“Job Review Time…for Bernanke” - December 3, 2009

Lots of job interviews going on in the country today. And unless it’s for you, the most important one happening today is in Washington for Ben Bernanke. The FED Chairman will be in front of the Senate Banking Committee for his conformation hearing to keep his job.

Bernanke has been a lightening rod for a lot of anger that Wall Street got bailed out and Main Street didn’t. In fact, Senator Bernie Sanders, an Independent from Vermont, and a long-term critic of the FED, has placed a “hold” on Bernanke’s nomination for a 2^nd term to try and block his reappointment.

He claims that “Bernanke has failed at every task assigned to the FED.”

Let me tell you why, in Mr. Sanders case, “I” stands for ignorant not independent.

(1) The FED had little choice last year but to pump enormous amounts of capital into the financial markets…which helped to avert an even greater global crisis than occurred.

(2) The FED did not cause this crisis. Wall Street and Congressional policies did. The FED was forced into the task of sweeping up the effects of greed and incompetence. And it did a good job. Maybe not the best, but Bernanke helped to pull the economy out of the deepest ditch since the Great Depression.

The Chairman will prevail in these hearings after some tough challenges. He will be reappointed, and that will be good for the economy and the country

“Job Review Time…for Bernanke” - December 3, 2009

Lots of job interviews going on in the country today. And unless it’s for you, the most important one happening today is in Washington for Ben Bernanke. The FED Chairman will be in front of the Senate Banking Committee for his conformation hearing to keep his job.

Bernanke has been a lightening rod for a lot of anger that Wall Street got bailed out and Main Street didn’t. In fact, Senator Bernie Sanders, an Independent from Vermont, and a long-term critic of the FED, has placed a “hold” on Bernanke’s nomination for a 2^nd term to try and block his reappointment.

He claims that “Bernanke has failed at every task assigned to the FED.”

Let me tell you why, in Mr. Sanders case, “I” stands for ignorant not independent.

(1) The FED had little choice last year but to pump enormous amounts of capital into the financial markets…which helped to avert an even greater global crisis than occurred.

(2) The FED did not cause this crisis. Wall Street and Congressional policies did. The FED was forced into the task of sweeping up the effects of greed and incompetence. And it did a good job. Maybe not the best, but Bernanke helped to pull the economy out of the deepest ditch since the Great Depression.

The Chairman will prevail in these hearings after some tough challenges. He will be reappointed, and that will be good for the economy and the country

“Bring on the International Soccer Federation…” - December 2, 2009

The ADP jobs report this morning showed more deterioration in the jobs market, but that was not unexpected and the markets should not react much at all to this report.

The real drama du jour today will be when Treasury Secretary Timothy Geithner testifies this morning before the Senate Agricultural Committee on OTC derivatives.

On the surface, this doesn’t sound as sexy as yesterday’s drama where the Chairman of GM seized the wheel from CEO Fritz Henderson. But there will be a lot of people watching to hear what he has to say about regulating these instruments…and instruments of its type.

Here’s why this is important.

The Washington policy focus of the past year has correctly been on bailouts and stimulus programs. But very little has been done to prevent a similar crisis from happening again – to regulate what Goldman Sach’s Chairman Lloyd Blankfein has called irresponsible and damaging products created by Wall Street over the past decade, and for which he has even apologized for publicly.

We need to take a lesson from the International Soccer Federation who is meeting in Cape Town, South Africa today to consider adding more referees to World Cup matches to prevent blown calls from determining outcomes…which happened last month in a game between France and Ireland.

Geithner’s comments will be a barometer as to whether this Administration is willing to do to add more referees to the capital market playing field so that blown judgments don’t create a second crisis.

“Let the Games Begin…” November 20, 2009

This week has raised a lot of eyebrows about whether the recovery is sustainable…or even real. Here’s what we learned this week:

· Excluding the jump in car sales, retail sales are modest.

· Core producer prices are in sharp decline.

· Outside of energy, inflation in consumer prices is not happening.

· Industrial production has slipped to a slower pace.

· And most disappointing, new housing starts were way off from what was expected.

Not the kind of week we wanted prior to Thanksgiving. And not the kind of news that will boost confidence.

