Commentary

June 30, 2009

Here is a link to 'The Suspicious Science Behind Man-Made Global Warming', by James Anderson of Minyanville.Com. I quote it below.

"Here's some science that no one with a vested political or financial interest in climate change would want you to know: The warmest year since 1934 was 1998, at the height of the strongest El Nino on record. The gold standard for CO2 measurement is taken at Mauna Loa Observatory in Hawaii. In 1998, the observatory recorded 366 parts per million (ppm) of CO2 in the atmosphere; it steadily rose to 386 ppm in 2008. In the meantime, the earth has cooled."

The whole CO2 theory never did make sense because, as the numbers above show, CO2 is such a tiny part of our atmosphere. That ppm (parts per million) thing is revealing, at least for those of us who can still do simple math. In 1998 CO2 made up 3.66 'parts' of our atmosphere. Other stuff, like Oxygen, Hydrogen, and Nitrogen, etc., made up the rest. How big was the rest? In 1998 it amounted to 9,996.34 'parts'. By 2008 that ratio had shifted to 3.86 to 9,996.14. What a shift that was (NOT)!

The other problem with the theory is the supposed unidirectional nature of CO2. According to the CO2 theory a photon enters the atmosphere, travels through it, bounces off the earth, travels back through the atmosphere, and then runs smack into a CO2 molecule in the upper atmosphere, which reflects it back to earth, thus causing warming. With more CO2 in the atmosphere you get more reflection and more warming. That's the theory. Note that the increased numbers of CO2 molecules does not cause more photons to get bounced out into space on the photon's initial trip through the atmosphere. The bounce only occurs when the photon is moving from earth back out toward space. Proponents of the theory have never been able to explain why a CO2 molecule would bounce photons on the earthward side, but not bounce photons on the spaceward side. Nor, have they ever been able to get CO2 molecules to sit up and do this trick in any lab.

And, after reading the quote above, you should be asking yourself...hey, what happened after 1934? Well, 1934 was a very warm year, both for the U.S. and for the globe as a whole. Think Dust Bowl. But what happed from there into the 1960's was global cooling. Hmmm...the earth got warmer (1934), then cooled, then got warmer again (1998), and now it appears to be getting cooler again. Maybe that's what is called a natural cycle. Tree ring studies from the Southwestern U.S. indicate that these kind of cycles have been going on for thousands of years. The rings also record droughts that lasted for hundreds, repeat hundreds of years before white men ever set foot on the continent.

From Ben Smith we get this link to 'Carbon Credits: A Scam', on Denninger.Net. Well, Congress has a need to appear to be doing something about everything. Companies who pay the tax will, of course, just pass it onto consumers. But with the Cap and Trade Bill Congress gets to raise tax revenues while also playing the 'Green Knight'. That's political show biz folks.

And here is a link to 'No End in Sight for Recession', by John Mauldin on Minyanville.Com. I quote it extensively below.

"Now let's take that principle a little further. Two weeks ago, I detailed how air, trucking, and rail shipping are down 20% year over year. Global trade's down about 30% in the major exporting countries.

Is it the end of the world? Do we just keep falling? No. At some point, 6 months or a year from now, the year-over-year comparisons become easier. If you are at 100 and fall to 80, then a year later you're at 88 and -- Voila! -- you have a 10% increase! And the perma-bulls will be talking it up, ignoring the fact that you're still down 12% from the peak.

...Again, analysts talked about a turnaround because job losses were "just" 345,000. That's a higher number than any month in the 2001-02 recession, and larger than the month after 9/11. That's a green shoot? Yes, we'll see the monthly unemployment numbers fall, but they're falling from historic highs. And, based on some research by the San Francisco Federal Reserve, it's likely that we'll see higher unemployment, and it will persist for a while longer.

...'The long and gradual return to pre-recession unemployment levels implied by the Blue Chip consensus forecast is consistent with a labor market recovery that is slightly weaker than that experienced in 1983 and slightly stronger than that experienced in 1992. However, should labor market conditions instead proceed along the path taken in the 1992 recovery, the unemployment rate could peak close to 11% in mid-2010 and remain above 9% through the end of 2011.'

