CRISIS OF CONFIDENCE CONTINUES
We have been here before. January a year ago (the original article is here), didn't predict very much. You know our bias against forecasting. Tomorrow in the market is always a 50-50 probability.
We did say, ". . . the earliest resolution to the rolling panic we are in today will be summer-fall of 2010 with a secondary finale in the fall of 2012." We pretend that is not a forecast, but it is--based on the laws of Physics. (more on that here) The 20-year cycle and its subharmonic decennial cycle make 2012 the best bet. Note the metronomic effect of the preceding years 1932, 1942, 1962, 1982, 2002 when definitive market lows took place and segued into major bull markets. Next, 2012.
This year we are celebrating the feast day of forecasting on April Fools' day, next Thursday, instead of during January, the beginning of the calendar year. The real New Year since time immemorial from ancient civilizations to the present begins with the vernal equinox. It is the time of new beginnings, new life, resurrections, starting over, spring planting. Hence, a time of celebration and hilarity. If you can't take a joke, shame on you.
The big joke this year is, the crisis is over. Governments are fixing it. America has passed milestone new legislation expropriating one sixth of the national economy in addition to the other, earlier confiscations undertaken as palliatives to allay consumer distress. Confidence is coming back? No, it's not. That's the April Fool's joke this year.
A sub part of the joke is deceit. That's where the fun comes in. You deceive somebody into thinking something is true when it's not. Then the falsehood is uncovered, and all laugh--except, perhaps, the victim of the joke. He or she may laugh, but not with the same hilarity as the perpetrator.
Where did the money come from to play these confidence jokes on all on all of us? The Fed. Take a look at the Monetary Base. (The levels in the chart you will see get multiplied by eight times as lending percolates throughout the banking system. That's about $16 trillion at the end of line. Lot of money. Unprecedented lot of money.)
Are the banks lending it? Nope. And their profits are bigger than ever--with giant bonuses for their managements. April Fool? No. It's true.
See the steep and continuing decline (the severe, continuing hook down at the end of the line) in this chart of the Total Loans and Investments at All Commercial Banks. Here is a current, close up, including a picture of commercial paper issuance here. Commercial paper is what businesses use to finance their own short-term borrowing.
Who's buying the stock market, then? Since last March, DJIA up 65%, S&P500 up 72%, Nasdaq Composite up 89%, Russell 2000 Index up 97%. The market can and does on occasion discount economic and business conditions four to six months in advance, but rarely, if ever, over a year. What does the market see that we do not see?
It is a longstanding tradition for the incumbent party to pull every fiscal lever in their power to have happy voters going to the poles, starting 90-days before an election day. There is a national and others coming up seven months from now to be tested severely, and another, doubly important in 2012.
If you and I were highly skilled political strategists with unlimited resources at our command, what would we be doing during the next 31 months?
When do people get most enthusiastic and euphoric about their financial condition and outlook? In a runaway, booming stock market. It is no surprise that they will attribute feelings of well being to the incumbent government and, further, will want to keep it place by voting for it.
The market is highly measurable and universally visible. The Fed is not. It pretends to be transparent. But it is highly opaque. It has had no audit since it was chartered by Congress in 1913 and signed into law by President Wilson the day before Christmas Eve that year.
Recherchez La Fed.
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.
Yeats
THE SECOND COMING
November 1910
Note. The clever Romans had twenty or more gods in their pantheon. Jupiter was the boss. Early on, Januarius outranked Jupiter as top god. Januarius specifically could see past and future. Apparently the rest could not. Note there were no gods or goddesses of confidence Pity. All they did was mess around in the affairs of humans, often with reprehensible effect. Humans are quite capable of creating their own reprehensible effects.
Confidence is more a matter of balance than anything else. Equilibrium is the key: balance--the Goldilocks effect. Too much or too little is detrimental, as we have seen and are seeing worldwide now.
Credits. The Federal Reserve Bank of St. Louis for the research charts on money and credit.
Posted
3/28/2010 4:27 pm EDT
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