serious about tackling the budget deficit, is seizing on an unusual target to showcase fiscal responsibility: the $700 billion financial rescue.
The administration wants to keep some of the unspent funds available for emergencies, but is considering setting aside a chunk for debt reduction, according to people familiar with the matter. It is also expected to lower the projected long-term cost of the program -- the amount it expects to lose -- to as little as $200 billion from $341 billion estimated in August.
A $210 billion surplus in TARP funding could be used to reduced the U.S.'s towering national deficit. WSJ's Deborah Solomon says the move follows criticism of the Obama administration's approach to debt.
The idea is still a matter of debate within the administration and it is unclear how much impact it would have on the nation's mounting deficit levels. Still, the potential move illustrates how the Obama administration is trying to find any way it can to bring down the deficit, which is turning into a political as well as an economic liability.
The White House is in the early stages of considering what bigger moves it might make for next year's budget. The Office of Management and Budget has asked all cabinet agencies, except defense and veterans affairs, to prepare two budget proposals for fiscal 2011, which begins Oct 1, 2010. One would freeze spending at current levels. The other would cut spending by 5%.
OMB is also reviewing a host of tax changes. The President's Economic Recovery Advisory Board will submit tax-policy options by Dec. 5, including simplifying the tax code and revamping the corporate tax code.
White House Chief of Staff Rahm Emanuel is pressing for substantial spending cuts to go with any tax increases to try to avoid the "tax and spend" label that has bedeviled Democrats, according to administration and congressional officials.
The administration is constrained in tackling the mounting deficit, since raising taxes or slashing spending could stunt economic growth. Administration officials say the Obama economic team is especially concerned that rapid deficit reduction could hurt the economy.
On the $700 billion Troubled Asset Relief Program, the administration is considering a change that may appear to improve the fiscal situation. Agreeing not to spend a certain amount of TARP money will enable the White House, in its budget projections, to assume less money out the door and, therefore, less debt issued. The move would also reduce the deficit by an unknown amount since a certain level of spending and borrowing is already factored into estimated future deficits.
The Treasury Department said about $210 billion in TARP funds remains unspent, including about $70 billion returned from financial institutions. A further $50 billion is expected to be repaid in the next 12 to 18 months.
Budget experts said committing some TARP funds toward debt reduction could help calm concerns about the size and intent of the program. "I don't necessarily want them to pull back in a huge way, because there's a lot of uncertainty, but right now what we've got could turn into a $700 billion slush fund" for Congress, said Douglas Elliott, a fellow with the Brookings Institution, a liberal think tank.
The move could buy the Treasury Department time before it hits the so-called debt ceiling, which limits the amount of money the U.S. can borrow. Already, some members of Congress have said they won't approve an increase in the $12.1 trillion debt cap unless efforts to reduce the deficit are included.
Senate Budget Committee Chairman Kent Conrad, the North Dakota Democrat who is proposing a bipartisan commission, along with Sen. Judd Gregg (R., N.H.), to examine taxes, said he won't vote for raising the debt limit unless Congress and the administration start talking about cutting spending and increasing taxes.
We are fools.
The trap is set and we’re walking straight into it.
Watch us fall.
Overcoming their growing concerns that the broad financial-market rally could end badly, investors plowed more money into U.S. and foreign stocks
The huge gains have left investors surprisingly unsatisfied. Enormous though it is, the investment boom since March has been a skeptics' rally -- fed by money managers who feel they must make risky bets in order to keep up with the market, but who don't like what they see.
..he detects a "let the good times roll" attitude in the market.
"I think eventually it does end badly, but the good times could go on for a while," he says.
Yet many investors are uneasy. For these people, the market is taking on a "greater fool" feel, meaning that many don't really believe in the investments they are making. They are banking on being able to sell to a "greater fool" later.
Investment strategist Ed Yardeni of Yardeni Research in Brookville, N.Y., says he has visited managers of pension funds, mutual funds and hedge funds in Boston, Chicago and London in the past two weeks and found most uncomfortable with their investments. He calls them "fully invested bears."