...Personal income from wages and salaries was down $12 billion in May. So how did income go up? A large increase in "government social benefits" and a decline in personal taxes accounted for the gain, and then some. The increase was the effect from the recent stimulus package, which is -- for now -- temporary, and not the result of a recovering economy. Hardly green shoots. It's just borrowed money from another (government) source. In principle, it's not much different from home-equity withdrawal, except that taxpayers are on the hook.

And those government subsidies are going to increase. Look at the graph below. What it shows is that the average duration of unemployment is at a 60-year high, and rising. It's now at 22.5 weeks. Unemployment benefits stop at 39 weeks, temporarily up from 26 weeks. More and more people each week are thrown into very dire circumstances when they fail to find jobs and lose their benefits. Care to wager whether unemployment benefits will be extended again when Congress comes back from vacation?"

Who got the stimulus money, actual checks? The retired folks got it. What did they do with it? They threw it into savings. Boy, that really stimulated the economy!

There was a quiet announcement this week from Mittal Steel (the world's largest producer). Mittal does not see a pick up in demand coming until some time in 2011. Green Shoot anyone? Want some dip with that?

June 29, 2009

Here are two links:

' Five Things...', by Kevin Depew of Minyanville.Com.

From Lar we get this link: 'Commercial Real Estate to Hit Banks Hard'.

It looks to me like Ford is going to be the big winner of the big 3. The other two are going to discover they have a fire-breathing dragon in their innards. The Fed is not the ideal business partner.

The Chinese are not buying bonds like they used to do. Instead they are stockpiling commodities with their money. That is keeping commodity prices up. When the Chinese quit buying look for commodities to plunge.

And yes, commercial real estate is going to be the next big wave to hit the banks. It may affect the banks in a bigger way than home mortgages did. Ouch.

June 24, 2009

Here are links to two good reads:

From Ben Smith we get ' A Tale of Two Depressions', by Barry Eichengreen and Kevin O'Rourke on SafeHaven.Com. I quote it below.

"* World industrial production continues to track closely the 1930s fall, with no clear signs of 'green shoots'.

* World stock markets have rebounded a bit since March, and world trade has stabilized, but these are still following paths far below the ones they followed in the Great Depression.

* There are new charts for individual nations' industrial output. The big-4 EU nations divide north-south; today's German and British industrial output are closely tracking their rate of fall in the 1930s, while Italy and France are doing much worse.

* The North Americans (US & Canada) continue to see their industrial output fall approximately in line with what happened in the 1929 crisis, with no clear signs of a turn around.

* Japan's industrial output in February was 25 percentage points lower than at the equivalent stage in the Great Depression. There was however a sharp rebound in March."

From Keith we get 'As China hoards, concern grows about recovery', by Carolynne Wheeler and Andy Hoffman of TheGlobeAndMail.Com.

June 23, 2009

Here are links:

Here is a link to an interview on CNBC of Marc Faber.

Here is a link to 'Debt Fret: The Price of Printing Money', by Bill Fleckenstein on Minyanville.Com.

Here is a link to 'Market Correction Could Be Larger Than Expected', by Prieur Du Plessis on Minyanville.Com. I quote from that extensively below.

"Richard Russell, veteran writer of the daily Dow Theory Letters, commented on Monday:

'I'm of the opinion that this bear market rally is in the process of topping out. When a counter-trend rally tops out within an ongoing primary bear market, the odds a re that the stock market will break to new lows during the period ahead. That means that the stock market will break below its March 9 lows in coming weeks. A violation of the March 9 lows would be a shocker to most investors, and it would be a forecast of an even worse economy coming up.'"

And here is a link sent by Ben Smith to 'Debt Fret: The Price of Printing Money', an article on Denninger.Net about the liquidity that is in the process of disappearing, and what that will mean to stock prices. I quote extensively from it below.

"Again, to put this in perspective this 7-day window has $165 billion in issuance. The entire S&P 500 - all 500 stocks - has been trading in the $2-2.5 billion a day range for the last month or so. That's the capital flow that is represented by all trades in all 500 stocks.

