Tuesday, September 18, 2007


The Fed followed the script today, with gusto, and as a result the currency of the realm is once again fixed on a catastrophic course. The Fed administered a surprise half point reduction of the fed funds rate, and the same for the discount rate. The criminals of Wall Street rejoiced their stay of execution and sent shares crashing upwards. Their stay won't last though, and when the commutation is reversed, as it must be, it will make what occurred in the stock market a mere month ago look like the proverbial Sunday stroll.

A strong hint of the ugliness that lies ahead occurred in the dollar pit as the greenback was hammered lower on news of the rate cut. Going forward it will be beaten down even more savagely than heretofore as the upshot of a precipitously falling dollar will likely result in capital flight from the U.S. That's right, foreigners and foreign governments, who, to put it mildly, have been shafted over and over in myriad ways for years, are going to say "no mas" to any substantial investments in dodgy dollar denominated assets. Today's action in the bond market, a market which dwarfs equities, evidenced long rates staying put, and in some cases even moving higher. The bond market, which has an I.Q. of 130 compared to the equity market's double digit I.Q., gets it. And It is screaming that interest rates at the long end will ineluctably head higher and higher and higher as they must to attract foreign capital that is just now running for the exits. Make no mistake, the ever increasing cost of capital going forward will be massively deflationary as business and government alike starve for the lack of funds available to conduct their affairs. So the Fed's action is for naught except for temporary albeit wild partying. In the meantime, while we wait for the bull to finally croak, you and I will be paying a lot more for absolutely anything that is imported, which is pretty much everything.

As a banker client of mine recently observed, once governments embark on an inflationary course to relieve indebtedness, it is fiendishly difficult to control. Just so. So as unthinkable as it is to imagine financial conditions here in Freedom's Land becoming as dire as, say, Argentina circa the 1980s, or Zimbabwe today, or perhaps the most infamous case of hyper-inflation ever recorded, 1920s Weimar Germany, we should not kid ourselves that we are so special as to be exempt from the sort of future where wheel barrels full of money are required, literally, to put (a loaf of) bread on the table.

Sunday, September 16, 2007

Protesting the Protesters.

There hasn't been an anti-war protest of note since January, so yesterday's large demonstration on the Capitol steps was something of a revival for the anti-war movement. Likewise, it was an opportunity for a bit of vile counter protest by some of the more mindless members of the populace who have swilled the toxic balderdash served up by such folks as President Bush and Senator John McCain. It's beyond fathoming how anyone with a grain of intellect could subscribe to the idea that, "Even though the parents have paid the price, they know the price of losing this war would be too much for any of us to bear." Equally stupefying, though considerably more revolting, is the thought expressed by Marilee Carlson, a chairwoman for Families United for Our Troops and Their Mission, that war protesters are "despicable."

I have news for folks of your persuasion. The WAR was won long ago, but the AFTERMATH of the war- you know, that critical part of the political/military operation that has been going on since the Commander in Chief, (the one I bet you voted for twice), stood on an aircraft carrier attired in a flight jacket sporting "Mission Accomplished"- was lost long ago. And though you may not care, for some time now a substantial part of the nation has decided it can no longer support the continued cost, in lives and taxpayer dollars, to maintain U.S. involvement in what is, by any reasonable assessment, an absolute catastrophe.

For my own part, I see no reason to compound the nation's already considerable discomfort on behalf of an endeavor that was clearly launched in bad faith. In defense of the anti-anti war crowd, (if the following can be considered a defense) they seem to be suffering from a kind of psychosis such that they simply can not admit into their consciousness the possibility that a.) a fundamental and profound mistake has been made, and b.) that extricating ourselves from the aforesaid profound mistake makes far better sense than wallowing indefinitely in a lethal quagmire.

Sunday, September 9, 2007


A recession, and not one of those tepid kinds either, is coming soon to our shores. In fact, a recession is likely already here. The BLS stats are so doctored that when the numbers turn definitively weak, as they did according to last week's official release, one must assume that the employment picture is far worse than advertised. This is just one piece of evidence pointing to an impending recession, but there are far more.

I am not one to crow, well maybe a little, but so far my prognostications from a few months back have been spot on. And since the conditions that informed those predictions have not changed, but rather intensified, I must expect a continuation of events whereby the dollar and the stock market fall, and precious metals, especially Gold, do the opposite. Oh, there will be lots of volatility along the way down, which might serve to fool some folks, but don't be fooled, as a steady deterioration is in the cards for the greenback and for shares.

What seems increasingly clear to this observer is that the Fed can do little if anything to salvage the situation, so those hoping for a rate cut to buoy stocks and other financial instruments really ought to prepare themselves for the worst. In fact, the most recent comments made by the Philly Fed Chief (see link below) seem to be telegraphing that a rate cut is not in the cards when the Fed convenes in roughly two weeks. What would you do if you were a Fed governor, cut rates and risk a run on the dollar with all that entails, or let rates stand pat and watch the equity scene, among others, turn to liquid excrement faster than you can say sub-prime sinkhole? Ultimately the Fed will be forced to cut rates because a depression is more to be feared than hyper-inflation. And while the inevitable rate cuts probably won't have the desired result, one still has to try.