"There still is a lot of trepidation that this thing could reverse itself fairly quickly," Mr. Yardeni says, adding that he shares the concerns. So why are they taking the risk? "They can't afford to miss the bull market."
Someday, somebody is going to be left holding some pretty expensive tulips.
jg – November 10, 2009
NOVEMBER 10, 2009
Dow Leaps in Skeptics' Rally
Cheap Money Sends Shares to 2009 High, Gold Over $1,100; Dollar's Dive Continues
By E.S. BROWNING
Overcoming their growing concerns that the broad financial-market rally could end badly, investors plowed more money into U.S. and foreign stocks, gold, oil, copper and junk bonds.
The Dow Jones Industrial Average surged 203.52 points, or 2.03%, to 10226.94, its highest finish in 13 months and its second 200-point gain in three trading days.
Gold futures finished above $1,100 for the first time, reaching a record $1,100.80 in late New York trading. The dollar, hurt by low U.S. interest rates and concerns about possible inflation, resumed its slump against the euro, breaking briefly through $1.50 per euro and closing in New York at $1.4988. Stocks around the world also recorded fresh gains.
Part of the fuel for the broad-based investment rally is the trillions of dollars in debt-financed stimulus that the world's governments and central banks have been pouring into economies, in their effort to end the deep recession. The money enhances corporate profits, making stocks appear more attractive. Since businesses can't put it all to productive use, some finds its way into asset markets.
The huge gains have left investors surprisingly unsatisfied. Enormous though it is, the investment boom since March has been a skeptics' rally -- fed by money managers who feel they must make risky bets in order to keep up with the market, but who don't like what they see.
Gordon Fowler, who helps oversee $17 billion as chief investment officer at Philadelphia money-management firm Glenmede Trust, says he detects a "let the good times roll" attitude in the market.
"I think eventually it does end badly, but the good times could go on for a while," he says. Though heavy government spending will help corporate profits in the short run, Mr. Fowler worries that the government eventually will have to mop up its debt. "I don't think we will grow peacefully out of what is an unsustainably large debt level," he says.
Even so, he says, his portfolios currently lean toward riskier parts of the market, such as stocks, junk bonds and commodities, because that is where he thinks the gains will be for the immediate future.
Barron's Bob O'Brien and MarketWatch's Laura Mandaro look behind today's big market rally; WSJ's Kim Strassel dissects the health bill and Jessica Vascellaro previews a partnership between Verizon Wireless and Google, in the News Hub.
While it's possible that new bubbles are being inflated in financial markets, history suggests there often is a lag between the moment experts identify bubbles and the time they pop. Former Federal Reserve Chairman Alan Greenspan warned in 1996 of "irrational exuberance" in the stock market, but stocks didn't collapse until 2000. While many experts warned of a housing bubble by 2005, the bubble didn't start deflating until the next year.
Yet many investors are uneasy. For these people, the market is taking on a "greater fool" feel, meaning that many don't really believe in the investments they are making. They are banking on being able to sell to a "greater fool" later.
Investment strategist Ed Yardeni of Yardeni Research in Brookville, N.Y., says he has visited managers of pension funds, mutual funds and hedge funds in Boston, Chicago and London in the past two weeks and found most uncomfortable with their investments. He calls them "fully invested bears."
"There still is a lot of trepidation that this thing could reverse itself fairly quickly," Mr. Yardeni says, adding that he shares the concerns. So why are they taking the risk? "They can't afford to miss the bull market."
The dollar, meantime, was hurt by an International Monetary Fund report suggesting that it is still strong in value -- implying it might have further to fall. The report added that, because of low U.S. interest rates, the dollar has become a currency investors borrow and then sell to invest in foreign securities. That practice, known as the "carry trade," contributes to dollar weakness but helps offshore investments.