...You simply cannot issue $165 billion in Treasury Debt and expect it not to have a major impact on system liquidity. It is not possible. That which is spent on one thing (in this case Treasury bonds) cannot be spent on another (in this case stocks.)

The Fed cannot "monetize" this debt without creating an instant dislocation in the Treasury market - their games thus far have produced a SMALL rumbling of trouble there, but nothing like an outright monetization campaign would produce.

Bernanke and Obama are backed into a corner, exactly as I predicted would happen. In order to continue to issue like this in the Treasury market while not driving Treasury rates to the moon money will have to be "scared" into bonds - which means blowing up the stock market."

Finally, here is a quote from a recent note from the Orange Section. It is so good I have placed the words in bold.

"If our media had an ounce of courage they would be asking why after the largest stimulus package in history our economy has continued to fall. They would ask why GM is getting another $7.5 billion, why AIG got over $173 billion."

One of the purposes of the media is to give, or even create a metric by which the average voter can guage the actions, the activities of the government. The media fails this again and again. One of the problems is that the average reporter does not understand what a mortgage is, nor can he or she do simple arithmatic. All a government official has to do is hand a room full of reporters a sheet of paper with a bunch of numbers on it...to hide what the government has done or is doing. The reporters will never be able to figure out what the numbers really mean.

We are witnessing deflation on a massive scale. The fall of house prices is worse than what is being reported and the reported numbers are frightening. One estimate I have come across is that in the first quarter of 2009 U.S. households lost $1.33 trillion of their wealth. I believe that number to be conservative. A big part of that loss is in housing. The asset inflation grossly under-reported by the FED in its inflation numbers is now being deflated. Think of that deflation as a wide open nozzle on a great big balloon. The FED and the Fed are blowing money in a nozzle at the other end of the balloon right now. But money is leaving the deflation nozzle at an even faster rate. That is why I do not think we have inflation right now. We most certainly will have it soon enough. We just don't have it yet.

I think the next big move in the markets is down, and that the March lows will probably be taken out if not in August, then in October. This is not your average recession folks. This is the big one. Production and consumption will come back, but at much lower levels. Housing will come back, but at much lower levels than before. The world economy will shrink. All levels will be lower.

June 18, 2009

Here are three links sent by Ben Smith.

'Where We Are, Where We're Heading', on Market-Ticker.org.

'This Time its Different*', by John Mauldin on SafeHaven.Com. 'Thursday Comes: The Fed Watch' on Market-Ticker.Denninger.Net. I quote this one below.

"You can either play "loose money/green shoots" and accept that mortgage rates will go into the 7s (at least) or you can play "tightwad" and drive down mortgage rates through a fear trade into Treasuries, but in the process stock prices will get hammered.

Clearly in September the 'game' got away from Ben; this time they have (so far) managed to keep things (somewhat) under control. There is of course no assurance that it will remain under control, and in fact there is every reason to believe it won't, given that this exercise with liquidity is somewhat like herding cats - if you're trying to shoot at a specific result you're unlikely to succeed, especially if the intended attempt is to 'nuance' outcomes (e.g. 'let's drive down bonds and its ok if stocks decline a little bit.')"

Inflation is I don't think we have much of it right now (something I will explain later). But the money the Fed and the FED have been throwing around is strange stuff, in that you can never predict where it will come squirting out next.

June 6, 2009

Ben Smith sends along this link to

'Julian Robertson Bets the Farm on Inflation', on SeekingAlpha.Com.

And here is a link to 'The National Deficit: Inside the Belly of the Beast', by John Mauldin on Minyanville.Com.

I have been neglecting these pages of late because I have been so terribly busy in my garden. That pressure should ease there and I should be able to tend to this garden of pages better in the future.

We are just now hearing the first rumblings out of the bond markets from the damage wreaked by the Feds in the Chrysler deal (See my May 10 comments). You can bet that all the retirement fund managers in the U.S. are watching the case the State of Indiana has going against the Feds for their losses in Chrysler debacle. Seems the State of Indiana Retirement System had some of the bonds.

