April 1, 2009
Today, this first day of the second quarter of 2009, the markets gained
again. The NASDAQ
to close at 1,552,
and the S&P
to close at 798.
was unchanged at $48.39,
In today's news, the private sector cut 742,000 jobs
in March--a new record and worse than the Marketwatch consensus of
663,000: Private sector cuts 742,000 jobs in March, ADP says.
for March rose slightly from 35.8%
a gain of 0.5%:
Slight improvement in manufacturing.
jumped to 41.2%
after hitting an all-time low of 23.1%
in December. The percentage
of firms reporting higher new orders
- was the highest since June. The employment
two percentage points from 26.1%
Inventories continue to fall, which lowers the ISM manufacturing index,
but bodes well for future manufacturing. The export
rose from 37.5%
The markets took this mixed data as further signs that the
economy is beginning to turn up. However, in Permanent Link to Partying like itís 1931,
Paul Krugman writes, "I'm
detecting a trend in commentary that I find slightly ominous. Some of
the economic news lately has been slightly better than expected, which was
bound to happen at some point (on average, after all, half of all news
should be better than expected). Mostly, this is in the form of things
getting worse more slowly, but it wouldn't be surprising if we see, say,
an uptick in industrial production in a few months, as the inventory cycle
runs its course. If so, that doesn't mean the worst is over. There
was a pause in the plunge in early 1931,
and many people started breathe easier. They were wrong. So far, there's
nothing pointing to a fundamental turnaround this year, or next, or for
that matter, as far as the eye can see."
Geithner-san, Dr. Krugman links to an article by Adam Posen: Does
Obama Have a Plan B? Who's Adam Posen? He's an economist who,
Timothy Geithner, Larry Summers, and a host of other economists--spent the
late 1990's yelling at Japanese and other Asian Officials to clean up
their banking crises".
Dr. Krugman refers to Dr. Posen as someone "who
really knows what went down during Japan's lost decade,"
and also as "the
go-to guy for understanding Japan's lost decade."
Dr. Posen is the Deputy Director of the Peterson Institute for
International Economics (the organization that U. S. Comptroller-General
David Walker joined last April when he resigned from his post to warn the
U. S. public about the financial disaster that was bearing down upon it).
He's a co-author, with Fed Chairman Ben Bernanke, et al of Inflation
Targeting: Lessons from the Internationa Experience.
He shares the same interpretation as 2007-2008 International Monetary Fund
Chief Economist, Simon Johnson that the U. S. is hostage to its financial
former IMF Chief Economist Tells It Like It Is... and It Ain't Too Purty,
just as was Japan before it became desperate enough (after twelve years)
to enact the necessary reforms to get its banking system straightened out.
Dr. Krugman also quotes White House Chief of Staff Rahm
Emanuel's response to Dr. Krugman's criticism of the Administration's
stimulus plan: "Now,
my view is that Krugman as an economist is not wrong. But in the art of
the possible, of the deal, he is wrong. He couldnít get his
Dr. Krugman concludes,
be fair: the Obama team really does face huge political obstacles in doing
the right thing. Maybe it really canít be done. But we shouldn't kid
ourselves. Japan is us."
Mr. Emanuel understands that the current stimulus package won't be enough,
but he had to work miracles to get the stimulus bill we got.
Three articles by Peter Brimelow reinforce this
(1) Brimelow on magazines' crisis views
In this article, he reviews the same Atlantic Monthly
article, "The Quiet Coup",
by 2007-2008 IMF Chief Economist Simon Johnson, that Todd Harrison
referenced yesterday, The former IMF Chief Economist tells it like it is... and it ain't too purty,
and observes that it reaches remarkably similar conclusions to those in an
April 2nd Rolling Stones article written by Matt Taibbi, "The Big Takeover,".
Taibbi writes, "The
reality is that the worldwide economic meltdown and the bailout that
followed were together a kind of revolution, a coup d'ťtat. They cemented
and formalized a political trend that has been snowballing for decades:
the gradual takeover of the government by a small class of connected
insiders, who used money to control elections, buy influence and
systematically weaken financial regulations. The crisis was the coup de gr‚ce:
Given virtually free rein over the economy, these same insiders first
wrecked the financial world, then cunningly granted themselves nearly
unlimited emergency powers to clean up their own mess."
