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Unwinding The Spin

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We are caught in a steady “spin cycle” of contradictory reports about our most fundamental concerns:  the environment and the economy.  Will China financially intervene to resolve the sovereign debt crisis in Europe and save us all from the economic consequences that loom ahead?  Will the “China syndrome” finally become a reality at Fukushima?  When confronted with a propaganda assault from the “rose-colored glasses” crowd, I become very skeptical.

Widespread concern that Greece would default on its debt inflamed lingering fear about debt contagion throughout the Eurozone.  Economist John Hussman, one of the few pundits who has been keeping a sober eye on the situation, made this remark:

Simply put, the Greek debt market is screaming “Certain default. Amésos.”

Meanwhile, the Financial Times reported that China Investment Corporation has been involved in discussions with the government of Italy concerning Italian bond purchases as well as business investments.  Bloomberg BusinessWeek quoted Zhang Xiaoqiang, vice chairman of China’s top economic planning agency, who affirmed that nation’s willingness to buy euro bonds from countries involved in the sovereign debt crisis “within its capacity”.

Stefan Schultz of Der Speigel explained that China expects something in return for its rescue efforts:

The supposed “yellow peril” has positioned itself as a “white knight” which promises not to leave its trading partners in Europe and America in the lurch.

In return, however, Beijing is demanding a high price — the Chinese government wants more political prestige and more political power  .  .  .

Specifically, China wants:  more access to American markets, abolition of restrictions on the export of high-technology products to China as well as world-wide recognition of China’s economy as a market economy.

Even if such a deal could be made with China, would that nation’s bailout efforts really save the world economy from another recession?

As usual, those notorious cheerleaders for stock market bullishness at CNBC are emphasizing that now is the time to buy.  At MSN Money, Anthony Mirhaydari wrote a piece entitled, “The bulls are taking charge”.

Last week, Robert Powell of MarketWatch directed our attention to an analysis just published by Sam Stovall, the chief investment strategist of Standard & Poor’s Equity Research.  Powell provided us with this summary:

Consider, at a place and time such as this, with the economy teetering on the verge of another recession, none of the 1,485 stocks that make up the S&P 1,500 has a consensus “Sell” rating. And just five, or 0.3%, are ranked as being a “Weak Hold.”

*   *   *

From his vantage point, Stovall says it “appears as if most analysts are not expecting the U.S. to fall back into recession, and that now is the time to scoop up undervalued cyclical issues at bargain-basement prices.”

However, in S&P’s opinion, it might be high time to “buck the trend and embrace the traditionally defensive sectors (including utilities), as the risk of recession — and downward earnings per share revisions – appear to us to be on the rise.”

On September 14, investing guru Mark Hulbert picked up from where Robert Powell left off by reminding us that – ten years ago – stock analysts continued to rate Enron stock as a “hold” during the weeks leading up to its bankruptcy, despite the fact that the company was obviously in deep trouble.  Hulbert’s theme was best summed-up with this statement:

If you want objectivity from an analyst, you might want to start by demanding that he issue as many “sell” recommendations as “buys.”

It sounds to me as though Wall Street is looking for suckers to be holding all of those high-beta, Russell 2000 stocks when the next crash comes along.  I’m more inclined to follow Jeremy Grantham’s assessment that “fair value” for the S&P 500 is 950, rather than its current near-1,200 level.

While the “rose colored glasses” crowd is dreaming about China’s rescue of the world economy, the “China syndrome” is becoming a reality at Japan’s Fukushima nuclear power facility.  Immediately after the tragic earthquake and tsunami, I expressed my suspicion that the true extent of the nuclear disaster was the subject of a massive cover-up.  Since that time, Washington’s Blog has been providing regular updates on the status of the ongoing, uncontrolled nuclear disaster at Fukushima.  The September 14 posting at Washington’s Blog included an interview with a candid scientist:

And nuclear expert Paul Gunter says that we face a “China Syndrome”, where the fuel from the reactor cores at Fukushima have melted through the container vessels, into the ground, and are hitting groundwater and creating highly-radioactive steam . . .

On the other hand, this article from New Scientist reeks of nuclear industry spin:

ALARMIST predictions that the long-term health effects of the Fukushima nuclear accident will be worse than those following Chernobyl in 1986 are likely to aggravate harmful psychological effects of the incident.

As long as experts such as Paul Gunter and Arnie Gundersen continue to provide reliable data contradicting the “move along – nothing to see here” meme being sold to us by the usual suspects, I will continue to follow the updates on Washington’s Blog.