Some believe all the hand-wringing about the stock rally is overdone. They point out that stocks had fallen to panic-driven 12-year lows in March, before recovering. If stimulus produces real economic recovery, they say, the stock gains make sense.
Although the Dow still is down 28% from its 2007 record, it is up 56% since hitting its 12-year low in March.
— David Lawrence
Other analysts, however, see signs that at least a short-term pullback could be coming. On the past three trading days, as stocks rose, the total trading volume in New York Stock Exchange stocks was well below the year's average of 5.78 billion shares. On Monday it was 4.66 billion. Volume was higher during recent stock declines, suggesting that underlying support for stocks may be weakening.
In addition, although the Dow hit a 13-month high on Monday, broader market measures including the S&P 500 haven't returned to their recent highs.
On an inflation-adjusted basis, gold would have to hit $2,291.55 to equal its 1980 record, which makes gold bulls think it has higher to go. But it has quadrupled since 2001, when it traded below $260. In theory a defensive play, gold's big gains have made it a speculative bet for some investors, which has led some longer-term gold bulls to lighten their holdings, at least temporarily, fearing a short-term slump.
The weak dollar has contributed to demand for alternatives such as gold, oil and copper, and some investors worry that if the dollar bottoms out, even briefly, it could roil those markets.
One result is what investors call a barbell pattern, in which both defensive and risky investments benefit. That could help explain the strength of both stocks and gold, and the fact that Treasury bonds are holding ground even as junk bonds rise.
Flows of money into exchange-traded funds recently have "seemed to mark a barbell approach to risk," Credit Suisse strategist Victor Lin wrote in a report Monday. Investors are putting money into riskier investments such as foreign markets, and also safer investments such as funds holding defensive stocks and those that benefit from stock declines, Mr. Lin said.
Write to E.S. Browning at jim.browning@wsj.com
Here’s another well written, thought provoking article by Chris Martenson. I agree with Chris – the only explanation for the recent stock run is that the market is being manipulated. How else can we explain huge stock gains around the world when unemployment (and other economic indicators) should be negatively impacting stocks?
Unemployment trends that we see today should not be driving 30-50% stock gains.
Take a look at our current unemployment situation compared to previous recessions. We’re looking at the worst unemployment situation since WWII – and we’re still heading in the wrong direction. We have lost over 5% of total U.S. jobs since peak employment at the beginning of the recession – and we continue to lose hundreds of thousands of jobs each month.
The next chart is simply staggering. In the current recession, almost 6 million people have been out of work for over 27 weeks. This number is more than double the number of people out of work (over 27 weeks) during the recessions in the early 80’s and early 90’s – and as you’ve seen in the chart above – this situation is not improving.
So – for those who study the markets and are trying to determine what is going on – there really is only one answer. Our government and the Fed are manipulating markets. My personal belief is that this is happening around the world.
There are many concerned people in the world today who cannot understand the Fed’s actions – and the actions of our government. The problem is that most people believe that governments and central banks around the world are trying to do the right thing – that there are no ulterior motives behind these actions. Many people believe that everyone is trying to fix the problem – albeit in the wrong ways. The focus is on what is being done – not why it is being done.
We assume that the reason for all of these actions is to fix what is broken. Why is the Fed pumping trillions of dollars into the system? Why is our government providing trillions of dollars of ‘stimulus’ money? We wrongly assume they are trying to fix our broken economy.
It’s a show to mask true intentions.
As you’ve seen me say many times – there are ulterior motives at play. We don’t want to believe it – but the truth is that the world has been setup for a catastrophic economic failure. If we don’t finally acknowledge this – we will never understand our enemy – we won’t even know who our enemy is.
Every one of us needs to acknowledge the truth – and stop listening to the lies. I don’t like what is happening either – but denying the truth and ignoring the truth – doesn’t stop it from being the truth.
