May 14, 2009
Wednesday was a rough day on Wall Street. The Dow Jones Industrial Average dropped 184 points (just over two percent) to 8284; the Standard and Poor’s 500 index gave up over 24 points (2.69 percent) closing at 883.92 and the NASDAQ 100 index gave up 51.73 points (3.01 percent). One didn’t have to look very far to find the reason. At The Daily Beast website on Wednesday evening, item number 2 on the Cheat Sheet was a link to an article from The Wall Street Journal by Peter McKay, entitled: “Signs of Consumer Strain Hit Stocks”. The morning’s bad news was described by Mr. McKay in these terms:
The Commerce Department reported that retail sales fell 0.4% in April from the prior month, a steeper decline than the 0.1% gain economists expected. Sales in March were revised down, falling 1.3% instead of 1.2% as previously reported.
The Wall Street Journal also ran an article on this subject by Justin Lahart: “Retail Sales Stall on Consumer Caution”. Mr. Lahart’s piece underscored the message reverberating through the evening’s financial reporting:
Indeed, retail sales rose in January and February after sliding for six straight months. But those hopes were undermined by the 1.3% drop in retail sales in March as well as April’s decline.
The data suggest that a recovery won’t come until the second half of the year, and that when it does arrive it will be sluggish, said Michael Darda, an economist at MKM Partners in Stamford, Conn.
As I scanned through a number of websites to peruse the evening’s news stories, I was quite shocked to see the following headline on the Huffington Post blog, with screaming, bright red, upper-case, oversized font: “BLOOMBERG NEWS: CONSUMERS FEELING ‘INSPIRED’ TO SPEND MORE”. Huh? Just below the headline were three large photos. The photo on the left featured a lineup of luxurious yachts, reminiscent of what can be found along Indian Creek during the Miami Beach Boat Show. The middle picture showed that guy from Lifestyles of the Rich and Famous, raising a silver goblet in a toast to the photographer. The photo on the right depicted a headless woman, adorned in enough jewelry to turn Ruth Madoff green with envy. Had someone hacked into the HuffPo website and put this up as a gag? (Later in the evening, I checked back at the site. Although there was a new main headline relating to a different story, the link to the “inspired consumers” story was still there, although down the page.)
Clicking on the “inspired consumers” headline brought me to a story from Bloomberg News, entitled: “‘Good Bad’ Economy Inspires Consumers As Slump Eases”. “Good bad economy”? I had trouble figuring out what that meant because I lost my George Orwell Decoder Ring. Looking at this slice from the story told me enough about what they were trying to say:
Investor Exuberance
A Bloomberg survey of users on six continents showed that confidence in the global economy rose to the highest level in 19 months.
Antarctica and what five other continents?
The Huffington Post‘s BizarroWorld headline struck me as an attempt to imbue readers with a perception of Happy Days in Obamaland. That headline and its incorporated story reminded me of a point recently made by one of my favorite bloggers, Jr. Deputy Accountant:
You know, there are times when I wonder just how difficult it is to keep the PR machine running at full speed and keep the market propped up artificially and massage Goldman’s nuts all at once. Somehow, the powers-that-be are pulling it off, and I imagine that a large part of the dirty work, at least when it comes to PR, is taken care of by our moronic friends in mainstream media who feed up gems like this: Citi using most of TARP capital to make loans.
(As an aside: the reference to “Goldman” is Goldman Sachs, the second largest contributor to President Obama’s election campaign.)
Instead of relying on “the PR machine” to feed me propaganda about the economy, I rely on some of the sources included on this website’s blogroll. Most of the writers for those sites are credentialed professionals, regarded as experts in their field (as opposed to the dilettantes, who cheerlead for Wall Street in the mainstream media). One of these experts is Yves Smith of Naked Capitalism. If you want to keep up with what’s really happening in the financial world, I suggest that you read her blog.