Mr. Brimelow continues,
Taibbi supplies devastating detail about the way the subprime mortgage
crisis metastasized through American International Group Inc.'s
promiscuous use of 'credit default swaps, the central role of Goldman
Sachs Group Inc., and the opaque nature of the subsequent bailouts."
Mr. Brimelow quotes MIT Professor Simon Johson's
advice from the IMF on this front would again be simple: Break the
Mr. Brimelow concludes, "And
how long has the manipulation of markets, which is now explicit policy
(viz.: the Treasury Department buying U. S. Treasuries), been going on? It
was blatant in the peculiar decision to rescue Long Term Capital
Management in 1998. (See Another
case of collusion?)"
He continues, "I
repeat my call, which seems to have fallen on deaf ears, for a new Pujo
Commission, which investigated the Panic of 1907. (And gave us the Federal
Reserve, but that's another story.)"
case of collusion?
(September, 2008) describes two earlier articles he wrote in the 90s: one
in 1993 in which he and his "brilliant" co-author Leslie Spencer
discovered blatant errors in a widely publicized study by the Boston Fed.
The errors were acknowledged by the Boston Fed, which then proceeded
to evangelize its erroneous story, steamrolling over Peter Brimelow and
Leslie Spencer, who had penetrated the deception. The second potential
article, which no editor was interested in publishing, concerned the
reason that the Long-Term Capital Management hedge fund was rescued by the
federal government in 1998 - it was well-connected to Goldman Sachs,
in turn was extremely well connected to federal government. Its former
CEO, Robert Rubin, was Treasury Secretary at the time. By an amazing
coincidence, another former Goldman CEO, Henry Paulsen, is orchestrating
the current bailout."
wrote of Long Term Capital Management that by the end of 1997:
'Governments treated it as a valued partner, to be used whenever markets
weren't efficient enough to achieve macroeconomic goals.'
questions: What governments? What goals? Are sub-prime mortgages just a
long has this sort of collusion been going on?"
Peter Brimelow's third article,
June, 2008, Debt
is not the only problem
we discussed Kevin Phillips' thesis, in his new book "Bad Money:
Reckless Finance, Failed Politics, and the Global Finance of American
Capital" that the U.S. economy has been run by a Washington-Wall
Street alliance for the benefit of the burgeoning finance sector."
He mentions Phillips' "daring"
acceptance of a hypothetical U. S. Federal "Plunge Protection Team (PPT)
that intervenes in U. S. equity markets to temper its swings and reduce
panic, Though Mr. Phillips doesn't mention anything about alleged
manipulations of the gold market to prevent panic-buying of gold,
signaling big trouble in the world's paper currencies, or the
under-the-rose collusion with China to keep the yuan low with respect to
This May Mean to Us As Investors
Several independent sources are now reporting that the
U. S. is being looted by a financial elite, and that the U. S. government
is intervening (for better or for worse) in our "free" markets.
There is also agreement that the economy isn't going to miraculously rise
again like a phoenix this fall. When a recovery finally comes, it will
bring with it, at best, a GDP reduced by the difference between what
consumers spent in 2007, with a slightly negative savings rate, and what
they will be able to spend in the future, given a savings rate of...
8%?... a year. And if other countries aren't willing to finance
ever-deeper Treasury indebtedness, then the U. S. public will have to step
up to the plate and make up the difference through savings. So our savings
should help wean us off foreign capital (?) (It's worth noting that the
greater part of our Treasury bond purchases has always been financed with
U. S. money.)
This reinforces at least to me the need to be very
cautious in investing in U. S. stocks. Dividend-yielding companies are
being touted as a safe haven for hard times. The problems is that
dividends are being cut left and right, and if the economy slows
substantially from here, one might end up with reduced capital and
The chances of a market recovery this spring look ever
more remote, and the worst thing that could happen to us is to lose what
precious remaining capital we still have.
try to discuss this further tomorrow.
The articles below deal with bull market prospects.
Is this a sustainable bull market?