But there was one very interesting and positive news item that has a lot of potential for helping economic growth: Warren Buffet and Goldman Sachs have teamed up to boost financing and lending programs for underserved small business owners.

This is significant – for two reasons:

(1) Small businesses have been most affected by the credit crunch, and still find it very difficult to get loans.

(2) Although it is only a $500 million initiative, it is a private sector initiative not a government one.

Capitalism is about private initiative and entrepreneurship, not about government run businesses. Also, large corporations do not create the jobs; job creation comes from new and small businesses.

One of the world’s wealthiest and most successful individuals has combined with one of world’s wealthiest and most successful businesses to cast a loud vote for capitalism. This Buffet-Goldman initiative is a real example of real stimulus that could provide real help.

“A 10,000 Dow is Psychology…not Economics” - October 16, 2009

Like on weekend afternoons in the fall, all eyes will be on the scoreboard today to see if the market can close the week above the magic 10,000 mark. It’s not likely as news overnight was broadly disappointing.

• At the company level, GE reported lower-than-expected revenue and a big drop in profits, and Bank of America also reported greater-than-expected losses – two bell-weather stocks lots of people watch.
• Mortgage foreclosures continue to rise. They were up 23% in the third quarter compared to a year earlier and 5% worse than in the second quarter.
• And the latest industrial production numbers just out, although strong for the third quarter, were disappointing as they continued to slow over the course of the quarter.

So the Champaign corks that popped 10 years ago when the market first passed 10,000 aren’t happening this time.

They won’t pop – and the market will not be sustainable – until some fundamental foundations are shored up: there are 3 key ones:

(1) The big one is job growth…that’s not happening yet
(2) The second is personal income growth that follows
(3) The third is confidence…or consumer moods

Until all three of these show signs of sustained improvement, any flirting with the 10,000 mark will be just that…It will be fleeting.

"Demise or Not…the Dollar is Vulnerable” - October 6, 2009

A report out of the UK means that the phrase “the new world order” is happening faster than anticipated. The Independent newspaper is reporting a “game changer” – many Arab states along with China, Russia, Japan, France, and Brazil are planning to phase out the dollar as a basis for oil trading over the next 9 years.

The plan would be to replace the dollar with a basket of at least 5 currencies: (1) the Japanese yen, (2) the Chinese yuan, (3) the euro, (4) gold, and (5) a new unified currency for the major Middle East Gulf States.

This would be a serious departure from the present architecture of the modern international financial system that was put together after World War II – the Bretton Woods accords.

This is happening for a couple of reasons:

(1) Changing economic power in the world, particularly China’s extraordinary new financial power; and

(2) Anger over the crisis the United States caused in world financial markets in the past couple of years.

Two near-term implications are obvious:

(1) Gold will become very attractive in the near term, and
(2) Inflation of imported goods…including oil…will continue to occur as the dollar continues to weaken.
What’s important to note about “game changers” like this in capitalism, is not so much to worry about the new rules, but to understand them so that you can play by them and not be held hostage by the hope that it ain’t so.

“Early Fall Foliage and Economic Data…Both Dull” - October 1, 2009

One month ago today, I mentioned on this segment that the market was sending out a clear signal: it’s not convinced a recovery is here…And the same message holds true today...because the latest economic data continues to be about as dull as this year’s early fall foliage.

· This morning’s personal income results for August were disappointing and the small increase in spending was due only to government gimmicks like “cash for clunkers” and first-time homebuyer tax credits.

· Consumer confidence in September was down, with most people feeling worse about job prospects and income growth. Buying plans for both cars and homes are also down.

· Consumer prices have fallen for six straight months, clearly indicating a lack of demand.

· Although the revised GDP number yesterday showed the economy slowing by only 0.7% in the second quarter, the best performance in more than a year, it was not due to new fundamental strength.

Fed Chairman Ben Bernanke will be testifying this morning before a House Committee about financial market regulation. This is a long overdue discussion, particularly about derivatives trading and the dangerous credit default swaps.

Depending on what he has to say, this could be the best news of the week. And while it won’t make for a sustainable recovery, it could turn over a new leaf in making Wall Street more transparent. The upshot of this week’s data is simple: the New England foliage will be far more vivid than the economy for quite a while.