Sunday, March 8, 2009

Sunday Night Comments

There is good news out of Treasury:  Sec'y Geithner is getting some help, with three nominees for Assistant Secretary positions to be named shortly.  Then there is bad news out of Treasury: Sec'y Geithner is remaining as Sec'y.

Over at Bloomberg, there is a discouraging lack of gloom on EBR's proprietary video indicator.

1.  Someone named Carroll states that the Fed has awesome tools (better than bazookas, it seems);
2.  Someone named Liu expects "results from China's stimulus";
3.  Someone named Joy expects the U.S. economy will "recover" in H2 2009;
4.  Someone named Howard states that Kellogg is "reclaiming" market share from General Mills.

Three trenchant observations on these:

A.  All the above names were the commenter's last names, but all also are first names.  This has to tie if not set a record.
B.  Re the Fed's "awesome tools":  the Fed is overstepping its bounds.  Elected representatives should be making the momentous decisions the Fed is making.  What do we do if the Fed becomes insolvent?
C.  If Ms. Howard wanted people to be gloomy, she would moan that Gen'l Mills is losing share to Kellogg.  Like, who cares?  Why are these companies not Tweedledum and Tweedledee, or Humpty and Dumpty?

Less trenchant but more pertinent, one would think that after the worst 17 months of a bear market in U.S. history, worse even than the 1929-31 bear market at the same time frame, Bloomberg video would reflect rampant fear and pessimism.  Not so; almost the opposite.

Finally, the suspicion amongst investors is growing both that Barack Obama doesn't care about the stock averages and that he barely knows anything about the stock market.  From an online satirical site, "The New Editor" comes commentary on a malapropism Mr. Obama recently used in place of price to earnings ratio in "Barack Obama and 'Profit and Earnings Ratios'":

Barack Obama and 'Profit and Earnings Ratios'

Oh well.  Let's hope for the best.  But please remember that nothing is riskless.  FDR defaulted on a gold bond issued by the U.S. Federal Government during World War I.  The Federal Government is financing and guaranteeing so much "stuff" that credit default swaps traders place the cumulative chance of a default on a newly-issued 5-year Treasury note at 5%.  In mid-2007, the 5-year risk was a nominal 0.1%, or 0.02% per year. 

It's always darkest before the dawn.  But to switch metaphors, if we are in the 3rd or 5th inning of a baseball game, and the home team is getting creamed, it's bad news no matter how much any commentator wants to spin the story.  

One last point.  Too many economists and market veterans keep saying that the economy will get better and there will be another bull market again.  They should read "The Black Swan" or "Fooled By Randomness" by Nassim Taleb.  He's right, and so was John Maynard Keynes when talking about the future:  the truth is that you never know.  At best, history rhymes.  It never ever repeats.  There will be a much better likelihood, I believe, that a durable market bottom has been reached when the "experts" give up en masse and stop relying on what's happened before to advise that we act as if the stock market is the right place for money to be parked.

Financial systems, like industrial and financial systems, can exist and appear solid for years, decades, and centuries, and then just go away.  It's called bankruptcy.  It can happen to nations as well as to companies.

Please invest accordingly.

Copyright (C) Long Lake LLC 2009

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