- Fed sounds a tentative all-clear… Wall Street’s Pavlovian response
- But wait, what’s this? Poor unemployment, consumer spending figures… bahhh!
- Dollar retains its strength… Bill Jenkins on a possible swine flu explanation
- Assessing Obama’s first 100 days… We detect a French connection
- From Dubai to Vegas… A last gasp of credit and property speculation
Like a SWAT team member clearing out the dingy back room of a crack den, the Fed yelled “clear!” yesterday… and signaled to Wall Street it’s time to buy.
After days of buildup to the Fed’s Open Market Committee meeting, escalating tension, cresting excitement, the Fed delivered… nothing. No changes to interest rates. No additional purchases of Treasuries or mortgage securities.
To be fair (heh), the FOMC acknowledges the economy will remain weak awhile longer.
But it “continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability.”
Translation: “Hey, all these buttons we’ve pushed, and levers we’ve pulled – it’s working!”
U.S. stock traders took the cue in stride. They brushed off worse-than-expected GDP numbers, swine flu worries and lingering banking jitters yesterday – driving up the major indexes more than 2%.
The jubilation spread westward across the globe, with the Nikkei rallying 3.9% and Taiwan nearly 7%. But some of the momentum was lost by the time European markets opened, the FTSE rising 1.9% and Germany’s DAX up 2.5%.
This morning, the Dow opened up nearly 1%. It now stands more than 25% above the March 9 lows.
All this ebullience about equities has put a hurt on gold. It’s barely hanging onto $880 as we write. The dollar index has perked up half a percent, to 84.7.
Dollar strength this week could have something to do with the swine flu hysteria, says our currency trading maven Bill Jenkins. “As uncertainty rises around the word ‘pandemic,’ money has flocked back to the dollar,” says Bill.
The timing is, at the very least, convenient. “This week, the Treasury is auctioning off an additional $100 billion in T-bills: $40 billion of the 2-year, $35 billion of the 5-year and $26 billion of the 7-year. Here’s the $100 billion question: Will the Treasury have to raise the rates on these in order to sell them? Will they be scarfed up as in days gone by? Or will potential buyers see the shine begin to fade from U.S. debt?”
“I have a conspiracy theorist friend who enjoys the program 24. His theory is that the current deadly flu bug has been bioengineered to be released in concurrence with the latest Treasury sale. May not be true, but I think it has the makings of a great book… or maybe even a 24 episode!”
Rest assured Bill does not rely on conspiracy theories to generate gains like 123% in 18 days (that was this month) and 99% in just two days (last month). Learn more about his strategy here.
The morning’s economic data don’t exactly reinforce the happy-days-are-here-again theme.
The number of people collecting unemployment benefits has hit another record high – 6.27 million. That’s 13 straight weeks of record highs. The one bright point: The number of people filing claims for the first time fell a skootch last week.
Consumers, meanwhile, are getting the saving bug again. Inflation-adjusted consumer spending fell 0.2% in March. That compares with increases of 0.1% in February and 0.9% in January.
So why the spike in January? Well, that’s when Social Security cost-of-living increases kicked in. They were extra big this year because they’re based on third-quarter CPI… which last year was still under the influence of $4 gasoline.
Bank of America shareholders have delivered their punishment to Ken Lewis. At their annual meeting yesterday, they stripped him of his chairman title. The other directors, however, keep their jobs, and Lewis remains CEO. Some comeuppance for hiding the rot at Merrill Lynch before taking it over.
"You knew what was going on at Merrill Lynch," one woman said. "You kept it from us."
Which he couldn’t deny, not when he admitted it under oath to New York Attorney General Andrew Cuomo. But at the meeting, Lewis continued to toe the line of Hank Paulson and Ben Bernanke – that if he’d fulfilled his legal obligation to his shareholders, it would have brought down the whole international system of finance and spawned a plague of locusts.
Rumors swirl that Chrysler might not avoid bankruptcy after all. Late-night talks among Chrysler, its creditors and the Treasury Dept. broke down. A Chapter 11 filing could come by the time you read this.
OK… now we pause, amid the bustle of today’s news, to assess the new president’s first 100 days in office. Heck, everyone else is.
And we figure a good place to begin is the budget resolution the House passed yesterday. All $3.5 trillion of it. Complete with revenues only half that number.
The resolution comes complete with projections of spending and revenue out to the year 2014, by which time the deficit will be whittled down to a “mere” $523 billion. Which is actually less than the White House’s projection of $749 billion. Hope springs eternal.
While pundits compare Obama’s ambitions to those of FDR, Doug French at the Mises Institute finds a more apt comparison with the original New Dealer John Law – the fraudster behind the Mississippi Bubble that wreaked havoc and hyperinflation on France in the early 18th century.
“We can now throw Obama in with the other inflationist New Dealers, and with a compliant Treasury and Federal Reserve and their expanding monetary tools at the ready, he can do more damage than even John Law.”
French quotes John T. Flynn, the investigative journalist turned fierce FDR critic: "‘As a New Dealer, [Law] was not greatly different in one respect from the apostles of the mercantilist schools – the Colberts, the Roosevelts, the Daladiers, the Hitlers and Mussolinis and, indeed, the Pericles – who sought to create income and work by state-fostered public works and who labored to check the flow of gold away from their borders,’ writes Flynn, who goes on to point out that Law’s use of a bank to create money out of nowhere to pay for government programs was imitated by Roosevelt, Hitler and Mussolini.”
"‘Law is the precursor of the inflationist redeemers,’ Flynn explains. ‘Like all the inflationist salvations, his career was short.’"
