A Fed fail and a euro 'fix'
This week's Fed circus tells us mainly that the Fed is wrong again. But Europe may have found a way to keep the euro solvent (for now).
This week, all eyes were on what the Federal Open Market Committee and Federal Reserve Chairman Ben Bernanke might come up with on Wednesday to make everybody happy.
But, in an interesting wrinkle, European debt markets that day saw their own variation of Operation Twist, in that Italian, Spanish, and Portuguese debt rallied, while Germany's was sold.
The reason seems to be that, behind the scenes, Germany has decided to let the European Financial Stability Facility lend directly to the PIIGS, those problem nations of Portugal, Ireland, Italy, Greece and Spain. I say "seems" because that is the current back story, though Germany is still officially denying it (at least through midweek -- more on that below).
Obviously, we will have to see what happens. But if Germany has, in fact, caved on the issue, the European Central Bank will still be required to provide a giant amount of stimulus to make the whole system run. If those two things occur, then Europe will have effectively created a Federal Reserve of its own, and it will probably be able to kick the can down the road a ways.
Angela we have heard on high
The Fed eventually delivered the news that Operation Twist would be extended through the end of the year, and it said that it was prepared to take further action (due to the fact that it had lowered its growth outlook). Markets across the board sold off hard, except for bonds. But shortly thereafter, a headline passed on Bloomberg which claimed (though it certainly didn't look "official") that German Chancellor Angela Merkel had said the EFSF may be allowed to buy bonds, which sparked a rally in pretty much everything (again, except bonds).
That was followed by Bernanke's news conference, where he basically had to admit that the Fed's economic optimism of the prior few meetings was misplaced (i.e., it was dead wrong, as usual).
Even though I have been saying this for 20 years, it still boggles my mind that the people running the Fed can be so amazingly and demonstratively incompetent, yet they are entrusted with unequaled power to change the course of history and people's futures based on their pet theories (and bolstered by ego-boosting reinforcement from the applause meter).
Although Bernanke is not the egomaniac that his predecessor, Alan Greenspan, was, he has done no less damage. (On the other hand, had Greenspan not done what he did, Bernanke probably wouldn't have followed the course that he has.)
When I wrote my book "Greenspan's Bubbles," I figured that in a few years (and certainly by now) the whole world would have seen what a catastrophe Greenspan and the Fed were, and the tremendous negative influence they have had on the country. But here we are -- four years, trillions of dollars' worth of damage and millions of ruined lives later -- and people are still unable to see the obvious. It is just incredible that something this evident continues to be unrecognized by so many people the world over.
It's best to learn from other people's mistakes
One person who does get it is a friend and fellow investor (who prefers anonymity), to whom I have given the moniker, "Mr. Skin." With well over 40 years of very successful experience in investing, he is a welcome and regular contributor to the "Ask Fleck" section of my subscription site, FleckensteinCapital.com, where he recently offered this bit of historical perspective, and a lesson worth noting:
"(June 15 was) the 50th anniversary of my first loss (and lesson) in the stock market. I was a freshly scrubbed, fish-eyed new voter in 1960 and voted for JFK. He had imagination and was young, compared to Nixon, who looked like a crook (even at that early date). . . In any case, Kennedy was going to the moon and the 'aerospace' and 'tech' stocks took off into a bubble that resembled the tech boom of the late 1990s.
"Of course, at my tender age, it looked like a fool-proof way to extend my college passion for poker and bridge. The stock market soon became the bold, new way to get rich. I connected with an equally new Merrill Lynch broker and started to learn how to speak 'market.' He 'advised' me to buy some Air Space Devices, a hot new issue. I bought it a $12, certain of a big hit.
"Unfortunately, Kennedy was having a spat with the steel industry. The union had jacked up a wage demand and the companies, led by Roger Blough, chairman of US Steel (X), decided to hike prices for steel. This threatened to cause inflation at a time when politicians worried about such things. So, Kennedy ordered the FBI to go after steel company executives, and the stock market immediately cratered, dropping 30% within a couple of months (April-June 1962).
"I was scared out of Air Space Devices at $2 for a loss of $10 on a $12 trade. The lesson was simple: understand what you are doing. The broker hyping Air Space Devices was hungry for the fat underwriting fee. If I had bothered to read the prospectus, I would have learned that the company had nothing to do with the aerospace/moon shot industry. The damn company made ladders for fire engines and was taking advantage of the aerospace stock boom to raise capital at a huge premium to reality. Lesson learned!''
One of the things all successful investors have learned the hard way is that nothing is foolproof, especially if you are the one who might be acting foolish. And, as Mr. Skin notes, knowing what you know and knowing what you don't know, i.e., doing your homework, is the best insurance against foolishness there is. Too bad Bernanke et al. don't seem to have learned that.
At the time of publication, Bill Fleckenstein did not own or control shares of any company mentioned in this column.
Now some optimists are criticizing Fleck for being bearish in 2012.
If those same people stay in the market, they will sell at the bottom and lose their shirts. Again. Some people just won't learn.
My name for Bill is "Feckless Fleckenstein".
