Friday, October 9, 2009

Something's Coming?

You can believe that the economy is already improving when you see the following (MarketWatch):

Washington starts cooking third stimulus
Bleak job report moves plan from back burner

The bleak September jobs report appears to have cracked the political logjam blocking progress on a third stimulus package.

Many economists have come to think that a third stimulus makes good sense. "I think the economy needs more help and they should provide it," said Mark Zandi, chief economist at Moody's

The more debt that is out there, the more business Moody's gets. A third "stimulus"? Earth to Washington: the stock market is up 60% or so. Business profits are rebounding. Layoffs are decreasing. The normal next part of the business cycle is for hiring to pick up. It's supposed to be free enterprise. Just please build more medical, nursing and other schools so that we can properly care for the Boomers when we start doddering.

Here's where the article gets toxic:

. . . analysts say that Democrats are likely to need a new initiative to show voters they are trying to create more jobs.

I'm all in favor of Democrats creating jobs. I'm also in favor of Republicans, independents, Libertarians, Naderites, etc. creating jobs. But I'm not a big fan of politicians "creating jobs". Because, you see, it's our money they are using with which to create jobs. Call politicians the parasitic job-creating class. Politicians earn their money the old-fashioned way. They extract it from others at the implicit point of a gun, or they print it. The rest of us have to earn it.

The truth is that the public "gets it". There was a housing bubble based on mortgage fraud. There was unsound financing and there was gambling going on within the very structures of Big Finance. The worst offenders, AIG and Fannie/Freddie, exist as zombie institutions with publicly traded stocks for no apparent reason other than to continue to provide jobs for financial types and to provide stock trading commissions for Merrill Lynch et al. Big Finance helped cause the aforementioned problems just as it got rich on overinvestment on tech stuff a decade ago. Big Finance is getting richer due to government fiat. That is why there are insufficient jobs. The money was looted. Why do you think the Swiss are building more storage for physical gold? How many ordinary people do you know who are keeping physical gold in Switzerland?

Rather than trading the same barrel of oil over and over again, or clearing stock trades that serve no other economic purpose than to enrich the middlemen, perhaps the financiers who know enough to have been buying physical gold should emulate the Obamas and grow organic vegetables. Actually physically cultivate and care for them. Something useful, in other words.

The same government that is keeping zombie institutions alive and that is in a real sense forcing and for certain encouraging people to speculate again in the stock market and other markets by recapitalizing the banks by forcing short-term interest rates to zero is, if the MarketWatch report is correct, once again going to pull a Herbert Hoover and intervene unnecessarily in the private economy (think Hawley and Smoot) when it should focus on helping the needy through these difficult times while letting the business cycle create jobs that actually have a point. These jobs fulfill a societal need and therefore allow a business, large or small, to create profits. Those profits can then be part of a virtuous cycle. Think Microsoft in its creative years and the numerous companies and technologies that formed around its products.

A guess: a new government "stimulus" program will be viewed by the financial markets as counter-productive unless it is really relief for the needy disguised as stimulus. In either case, the guess here is that it will be bad for T-bond prices and bullish for precious metals. The effects on stocks are murkier.

The cynic in me says that Big Finance is long gold and short T-bonds if indeed we find early next week that a third "stimulus" is going to happen. Could be, who knows.

The EBR solution: hold your bonds unless you are overweight already but buy no more Treasuries. Make sure that you have a significant weighting in gold and other precious metals with your risk capital. And watch Afghanistan.

Copyrighti (C) Long Lake LLC 2009

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