 

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A Look Ahead

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December 7, 2009

As 2010 approaches, expect the usual bombardment of prognostications from the stars of the info-tainment industry, concerning everything from celebrity divorces to the nuclear ambitions of Iran.   Meanwhile, those of us preferring quality news reporting must increasingly rely on internet-based venues to seek out the views of more trustworthy sources on the many serious subjects confronting the world.  On October 29, I discussed the most recent GMO Quarterly Newsletter from financial wizard Jeremy Grantham and his expectation that the stock market will undergo a

“correction” or drop of approximately 20 percent next year.   Grantham’s paper inspired others to ponder the future of the troubled American economy and the overheated stock market.  Mark Hulbert, editor of The Hulbert Financial Digest, wrote a piece for the December 5 edition of The New York Times, picking up on Jeremy Grantham’s stock performance expectations.  Hulbert noted Grantham’s continuing emphasis on “high-quality, blue chip” stocks as the most likely to perform well in the coming year.  Grantham’s rationale is based on the fact that the recent stock market rally was excessively biased in favor of junk stocks, rather than the higher-quality “blue chips”, such as Wal-Mart.  Hulbert noted how Wal-mart shares gained only 14 percent since March 9, while the shares of the debt-laden electronics services firm, Sanmina-SCI, have risen more than 600 percent during that same period.  Hulbert pointed out that the conclusion to be reached from this information should be pretty obvious:

As an unintended consequence, Mr. Grantham said, high-quality stocks today are about as cheap as they have ever been relative to shares of firms with weaker finances.

It’s almost a certain bet that high-quality blue chips will outperform lower-quality stocks over the longer term,” he said.

My favorite reaction to Jeremy Grantham’s newsletter came from Paul Farrell of MarketWatch, who emphasized Grantham’s broader view for the economy as a whole, rather than taking a limited focus on stock performance.  Farrell targeted President Obama’s “predictably irrational” economic policies by presenting us with a handy outline of Grantham’s criticism of those policies.  Farrell prefaced his outline with this statement:

So please listen closely to his 14-point analysis of the rampant irrationality at the highest level of American government today, because what he is also predicting is another catastrophic meltdown dead ahead.

At the first point in the outline, Farrell made this observation:

If Grantham ever was a fan, he’s clearly disillusioned with the president.   His 14 points expose the extremely irrational behavior of Obama breaking promises by turning Washington over to Wall Street, a blunder that will trigger the Great Depression 2.

Farrell’s discussion included a reference to the latest article by Matt Taibbi for Rolling Stone, entitled “Obama’s Big Sellout”.  The Rolling Stone website described Taibbi’s latest essay in these terms:

In “Obama’s Big Sellout”, Matt Taibbi argues that President Obama has packed his economic team with Wall Street insiders intent on turning the bailout into an all-out giveaway.  Rather than keeping his progressive campaign advisers on board, Taibbi says Obama gave key economic positions in the White House to the very people who caused the economic crisis in the first place.  Taibbi also points to the ties Obama’s appointees have to one main in particular:  Bob Rubin, the former Goldman Sachs co-chairman who served as Treasury secretary under Bill Clinton.

Since the article is not available online yet, you will have to purchase the latest issue of Rolling Stone or wait patiently for the release of their next issue, at which time “Obama’s Big Sellout” should be online.  In the mean time, they have provided this brief video of Matt Taibbi’s discussion of the piece.

The new year will also bring us a new book by Danny Schecter, entitled The Crime of Our Time.  Mr. Schecter recently discussed this book in a live interview with Max Keiser.  (The interview begins at 16:55 into the video.)  In discussing the book, Schecter explained how “the financial industry essentially de-regulated its own marketplace.  They got rid of the laws that required disclosure and accountability …” and created a “shadow banking system”.  Shechter’s previous book, Plunder, has now become a film that will be released soon.  In Plunder, he described how the subprime mortgage crisis nearly destroyed the American economy.  The interview by Max Keiser contains a short clip from the upcoming film.  Danny also directed the movie based on (and named after) his 2006 book, In Debt We Trust, wherein he predicted the bursting of the credit bubble.

It was right at this point last year when Danny’s father died.  The event is easy for me to remember because my own father died one week later.  At that time, I was comforted by reading Danny’s eloquent piece about his father’s death.  Danny was kind enough to respond to the e-mail I had sent him since, as an old fan from his days at WBCN radio in Boston, during the early 1970s, my friends and I tried our best to provide Danny with any leads we came across.  These days, it’s good to see that Danny Schechter “The News Dissector” is still at it with the same vigor he demonstrated more than thirty-five years ago.  I look forward to his new book and the new film.



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