Absolutely. In fact, several of the key components of our crises and issues are directly out of the Inflationist play book. The main objective is not debasing the currency, its creating complex financial instruments and forcing the public to honor them as they recover the economy. It's a game. Old Money wants to keep living separate and above the rest of us. this is how it's been for centuries. The objective now is to support the variables that compromise those instruments. There is no value in Elitism. If you want prestige, work an honest day for it and let others bestow it on you.
the issue is demand...there isn't any for two reasons...1. young people cannot get jobs and without
income they cannot spend anything but what their baby boom parents give them 2. baby boomers
who have saved even to the tune of 3-4 million are getting no interest and therefore no income
and therefore they can't spend either...70% of the economy is driven by consumer spending..
so bill is correct in assessing the damage done by greenspan and easy money...it tempted those
who couldn't afford it to buy homes..at interest ratess that would double and triple in just a few years
it tempted those who had homes and thought they would continue to go up in value to borrow
against what they presumed was equity and which turned out to be debt...and it tempted those
who thought that stocks were a buy and hold winning plan to double down on their 401k's...
now we have to pay the piper and that could take a very very long time to unwind
"all eyes were on what the FOMC and Federal Reserve Chairman Ben Bernanke might come up with on Wednesday to make wall street happy"
There, fixed it.
The only way out of this will be what Canada did. They limited unemployment insurance, reduced their environmental laws so they could increase their use of their natural resources which created jobs and increased their money flow into the country. They have an unemployment rate below 6%.
Their homes are not under water due to a bubble like in America and Europe as they required a higher downpayment on that home up front.
The problem with America is we allow the Gov't to tie our hands behind our backs. Maybe that is why we have 50% of the population on Gov't subsidies. People just gave up and now want the rest of us to hand over what we make to them.
It is time that people learn to fend for themselves and get off the Gov't tit. Conversely it is time the Gov't dries up the tit. There will be a lot of bawling and whining just like a calf or a foal when they are weaned, but it is necessary for America (and Europe) if they want to survive.
Doesn't matter whether it's Merkel, Obama, or any other world leader or want to be leader. They get elected according to what is termed democracy, and in most cases there is little to choose from. The same machinery to get one party and individual in power is the same machinery used by the losers. And that machinery is corrupt working under the guise of democracy and the good of the electorate. Sure there is a leader, but surrounding them is the party, administration, bureaucracy, interest groups, lobbyists, big business,media, financial instiutions, and the list goes on. And each is likely serving it's own interests - after all, whatever is wrong is the cause of some other group - in the same way as being caught in a traffic jam - it's always the rest of the traffic, not oneself, that is to blame. The entire financial and social mess through the world is certainly not improving and until for once the various leaders and organisations that lead, manage to forgo their petty self-serving interests and selfishness to work on a cohesive solution, the situation will only get worse. It's unbelievable that with all the technology, information and history that the human race has amassed over the recent few thousand years, without the thin veneer of governance and democracy, humanity is no more advanced than the tribes it sprang from in the african jungles. Some days it appears so wasteful that we have but a mere 70 years on the planet. But looking at the past handful of decades, in another sense it may be a blessing - at the end of the day, let's hope we are alone in the universe - the converse is a much more embarassing option. Humanity is such a disappointment to itself - good luck with the future, despite the incredibly bleak outlook. Such a waste of a species with so much potential.
Who's the biggest borrower in the world? I think it's the US Gov't. Who has set the rates at near 0% - I think it's the biggest borrower. . . now isn't that nice. I think I'm going to try to set my own rate next time I go to the bank!!! Who's paying the price - my 86 year old mom who saved her whole life and now gets a check for $150 every 6 months on her IRA...keep up the good work Ben.
Taking money from producers to give new cars to lees producers, and non producers is as wrong as confronting me in a dark alley with a gun and taking the money that way.
You have NO CLAIM morrally on someone elses money NO MATTER how much they have and how little you have.....period!
If the Federal bank buys 15 million cars, then, they, give them to low income people, it will stimulate the economy, create jobs, and lift manufacturing.
The people who receive these will buy tags every year, pay insurance, and service the cars every three thousand miles. They will also save money at the pump, with fuel efficient cars and trucks.
many of these people could save twenty dollars per week with more fuel efficient cars, compared to what their fuel consumption is now.
Copyright © 2013 Microsoft. All rights reserved.
Quotes are real-time for NASDAQ, NYSE and AMEX. See delay times for other exchanges.
Fundamental company data and historical chart data provided by Thomson Reuters (click for restrictions). Real-time quotes provided by BATS Exchange. Real-time index quotes and delayed quotes supplied by Interactive Data Real-Time Services. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by SIX Financial Information.
ABOUT BILL FLECKENSTEIN
This column is a synopsis of Bill Fleckenstein's daily column on his website, FleckensteinCapital.com, which he's been writing on the Internet since 1996. Click here to find Fleckenstein's most recent articles.
[BRIEFING.COM] Stocks entered the weekend on a mixed note as the S&P 500 shed 0.1% while the Dow ended with a gain of 0.1%.
The major averages began the day on a lower note as nine of ten sectors saw losses of more than 0.5%.
The consumer staples sector was the lone exception as the group spent the entire day in positive territory thanks to the relative strength of Dow component Procter & Gamble (PG 81.89, +3.19). The second-largest staple stock advanced ... More
More Market News
|There’s a problem getting this information right now. Please try again later.|
VIDEO ON MSN MONEY