The truth of what the economy has in store for us is not pretty. If you are ready to have a look at it, read Jeremy Grantham’s most recent report. His bottom line is that late this year or early next year there will be a stock market rally, bringing the Standard and Poor’s 500 index near the 1100 range. After that, get ready for seven really lean years:
A large rally here is far more likely to prove a last hurrah — a codicil on the great bullishness we have had since the early 90s or, even in some respects, since the early 80s. The rally, if it occurs, will set us up for a long, drawn-out disappointment not only in the economy, but also in the stock markets of the developed world.
Unfortunately, it’s already too late for President Obama to accept the following rationale from Mr. Grantham’s essay:
We should particularly not allow ourselves to be intimidated by the financial mafia into believing that all of the failing financial companies — or very nearly all — had to be defended at all costs. To take the equivalent dough that was spent on propping up, say, Goldman or related entities like AIG (that were necessary to Goldman’s well being), as well as the many other incompetent banks and spending it instead on really useful, high return infrastructure and energy conservation and oil and coal replacement projects would seem like a real bargain for society. Yes, we would certainly have had a very painful temporary economic hit from financial and other bankruptcies if we had decided to let them go, but given the proven resilience of economies, it would still have seemed a better long-term bet.
After reading Jeremy Grantham’s recent quarterly letter, ask yourself this: Do you feel “inspired” to spend more?
Sign This Petition
May 25, 2009
For some reason, the Boston College School of Law invited Federal Reserve Chairman, B.S. Bernanke, to deliver the commencement address to the class of 2009 on May 22. While reading the text of that oration, I found the candor of this remark at the beginning of his speech, to be quite refreshing:
Meanwhile, that great master of children’s fantasy fiction (and money printing) is now faced with the possibility that someday, someone might actually start looking over his shoulder in attempt to get some vague idea of just what the hell is going on over at the Federal Reserve.
The Federal Reserve’s resistance to transparency has been a favorite topic of many commentators. For example, once Ben Bernanke took over the Fed Chairmanship from Alan Greenspan in 2006, Ralph Nader expressed his high hopes that Bernanke might adopt Nader’s suggested “seven policies of openness”. Dream on, Ralph!
Speaking of children’s fantasy fiction, one expert on that subject is Congressman Alan Grayson. As the Representative of Florida’s Eighth Congressional District, his territory includes Disney World. Thus, it should come as no surprise that back in January of 2009, as a new member of the House Financial Services Committee, he immediately set about cross-examining Federal Reserve Vice-Chairman Donald Kohn about what had been done with the 1.2 trillion dollars in bank bailout money squandered by the Fed after September 1, 2008. Glenn Greenwald of Salon.com provided a five-minute video clip of that testimony along with an audio recording of his 20-minute interview with Congressman Grayson, focusing on the complete lack of transparency at the Federal Reserve.
Better yet was Congressman Grayson’s questioning of Federal Reserve Board Inspector General Elizabeth Coleman on May 7. In one of the classic “WTF Moments” of all time, Ms. Coleman admitted that she had no clue about the “off balance sheet transactions” by the Federal Reserve, reported by Bloomberg News as amounting to over nine trillion dollars in the previous eight months. If you haven’t seen this yet, you can watch it here. After reviewing this video clip, Yves Smith of Naked Capitalism was of the opinion that Coleman was not stonewalling, but instead was “clearly completely clueless”. Ms. Smith pointed out how opacity at the Federal Reserve may be by design, with the apparent motive being obfuscation:
In order to shine a bright light on the Federal Reserve, Republican Congressman Ron Paul of Texas has introduced the Federal Reserve Transparency Act, (H.R. 1207) which would give the Government Accountability Office the authority to audit the Federal Reserve and its member components, and require a report to Congress by the end of 2010. On May 21, Congressman Alan Grayson wrote to his Democratic colleagues in the House, asking them to co-sponsor the bill. Among the many interesting points made in his letter were the following:
You can do your part for this cause by signing the on-line petition. Let Congress know that we will no longer tolerate “children’s fantasy fiction” from the Federal Reserve. Demand an audit of the Federal Reserve as well as a report to the public of what that audit reveals.