For us to begin to fight our enemy, we must acknowledge the truth:
1. A very evil, very deceptive organization has infiltrated us from within.
2. They are succeeding where others have failed.
3. They are destroying the United States of America as we know it.
4. We don’t have to accept it. We can choose another way.
The Lord has warned humanity for 2,000 years about what is coming – and we have ignored His warnings. Nothing is truer than this.
You may have wondered – if the Bible tells us that the people behind the coming global government are successful at some point in the future – does it do us any good to stand against them? Is our fate inevitable? Very good question. The answer is – we are asked to stand against evil – in every situation. Our fate is not inevitable. If we humble ourselves and seek God – He will show us the way to stand against our enemy.
We choose our fate.
jg – November 8, 2009
Accepting the Obvious
Friday, November 6, 2009, 4:40 pm, by cmartenson
What if we were to just accept the fact that the government and the Federal Reserve are interfering in the stock market to engineer higher prices?
While I have long maintained that this is indeed the simplest explanation for the market behavior we've been seeing, it remains speculation because we have no audit of the Fed to either confirm or refute the idea.
But what if we could just accept that it was true. How would that change anything in our lives? Would we invest differently? Would we have a darker or brighter view of the future? Would we calculate that risk had been improved or worsened?
Here's one of the writers I respect the most out there: "Mr. Practical" from Minyanville, who has deep professional experience as an investor and trader, opining on this subject.
Many are marveled at the boom in stocks, given really rotten fundamentals. Of course, so far it's been a function of a lower dollar and there's a way to "reflate" with those printed dollars that normal conduits won't allow.
What if the government/Fed realized the most efficient way right now to "print" dollars and "reflate" the economy was to get stock prices up? What better way to do that than print dollars to buy stocks?
There's ancillary evidence that stocks are acting "artificial". Stocks aren't only climbing a wall of worry, they're scaling the Mt. Everest of bad fundamentals. Tick data is extreme, especially when the stock market is down. We constantly see 1000+ tick prints when stocks are down; this is very strange indeed. Volumes are down at least 20% from normal levels (and much more if you discount for high-frequency trading), making it easier to get stocks up.
Under TARP, the fine print allows dealers to REPO stocks to the Fed as collateral (holy cow is right).
What if there were an arrangement where large dealers buy stocks and stock futures through the day and REPO them to the Fed at the high closing prices? The dealer would book the profits derived from the difference at no risk.
If you look at the trading patterns of the largest dealers, one in particular lost money trading in only one day last quarter. Statistically that's like finding a needle at the bottom of the ocean.
Of course no one knows for sure because no one is allowed to see what's on the Fed's balance sheet. But more and more of us are suspecting it's not just the normal junk people talk about.
For those who don't know, Minyanville is quite well respected and is staffed by people with immense direct experience in markets. For this sort of 'chatter' about the bizarre behavior of the markets to begin to appear on such sites means we are only a hop and a skip away from it appearing in the mainstream press itself.
Note what he said: A llittle-talked-about provision in TARP allows dealers to hand stocks over to the Fed in exchange for cash. The question isn't whether or not they are doing this, but how much have they already done?
Today the stock market started to sell off hard, in response to the news that unemployment was worse than expected and had climbed to 10.2% and is flirting with breaking a 60-year record.
Worse, the under/unemployed measure now stands at a frightening 17.5%. How can stocks be consistently rallying on this news? The consumer is more than 70% of the economy, or at least was, and corporate revenues, debt defaults, and bankruptcies moving in the right directions all depend on consumers working.
This was an ugly report.
To make matters worse, consumer credit came out this afternoon and again surprised by a huge amount to the downside. Where -9.9 billion was expected, -14.8 billion was reported.
3:00 U.S. Sept. consumer credit falls $14.8 billion
3:00 U.S. consumer credit falls for record 8th month
3:00 U.S. Sept. consumer credit falls 7.2% annual rate
3:00 U.S. consumer credit down 4.7% in past year
3:00 U.S. 3Q credit-card debt falls record 10% annual
So it's clear that the consumer is pretty much out of the picture and receding.
