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Motley Executed on the North Lawn at Noon

On May 27, 2010, in Debt, by Tim

From America’s Finest News Source – The Onion – comes this story about how the budget deficit and the national debt are no laughing matter at the White House.

After serving 12 years in the position, Motley, the official White House Jester, was beheaded Tuesday after delivering a poorly received jape about the spiraling national debt before President and Mrs. Obama.

“For crimes of great arrogance and cheek, His Idiocy the White House Jester has been sentenced to a swift demise,” White House Press Secretary Robert Gibbs said following the death sentence. “Let it be heard over every city and suburb of this land that the National Debt is no topic for frivolity, and the mailed hand of Obama shall smite all offenders.”

Hey, it’s tough to do good satire, especially about something like the national debt which, by the way, just reached the $13 trillion the other day.

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Money Supply Plunges at 1930s Pace

On May 27, 2010, in Economy, by Tim

With much of the United Kingdom now worrying about in-flation, Bank of England Governor Mervyn King having to write yet another letter to the Chancellor of the Exchequer just last week to explain why it’s so high, Ambrose Evans-Pritchard thinks it’s de-flation that they all should be concerned about. In this article in the Telegraph today he notes that the world’s economic brain-trust continues to look at the wrong indicators and suggests that trillions more in money printing is the answer.

The M3 money supply in the United States is contracting at an accelerating rate that now matches the average decline seen from 1929 to 1933, despite near zero interest rates and the biggest fiscal blitz in history.
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“It’s frightening,” said Professor Tim Congdon from International Monetary Research. “The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly,” he said.

The US authorities have an entirely different explanation for the failure of stimulus measures to gain full traction. They are opting instead for yet further doses of Keynesian spending, despite warnings from the IMF that the gross public debt of the US will reach 97pc of GDP next year and 110pc by 2015.
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Mr Congdon said the Obama policy risks repeating the strategic errors of Japan, which pushed debt to dangerously high levels with one fiscal boost after another during its Lost Decade, instead of resorting to full-blown “Friedmanite” monetary stimulus.

“Fiscal policy does not work. The US has just tried the biggest fiscal experiment in history and it has failed. What matters is the quantity of money and in extremis that can be increased easily by quantititave easing. If the Fed doesn’t act, a double-dip recession is a virtual certainty,” he said.

I don’t know about you, but I can’t wait to see who finally wins the in-flation vs. de-flation debate that has been going on for the better part of three years now.

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Stocks Drifting Higher Today … Fortunately

On May 27, 2010, in Stocks, by Tim

It looks as though investors and traders are pleased with the news that China is not about to dump it’s euro-denominated bond holdings, another example of how, in the precarious world of 2010 financial markets, “not the disaster first feared is the new good”.

From the pen of Lisa Benson of the Washington Post Writers Group.

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Sprott and Biggs on the Stock Market

On May 27, 2010, in Stocks, by Tim

My guess is that a good portion of the retail investors who still have a big helping of  U.S. stocks in their portfolios are the type that haven’t looked at their account balance in years and have no plans to start doing so now. Conflicting outlooks by a bullish Barton Biggs and a bearish Eric Sprott in this Bloomberg story will likely keep them tossing those quarterly statements in the trash unopened for some time to come.

The monthlong slump that’s erased 12 percent from the Standard & Poor’s 500 Index is the beginning of a collapse that will drive the measure below its weakest level of 2009 in the next year, money manager Eric Sprott said.

The $1 trillion European rescue package announced May 10 has failed to stop the global equity drop, showing investors are skeptical that efforts to address the debt crisis will work, said Sprott, manager of the best-performing Canadian mutual fund with at least $1 billion in assets in the past 10 years. In response, Sprott is buying gold and betting against stocks.
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“Our thesis is we’re in for a long, deep cycle, and we’ve thought that since 2000, but up to this point, governments and central banks have always tried to stave it off,” Sprott, manager of the Sprott Canadian Equity Fund, said yesterday in his Toronto office. With budget deficits surpassing 10 percent of gross domestic product in Ireland, Greece, the U.K. and Spain, and the U.S. at 9.3 percent, policy makers have no choice but to pare spending, threatening economic growth, he added.

Noted briefly in this report and elaborated upon in another story at Bloomberg today,  Traxis Partners’ Barton Biggs thinks that stocks are now oversold and that we’ll see “a big pop to the upside some time in the next couple days”.

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Another Way to Look at the Gold Price

On May 27, 2010, in Commodities, Our Culture, by Tim

In case you missed this from the other day, the Wall Street Journal is running a series of stories about gold as an investment and the first installment carried this graphic showing the current move up to be just a baby as compared to the last two asset bubbles.

But if gold is a bubble, here’s why it may not be over—and, indeed, may it may be about to go vertical.

First, the recent rise is deceptive. Yes, gold has risen from around $250 an ounce to $1,200. But that rise started at very depressed levels.
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Second, before we assume the gold bubble has hit its peak, let’s see how it compares with the last two bubbles—the tech mania of the 1990s and the housing bubble that peaked in 2005-06.

The chart is below, and it’s both an eye-opener and a spine-tingler.

It compares the rise in gold today with the rise of the Nasdaq in the 1990s and the Dow Jones index of home-building stocks in the 10 years leading up to 2005-06.

They look uncannily similar to me.

Next up in the series is a piece on the dangers of gold “The Gold, the Bad and the Ugly” which, as far as I can tell, has not yet been published.

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Thursday Morning Links

On May 27, 2010, in Uncategorized, by Tim

TOP STORIES
China Says Reports on Euro Holdings Groundless – Bloomberg
Spain approves €15bn austerity budget by one vote – Telegraph
Crisis in youth joblessness could have lasting impact – CNN/Money
US money supply plunges at 1930s pace as Obama eyes fresh stimulus – Telegraph
Wray: The Great Depression and the Revolution of 2017 – Naked Capitalism
Panicky Greeks Paying Over $1,700 an Ounce For Physical Gold – Coin Update News
IRS ‘Wealth Squads’ On The Way – Forbes
Deficit Hawk Hypocrisy – New Deal 2.0

Have these these links delivered to your inbox every weekday.

MARKETS/INVESTING
Oil tops $73 on equity rebound, U.S. demand – Reuters
Time to Take a Breather from the Gold Rush? – Barron’s
An Update on International Market Valuations – Hussman Funds
Stock futures sharply higher on China euro-zone comments – Reuters
Stocks Can Fall Further – Barron’s
Is Gold the Next Bubble? – WSJ

(more…)

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