Monday, March 16, 2009

Blind (Deaf, and Dumb) Faith

It was about a year ago that I rendered my assessment here, that the average financial "expert" (i.e. economist, financial advisor) is as dumb as a post and that just about all of the "experts" are wrong in their assessment of the economy. After the fact, it turns out they were wrong, and one can only presume (hope?) that they too were relieved of 30-50% of their wealth along with the general public who trustingly believed their advice. However, far from being contrite, many of these same "experts" are now saying "nobody saw it coming", which besides being an outright lie, conveniently avoids the question as to why didn't they see it coming? Suffice to say, no market is collapsing faster than the market for Wall Street's Ph.D "savants" and who knows, maybe one day in the distant future, common sense will come back into fashion.

Fast forward one year and now we have a new batch of "experts" to help solve our problems, however unfortunately it appears that this current batch is no more intelligent than the last crop. Sadly my only hope at this juncture is to believe that Bernanke, Geithner, Obama, Summers et al. (i.e. the current stewards of this economic debacle), are simply outright lying to the public at this point. After all, there is tremendous pressure on each of them to be as optimistic as possible and hide as much of the facts and reality as possible. The public has little stomach for more truth than is already being crammed down their throats by their own economic realities; meanwhile the infotainers across the Mainstream Media came down on Obama recently for being too negative (i.e. realistic) about his views on the economy, so he recanted and has been pushing "happy talk" ever since. Just last night Ben Bernanke said on "60 Minutes" that he thinks the economy will begin to recover by the end of 2009. Based on what job and business creation fundamentals, he didn't say. But he did say that recovery is conditional upon getting the banking system stabilized. Apparently his plan is to get banks to start lending once again to people who borrowed too much in the first place, then we can get on with the business of borrowing and spending our way out of this mess. That should work. And the public believes this nonsense - the media believes this nonsense - almost everyone believes this nonsense. Somehow, a 30 year borrowing and spending binge is going to resolve itself without any permanent change in our standard of living, virtually in a period of a few months - presto ! The alternative to believing that Bernanke and Co. are "obfuscating", is to simply conclude that they are as dumb as a doorknob not to realize that we can no more borrow and spend our way out of a multi-decade borrowing and spending problem than an alcoholic can drink his way out of a drinking problem.

Let the Flat Tax begin!

This week the British started their campaign of "quantitative easing" aka. monetizing the debt, wherein, one branch of the government (the Central Bank) buys the bonds of another branch of the government (The Treasury) by printing money out of thin air. Bernanke has said recently that the U.S. is going to do the same thing soon - both to drive down long term interest rates and to help liquidate this year's $1.75 trillion deficit. Meanwhile, the Chinese said recently that they "hate" (their words) having to buy U.S. government bonds, but they will likely continue to do so (as it's their best means of devaluing their currency and inducing us to buy their cheap junk). Apparently they deem nothing in the U.S. to be of more value than paper IOUs which are paid for with yet more paper IOUs! Tellingly, despite all of this obstensibly "hyper-inflationary" news, long-term U.S. Treasury bond interest rates (yields) are still near multi-decade lows. So lest you think the U.S. is becoming the new Zimbabwe, bear in mind that the bond market has already voted, and it thinks that Obama & Company don't have a snowball's chance in hell of getting this economy restarted, much less generating any inflation.

What of this nascent stock market rally?

The short answer, is I don't know and neither does anyone else. Last fall's "nascent rally" only lasted a few weeks and then rolled over like a sick turtle. Some believe this current rally has legs and could last a few months. Others even believe that last week was a multi-year low in the market. Anything is possible, but all I know is that the steepness and severity of this stock market decline is on par with the early 1930's market and there are many people just waiting for a rally so that they can sell into it. Meanwhile the economic decline appears to be accelerating with job losses for March expected to approach 1 million ! So, the only way one can believe in an enduring rally is to believe that the economic fundamentals (i.e. job and business formation) are going to improve sometime over the next 6 months. Unfortunately, just like last year's predictions and despite Government's assertions to the contrary, there are no facts upon which to base that fantasy...

As I have said many times since this fiasco started, we are in a relentless deflationary collapse of unprecedented proportions.

And to think, we haven't had any real panic...YET.