The Obama Admininstration just does not get it. It does not understand the wound it has inflicted on American Corporations via the Chrysler and GM bankruptcy programs. There is going to be a steep price to pay when funds all over the world finally realize that the American Corporate Bonds they hold just turned into dross (Dross is worse than worthless. Dross is something you have to pay someone else to take off your hands.)

I am holding my crystal ball out in front of me. I am reading a headline in the future:

'Geithner mystified by bond market implosion'

June 1, 2009

Rich Kolon sends this link to 'The Housing Hurricane Will Howl Again', by Mike Morgan of Barrons.

Here is a link to 'Five Things', by Kevin Depew of Minyanville.Com.

And here is a link to 'Stabilization', by Mr. Practical of Minyanville.Com. I quote it below.

"If you add up all the government bailouts, explicit and implicit, along with actual government purchases of assets (debt from banks) it comes out to a surreal $30 trillion. Markets are cheering that things have 'stabilized' and 'things are getting less bad'. I ask you seriously when the government throws $30 trillion at the 'crisis' (one which bankers are now claiming is over), can you call that stable? That is like declaring a patient being kept alive on a heart-lung machine healthy.

Of course we have stabilized. The government has bankrupted our future to do it. The government(s) control the LIBOR market, the swaps market, the bond markets with all the 'money' they are printing. They are feeding “money” to banks under the table at an alarming rate.

Those declaring the economy is now recovering do not understand (still) the problem: we are stuck with too much debt. The government’s solutions are to create more debt, as their next to be announced PPIP does. But an economy grows from production, not lending at the wrong price. This is a long term problem; the government has only addressed the short run symptoms."

May 21, 2009

Jay Steele sends along a sell signal and sends along this link.

http://www.stockcharts.com/charts/indices/McSumNASD.html

Rich Kolon sends along this link to 'Jesus of Suburbia', by James Quinn of FinancialSense.Com. I quote it below.

"The glorious Bush tax cuts and rebates did not create a strong economy. Borrowing and spending led the way. The median price of an existing home in 2000 was $143,600. It skyrocketed to a peak of $221,900 in 2006, a 55% increase in six years. Despite this tremendous rise, owner’s equity remained in the 60% range where it had been since 1990. The equity was frittered away on trinkets and baubles. Fast forward to today and median prices have plunged to $169,000, still 18% above the 2000 level, but owner's equity is down to 43%. That is the amazing thing about debt, it remains in place as the asset behind the debt drops 24%. This is where we find ourselves today.

...Neither foreclosure counseling, foreclosure moratoriums or magic pixie dust will keep housing prices from completing their roundtrip back to 2000 levels. Bubbles never burst halfway. They burst completely and the mess spreads everywhere.

...After reaching peak values, Japanese home prices declined by an average of 40%. In the country's largest cities, the declines were worse, averaging 65%. Homes in Tokyo lost 80% of their value and are still on the downward slide to this day. National home prices in Japan were $125,000 in 1985. Twenty years later home prices are again at or near the $125,000 level. If the U.S. follows this path, median home prices will be $143,600 in 2020, the same level as 2000. You won't hear any 'experts' making this prediction, because the economic implications would be too dire. A nice dose of runaway inflation could solve this dilemma. Are you up for it?

...The executives of Countrywide, Indy Mac, Washington Mutual, among others committed this fraud on a gigantic scale. CEOs, Vice Presidents, mortgage brokers, appraisers, and loan officers all knew they were committing fraud. Were these people raised by moral parents or Satan? None of them are in jail. How could trillions be lost and no one goes to jail? Angelo Mozilo is working on his tan on a beach in the Caribbean enjoying the $140 million he sucked out of Countrywide, when he should be in prison worrying what will happen during his next shower.

...'Geithner is covering up. Just like Paulson did before him. Geithner is publicly saying that it's going to take $2 trillion - a trillion is a thousand billion - $2 trillion taxpayer dollars to deal with this problem. But they're allowing all the banks to report that they're not only solvent, but fully capitalized. Both statements can't be true. It can't be that they need $2 trillion, because they have massive losses, and that they're fine. These are all people who have failed. Paulson failed, Geithner failed. They were all promoted because they failed. AIG was being used secretly to bail out favored banks like UBS and like Goldman Sachs. Secretary Paulson's firm, that he had come from being CEO. It got the largest amount of money, $12.9 billion. And they didn't want us to know that. And it was only Congressional pressure, and not Congressional pressure, by the way, on Geithner, but Congressional pressure on AIG'"

..............