“Initially in 1932,” explains our in-house historian Byron King, “Flynn supported Franklin Roosevelt as a candidate for president, and in FDR’s early days in office. But by the mid-1930s Flynn detected a dangerous sense of narcissism and megalomania within FDR and became one of the harshest critics of the New Deal.”
“Flynn’s hostility to FDR almost destroyed Flynn’s reputation as a journalist. In July 1939, in response to an article in the Yale Review, FDR used White House stationary to write a confidential letter to the editor in which he called Flynn ‘a destructive, rather than a constructive, force.” In an early form of an “enemies list,” FDR requested that the Yale Review not publish future articles by Flynn. And the Yale Review complied.“
Ivan Eland, senior fellow at the Independent Institute (and an old colleague of mine at the Cato Institute), offers his own assessment, finding sorry parallels between the Bush-Obama handoff and the Hoover-FDR handoff. “Both Hoover and FDR tried to artificially pump up the economy by increasing credit, aiding banks and increasing federal expenditures, including spending on futile ‘make-work’ public works programs – all of which required the economy to fall farther back toward equilibrium, thus turning a mundane recession into the Great Depression.”
“Similarly, Bush partially or wholly socialized financial institutions, and Obama has gone on a public works binge. They both have increased credit and vastly increased federal spending and regulation. Grading on the curve, Obama gets a ‘D’ for his expansion of the welfare state, only because Bush gets an ‘F’ for his socialist response.”
“People of good intentions and progressive predilection are scratching their heads,” says James Howard Kunstler, joining in the 100-day assessment frenzy. Such folk wonder “just how President Barack Obama managed to turn himself into George W. Bush Lite with sugar on top just 12 weeks after that fateful walk down the U.S. Capitol’s east stairway to the waiting helicopter…”
“Mr. Obama looked to be the man on a white horse – on the exhaustion of Reagan-Bush Jesus-Republicanism – but he’s coming off more like Philippe Égalité (Louis Philippe Joseph d’Orléans, duc d’Orléans) in 1793, with perhaps Newt Gingrich waiting offstage to become Robespierre in 2012 — and some obscure U.S. Army captain now toiling in Kirkuk slated to become the American Napoleon of 2015.”
Expect many more such bons mots and brickbats when Jim joins us once again for the annual Agora Financial Investment Symposium in beautiful Vancouver, B.C. Only two days remain to secure the early-bird discount – a savings of $300. Go here for the details.
Here’s something we suspect would bring a wry smile to Mr. Kunstler’s face. In a peculiar episode of synchronicity, residential property prices in Dubai have fallen 41% just in the first quarter this year… even as the state-owned Dubai World has now worked out its differences with MGM and its lenders over the $8.5 billion CityCenter condo-and-casino project in Las Vegas.
Years from now, when historians examine our epoch of credit excess and property speculation built on an assumption of cheap energy in perpetuity – CityCenter might well be the poster child.
“Here you go again on this global warming thing,” writes a reader. Well, it’s about time our discussion of the matter stirred up some genuine controversy. “Really, how can ANYBODY have any credibility on this issue? It’s like discussing the existence of a parallel universe. I’ve said it before, and I’ll say it again. Give me a call in a hundred (or perhaps a thousand or two) years and I’ll let you all know the truth about the matter.”
“I agree with your observation that everyone seems to be very sure of their own convictions in the climate debate,” writes another reader, who actually disagrees with us otherwise, “so I would suggest the best course available is to ignore rhetoric and simply look at what is actually happening. For example, glaciers worldwide are melting and receding – this is consistent with an argument that the Earth is warming. If and when the glaciers start growing again, or at least stop shrinking, I will consider changing my mind about global warming.”
Another reader says our observation about everyone being sure of himself “is not astonishing at all if you look at the arguments through the lens of confirmation bias. As Sir Francis Bacon pointed out four centuries ago:
“‘The human understanding when it has once adopted an opinion (either as being the received opinion or as being agreeable to itself) draws all things else to support and agree with it. And though there be a greater number and weight of instances to be found on the other side, yet these it either neglects and despises, or else by some distinction sets aside and rejects; in order that by this great and pernicious predetermination the authority of its former conclusions may remain inviolate.’
“Plus ca change, plus c’est la meme chose.”
“The great Murray Rothbard once wrote: ‘It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a ‘dismal science.’ But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.’
“Much the same can, of course, be said of any specialized discipline.”
“I’m booked for Vancouver,” the final reader gratuitously comments today, “and looking forward to Dr. Faber and the rest of the lineup. It will be my first Agora Vancouver. My wife got to go last year.”
The 5: We’re looking forward to Dr. Faber, Jim Kunstler, Dennis Gartman, Barry Ritholtz, Bill Bonner, Doug Casey… and others. Come one, come all. We’re looking forward to seeing you there!
The 5 Min. Forecast
P.S.: A few quick notes from our meeting on India here in London:
We were surprised to learn this morning that there are more goods being shipped on an annual basis on the Mississippi River than within the entire country of India during the same year.
In 2006, there were more hotels rooms in the city of Orlando… than the entire country of India.
Last, there are more square feet of commercial space in midtown Manhattan… than in the entire country of India.
The stock market in India fell with the rest of the world last year. But only 15% of the GDP of the country is dependent on exports to the West. Capital controls are more favorable than when one tries to invest in China. Our partners here expect 6-6.5% growth rate in GDP over the next decade. We fully expect to build an interesting way for you to participate…
More following tomorrow’s meeting.
P.P.S.: We have a good thing going, too, with the entry-level options service Wayne Burritt launched last year. Easy Money Options is the simplest way we can imagine to dip your toe into the options world. And really, with stocks experiencing as much volatility as they have the last 18 months, it’s one of the soundest strategies you can use going forward. Check it out here.