Yet this is what today's stock market looked like:
We had an immediate and appropriate reaction to the unemployment report that was stopped dead in its tracks and immediately whipsawed the other direction to close the day in positive territory. Either millions of investors independently decided that the unmployment report was not all that bad in the same ten-minute period of time (those two big green candles), or something else happened.
I can whip up a lot more supporting evidence, but you get the idea.
So we are back to our starting questions.
But what if we could just accept that the Federal Reserve is printing money to buy stocks. How would that change anything in our lives?
Would we invest differently?
First of all, let's be clear - this is not investing. Buying stocks on the hopes that the Fed will continue with its policies long enough for you to sell them at a higher price is speculating. Worse, it's speculating without the insider information that better-placed firms like Goldman clearly enjoy.
But we might invest differently. I would entirely abandon the notion of shorting stocks while this policy is in effect. If I were to play the game, I would see which sectors they were preferentially propping and place my chips on those sectors.
However, I fundamentally reject that the game is fair or right, and I think that its long-term prospects were not good. Certainly, one could not simply place money into a diversified index fund and go to sleep for 5 years, expecting to wake up wealthy. "Investing" in such an environment requires daily vigilance. Heck, it's a poker game and the cards are marked. You'd better be alert.
Would we have a darker or brighter view of the future?
The idea that prices for all productive assets across an entire and large economy can be centrally managed is a bad one. I cannot find many ways to be positive about such efforts. They are certain to fail, because they will cause the further misallocation of resources into wasted enterprises. That's what false price signals do.
Instead, we should be using this time to aggressively shed our past mistakes and take a clear-eyed view of the future. We should be investing in ways to use our remaining energy more wisely and to work towards energy independence. I could think of a hundred ways to invest in our future. Goosing the stock price of Wal-Mart a little higher seems entirely counterproductive to me.
Would we calculate that risk had been improved or worsened? This is a no-brainer - risk is increased. A friend of mine who works on the bond side of Wall Street says that his measures of risk right now are redlined. Corporate bonds are priced for a fully healthy economy, not the one we have.
Why are corporate bonds being bid up so high?
That's simple. Because the Federal Reserve has pegged the short end of the bond curve at zero (0%) and printed money through its QE program to buy long-dated Treasuries, thereby depressing their yields, pension and MMF managers are forced to buy something, anything, that can offer them the yield they need.
If you plug the current Treasury yields into the actuarial table of the average pension, it will catch on fire and vanish in a puff of smoke. There is simply no way to meet the needs of pensions and savers using zero percent money.
Sure, zero percent helps out the big banks and the overly-indebted, but it is positively punishing for everybody else.
As a quite strongly worded article in Fortune recently put it:
(Fortune Magazine) -- This is a quiz. What do the record-high Wall Street bonuses have in common with the record-low yields for savers?
Answer: They show yet another way that prudent people, especially those living on fixed incomes, are being screwed by the government's bailout of the imprudent.
Here's the deal. The government is spending trillions to keep interest rates down in order to support the economy and prop up housing prices, and those low rates have inflicted collateral damage on savers' incomes.
"It's a direct wealth transfer from savers and retirees to overly indebted borrowers," says Greg McBride, senior financial analyst at Bankrate.com.
The risk that is being run here is that the manipulation of all facets of all markets is fine so long as it lasts. But when people figure out they’ve been living in a world of illusion? Then there will be a very high chance that everything will go out with the tide. The dollar, stocks, bonds…all paper assets in essence. All washed away.
I wish I could believe that the current people in charge appreciate this risk, but I think they cannot see past the next few months.
That is the risk as I see it today. I wish them all the best with their program of trying to run everything, but I truly think their chances of success are not nearly as large as they presume.
So I have accepted the obvious, concluded that the Fed is throwing freshly-printed money at anything that moves in a semi-desperate bid to create an appearance of health, and decided that the only way to win is not to play the game.
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