About the banks

Banks recently posted surprisingly good numbers. How? They were allowed to relax the mark to market rule, for one. They were allowed to use the TARP monies in ways that seemed to show a profit. How could companies like Bank of America and Citigroup look so good so quickly? Well folks it is just looks. Reality is another thing. I have always said that while figures don't lie, bankers sure can figure. That so many investors took the bank numbers on faith is a good thing for the banks. They were going to have to raise money. It is better to do that in an up market than in a down one. Perhaps luck had little to do with it. This rally is too much too soon. There is a lot more bad news to come. The reduction of GM and Chrysler dealerships alone is horrible news for the jobless rate. Take each dealership and multiply by 60, and that's how many lost their jobs from these moves. Then multiply by three and that is the total effect on the general economy. Ouch!

My contacts at J.P. Morgan and Wells Fargo report that they never did want the TARP, and have repeatedly offered to pay it back. Not only did the Feds reject the idea of taking the monies back, they warned the banks that any payback that happened too soon would be punished by several methods which included loss of their FDIC insurance. That's some heavy duty arm twisting.

The stress tests were also a joke. All were treated the same even though each of the big boys is a very different animal than from the rest. They make their profits in very different ways.

How indeed could the banks be just fine now...but need $2 trillion to cover their losses?

How can banks be just fine now but report in the same breath that it is now much more difficult to find 'qualified' lenders. Why was it not difficult to find them three years ago in the go-go market? What has changed? Well, the lending standards of the banks have changed. Three years ago banks were handing out no-down liar's loans to warm bodies with the expectation that the borrowers would only be able to make the payments for the first year... and the bank would get the houses back and they would be worth more in twelve months.

Now the banks want borrowers to be qualified (as being able to make payments for many years into the future), and the banks want twenty percent down on a house. So, they get to change the rules and then get to complain that a lot fewer people qualify now. And oh yeah, even though commercial loans are down, and lot less people qualify for house loans, the banks are doing just fine and their profits are rebounding...and oh yeah they're going to need another $2 trillion. Confused by all this? Geithner is a banker. His partner in crime is Helicopter Ben. And bankers (and world class economists) can still figure.

May 10, 2009

Here are two links. The first is from Rich Kolon and is titled 'The Big Lie: Stress Test Optimism Just Wall St. Propaganda, Former Bank Regulator Says', on Yahoo.Com.

The next is a simple article that barely mentions what could be a huge problem going into the future. Here is a link to ' Can Gov't-Fiat-UAW Trio Save Chrysler?', by Scott Stoddard on Investors.Com.

The article barely makes mention of the fact that the Chrysler Bond holders got their arms twisted to take the deal by none other than the President of the United States. This is serious. In a bankruptcy the bondholders have senior claims to the assets of the corporation. But the bond holders were forced to take $2 billion for $6.9 billion in bonds. What a deal.

One of the bond holders was the Oppenheimer Fund. Do you suppose, after getting beaten up that badly, the Oppenheimer folks will be rushing out to buy corporate bonds now? Why would anyone want to buy corporate debt in U.S. corporations now that the 'gummit' has stuck its very large finger into the pot...now that the President and crew have ridden roughshod over corporation laws that are older than this country? The whole point of bonds was that the lender had a guarantee of being able to recover all or most of his original capital.

When I was 21 years old and living in the dorm at the University of Wyoming, my neighbors were two freshmen wrestlers. These guys were big into chew, and would spit all week into a three pound coffee can. On Friday night they would go out and consume all the beer and pizza their bellies would hold. Then they would return to the dorm and throw up the contents of their stomachs all over the floor of the common bathroom. Since maid service did not work on weekends, the rest of us would have to use the soiled bathroom that weekend, gingerly picking our way through the pepperoni. Invariably, the first wrestler through the door of the room next door would kick over the can of spit, and the next guy in would slip in it and fall down.

