The Bloomberg story headlines that the “U.S. Debt Crisis May Cause ‘Fall of Rome’ Scenario, Duncan Says” goes on our must read pile this morning because author Richard Duncan has the nerve to put the bespoke fear language coming out of Washington into a useable framework.
While Duncan’s book “Dollar Crisis” may be a good read and all, if you’re looking for something that might be more useful as a trader’s timing resource, the book I’m reading right now (Elmus Wicker’s ” The Banking Panics of the Great Depression “) might be more applicable. Why? Ah…Wicker points out that there were at least four separate sub panics in the banking industry during the First Depression and if a trader wanted to make some judgments based on the timing of the sub panics within D-1, here in D-2, then that ought to be an exercise to burn off psychic energy from monkey-mind while you’re waiting for a screen refresh on a stack of loser trades…Some folks never learn.
The big economic feature today – although it’s a given, really – is the Federal Reserve’s announcement this afternoon that there will be no change in the nearly free money rates offered to banksters who in turn mark them up and lend them to us at anywhere from Fed funds plus 4½% on fixed term mortgages to Fed funds plus 32% to people who the banksters figure they can screw to the wall.
While rates are that low, there’s an incentive for a dollar-carry trade to be set up – just like Japan used the yen-carry trade to extend what could have been a 5-year post Nikkei high period starting in 1989 into what turned into two decades of financial yuckiness. An explanation of carry trades here, if you need it. But it essential means borrow money free (or next to it) and put the borrowed dough into something that will appreciate (free yen into gold, was the yen-carry trade).
All of which leaves only the question of how the Fed Statement this afternoon will signal the length of what should be a dollar/commodity carry trade.
Macroeconomics moves at glacial speed. If the Fed says something like “foreseeable future” as a timeline for keeping rates low, then that will encourage the Big Boyz to crash the Dow down to 4,400 or so next year, from which level they will be able to lock in nearly free money next spring, buy commodities (gold, grains, and oil)_ and run that back up to the 12,000 to 20,000 range on the Dow. Which assumes the markets hang together and aren’t shredded by a LIHOP or some such outlier event which may become necessary to rally the country round the current government should too many people get antsy… simple policy decisions at each step of the way though, and given the caliber of our…oh we don’t need to review that do we?
Zooming out, therefore, the real drivers of the future reduce to some simple basic concepts like “How much can be wrung from the public’s pocket is directly proportionate to the collective fear factor induced in the populace.”
So…..we wheel out the flu scare…and whenever needed, an Al-Qaida press release pops up showing a convenient headline like “Al-Qaida predicts Obama’s fall by Muslim nation “. Quick, be afraid right on cue, would you?
Not scary enough?. Hmmm…roll with plan B “Terror arrest sparks gov’t warning on mass transit” and “Feds Issue Security Bulletins on Stadiums, Hotels.“
If that was the only news out there, the prospects for the economy operating in a fear mode and being compliant might not be bad. But the reality is that the Obama administration and congress have been losing steadily in the polls and so even more fear mongering is needed to keep thing hanging together.
When you read headlines like the governor of NY David “Paterson blames weak Obama record for friction” and “Obama the impotent: the disappointment with Barack Obama is tangible“. Toss in the WSJ report that “Poll Reflects Afghan War Doubts” and Joe Biden’s ‘war lite’ plan (see: “Obama considering strategy shift in Afghan War“) and the difficulty of all the nation’s collection of interlocked semi-circular references comes into focus.
To get to my first ‘bottom line’ of today it’s simply this. I think Duncan’s worry that the current global picture sets up a Fall of Rome process is wholly unjustified. Why?
We’re not going to take anywhere near that long. I’d say Duncan’s an optimist.
Palin By Comparison
Wannabe Veepstress acting like Wannabe Prez Sarah Palin is raking the Oministration over the coals on spending and bailing. And other low hanging fruit like the bubble brigade at the Fed.
Red Sky At Night
No sailor’s delight though as “Australia dust storms turns sky over Sydney deadly red.” Hmmm…so what’s the Oz gov’t going to do about an outbreak of silicosis?
Turning our attention to the skies elsewhere….
Iran vs. UFO’s
Noticed a report on Iranian TV which is now showing up in the Tehran Times about Iran shooting down some ‘bright lights’ over the Persian Gulf. Guess #1? Group of UAV’s just after sunset at altitude. Guess #2? UFO’s. Guess #3? Group of UAV’s just after sunset…
Then there’s the report that Iran lost its sole AWACs plane by trying to show it off... Stuff happens, eh?
I see the Dog Poet is doing a cover of “Any Day Now”...
More ‘up takes’? OK…
Rain Toll Mounts
There Goes Your Money
If you happen to be around Cape Canaveral, that thing going off about press time this morning (50-50 odds) is a Delta II rocket with missile defense satellites on board.
Speaking of Losing Money
Won’t tell you which market note it was in, but one says that if you look at a long-term P/E of 16 for the market, the S&P should trade down 18% from where it is now – and that says this one forecast explains why all of a sudden balance sheets are not a popular talking point on the dog & pony show circuit…
Futures higher by a teensy bit on prayer the Fed will announce some silver bullet. Pray harder. Or better yet – mediate on how to extract yourself from the games of print and sprint & pump & dump.