The Obama administration makes a lot of noise about restoring confidence in the markets. With the stress test it has announced that ten banks will be needing to raise billions in capital. It seems to me that the administration has already kicked the can over. We have only to wait now for those banks to step into the spit.

...Oh yeah, a side note: When did government ever need to do a much publicized stress test of the banks when the economy was doing well? What does the fact that this administration feels the need to do one tell you? It's not a good sign, folks. It is a frightening one. The administration is scared.

May 7, 2009

Here are two links to articles written by Mr. Practical of Minyanville.Com. 1. 'The Buying Stampede: Like Lemmings Over a Cliff?' I quote it below.

"After saying 'so what,' he finally got to the punch line. This means that -- to a very great degree -- the money coming into the market (as it rises) is almost all coming in through equity index futures.

Even I know what that means: The money coming into the market isn't picking stocks on fundamentals, etc. It just wants to be in stocks."

"When you hear people saying credit is improving, it can clearly be shown that the only areas of improvement are where the Fed has stepped in and become the market. The Fed has reduced transparency, not increased it.

...Debt issued by the government is soaring while debt issued by corporations is crashing. Notice that this is the one hole that is probably too big for the Fed to stick its finger in to plug. Corporations, due to lower cash flows, cannot issue debt at high Baa rates (the highest since the early 1990s) because the cost of capital is too high.

...Who knows where the rally stops, if it does? But the marginal buyer is taking higher and higher risk. The economy and the markets are a physical system, which hasn't changed for the better. Sure, you can get a low rate mortgage now but you better be able to put 20% down. That is reality.

Maybe the Fed never takes their fingers out of the dike and just destroys the currency; a likely scenario. But then your stocks will go up but be worth nothing in dollars [I think the author meant stocks will be worth nothing in real buying power]. But real lending will only start when real savers (private capital) sees real value at the right risk. That occurs at lower prices."

Here is a link to CNBC, to an interview Maria Bartaromo did with the CEO of XTO energy. Note in particular what he says about what natural gas prices: "gas prices will double by this time next year."

'Interview: CEO of XTO'

Finally, here is a link to a page with several great article on the future of capitalism.

'Future of Capitalism'

May 6, 2009

Here are two links. The first is to 'Ten Signs That This Is Not an Economic Recovery' by Daniel Englander of Minyanville.Com. I quote below.

"Interest rates have nowhere to go but up. How much longer can the rest of the world be expected to loan Obama, Nancy Pelosi and company, money at 3%? Any idea what the world looks like with the 10-year note at 5% or higher?

...As companies scramble to raise desperately needed capital, share prices are going up, not down. Today the New York Times reports Bank of America (BAC) needs over $30 billion of capital (either fresh capital or converting existing Pref shares, either of which massively dilutes common holders). The reaction? Stock up about 10%. Every major REIT has cut its dividend, is paying all the dividend it can in stock versus cash, and has done massive capital raises. Most REITS are up 50% over the past 2 months."

The next link is to an Eliot Wave technical artcle titled 'Has the S&P Topped?', by Sushil Kedia of Minyanville.Com.

May 3, 2009

The View from the Top

Nowhere else in the U.S. is the economy as good as it is in my state of Wyoming. So here is how it looks from the economic 'top'. Our growth has gone to nothing. It is not negative. We are not losing jobs. But we are not adding any either.

There is still drilling going on for Natural Gas. But oil drilling has been dead for months. Construction is still going on, but local contractors are complaining about the contractors invading from Colorado, doing the work for cost just to keep their hands busy.

C Y Avenue is the main drag on the west side of Casper. There are four empty commercial buildings on C Y. Two of those are restaurants. The empty McDonald's building on C Y was torn down this week (McDonalds built a new building further out).

I would describe the economy of Casper as on the edge of slipping into shrinkage.

......................

A long conversation with Lar on Saturday informed me that problems are brewing in the internet world. Lar tells me that 60 percent of all internet usage used to be folks downloading UTube. Now he says that internet backbone usage is rising by 60 percent per month due to IPTV. He says that now he can buy (he's in the business) a meg of bandwidth for a tenth of what it cost him in 1998. He says that the price was too high then and is way too low right now. He estimates that, even with the carrying capacity being added to the backbone, there will be no more empty bandwidth anywhere in two years and that prices are going to soar.

April 16, 2009

Rich Kolon sends a link to 'New Bubbles Brewing in Shanghai and Wall Street', by Gary Dorsch of FinancialSense.Com. It is a very interesting read. I quote it below.

"Nobody bothered to ask how Wells Fargo (WFC) could post a record $3-billion profit in the first quarter, at a time when one in eight US-homeowners with mortgages, are behind on their loan payments, or in the foreclosure process as job losses intensifies, and California home prices are 40% below their peak levels. Instead, operating under the illusions of 'mark-to-myth' accounting, and the hallucinogenic 'QE-drug,' administered by the Fed, hedge-fund traders accepted the WFC earnings report at face value, bidding its share price 30% higher.

Former Fed chief 'Easy' Al Greenspan and his prototype, Ben 'Bubbles' Bernanke, hold the view that deliberate bubble-bursting is something between impossible and dangerous, and thus, is best avoided. The Fed is inherently opposed to hiking interest rates, to prevent bubbles from arising in the first place. Instead, the Fed allows stock market bubbles to inflate into the stratosphere, and patiently waits for the bubbles to burst under their own weight. Afterwards, the Fed moves to cushion the meltdown, by slashing interest rates and flooding the banking system with liquidity, - the infamous Bernanke / Greenspan Put.

...Central bankers inflate bubbles in order to give households a fresh sense of wealth, encouraging them to borrow and spend more, and businesses to boost investments. The strategy is built around the massive expansion of the money supply. There are generally two types of bubbles, firstly, speculative excesses fueled by irresponsible bank lending. The second type of asset bubble is one in which bank lending plays a minor or no role at all, - usually related to the introduction of new technology or rapid industrialization that promises untold riches.

... In fact, the spectacular growth of China might not have been possible without the massive expansion of household debt in the United States. But this growth of debt, which sustained the US-economy and global demand for 15-years, is de-leveraging, and morphing into the biggest banking crisis since the 1930’s. As a result, China's vast export machine is grinding to a halt. Without the government's stimulus measures, the predicted growth rate for China would be closer to 2% this year."

April 13, 2009

Here is a link to 'More Meltdown', by Alan Abelson of Barrons.Com. I quote it below.

"Even the most unfavorable news, from the relentless shrinkage in corporate earnings to the inexorable rise in unemployment, is all too often blithely shrugged off with the observation that 'it wasn't as bad as expected,' while neglecting to identify by whom. Nor does it seem even passing strange to the growing ranks of wishful bulls that banks that went begging to Uncle Sam for bailouts and were rewarded with billions have magically discovered, come the earnings reporting season, that, by gum, they're suddenly remarkably solvent (or should we say, seemingly solvent; just disregard several trillion dollars' worth of ugly stuff on their collective balance sheet, please).

...Indeed, if anything, this whirlwind activity by the administration's economic team, this profusion of blueprints for recovery, so many of which are rapidly discarded or revised or embroidered, by all rights should be giving widows and orphans the jitters rather than prompting them to take the plunge. For it smacks of confusion or panic or both."

Links to older commentary:

News 86, 03-22-09 to ?

News 86, 02-23-09 to 03-19-09

News 85, 12-16-08 to 02-14-09

News 84, 09-30-08 to 12-15-08

News 83, 09-30-08 to 10-22-08

News 82, 08-08-08 to 09-29-08,

News 81, 06-18-08 to 08-03-08

News 80, 03-27-08 to 06-16-08

News 79, 02-03-08 to 03-24-08

News 78, 12-23-07 to 02-02-08

News 77, 11-16-07 to 12-20-07

News 76, 10-14-07 to 11-12-07

News 75, 08-19-07 to 10-10-07

News 74, 04-30-07 to 08-17-07

News 73, 10-24-06 to 04-23-07

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