INTIMIDATION

The Woodward-Blodget saga will no doubt go on for a while.

It's really a story with two tails, damage control and intimidation, Siamese twins in the twisted, convoluted and corrupt worlds of Wall Street and Washington. Travel there unarmed at your own peril.

The case against Martha Stewart was in our humble opinion way more flimsy than Blodget. But she was a bigger media catch, right up there with Oprah, since they could hold her up and say: "See, we're doing something to get these awful cheaters."

Stewart did nothing more than what dozens of other insiders did and still do and walked. Blodget, despite the size of his fines, was a small-time crook nibbling at the edges of the high grass were he sought and would've loved to go.

Make no mistake this is about intimidation. When Watergate exploded one of the self-righteous themes of the MSM--and we include scabs like Woodward here--was intimidation. The Nixon clan had a hit list that mysteriously went viral before viral was viral. The media outrage was thicker than Karl Rove's waistline.

But if you look carefully you'll have a difficult time finding, with much succor from their MSM friends, administrations more familiar with intimidation tactics than the last two Democrat one.

These are some serious, treacherous, evil folks who if he were around today would have Machiavelli reaching for a helmet and a flak jacket. 

BLODGET TIME

Forget Miller. It's Mr. Henry Mckelvey Blodget time.

Now we have the CEO/Editor of Business Insider, an internet business news and analysis site, and a known lefty and Barrack Obama supporter, Henry Blodget, jumping into the Woodward brouhaha.

Writing a piece for his own site, "Oh, Please, The White House
Didn't 'Threaten' Bob Woodward," Blodget tries to play down Woodward's claim that senior officials at the White House threatened him when he apparently asked the wrong questions.

Blodget, who admitted in his blog that he hadn't seen the video where Woodward reportedly made his claim, did his best to minimize whatever Woodward said, resorting to a wad of PR and journalistic gobble-gook. Otherwise known as journalistic BS. Just what one would expect from a former Yalie who previously portrayed himself as a tech stock expert now apparently views himself as an expert on the cannons of journalism.

It was the usual trite and true, warmed-over attempt to discredit anyone who questions this administration. But here's what you need to know about Mr. Blodget, all a part of the public record.

After college and working as a free lance reporter and later as an editor at Harper's, Blodget found his way to Wall Street where he toiled as a security analyst specializing in tech stocks.

After a few intermediary stops Blodget wound up at Merrill Lynch at the height of the dot.com bubble as a sell-side analyst hawking dot.com stocks to any and all foolish enough to listen. When that bubble finally burst and the blood was running thick in the streets, the now obligatory investigation asking the usual question they always ask, What The Hell Happened? began.

One of the things that happened was computer files about dot.com stocks Blodget was blatantly pushing on the public out of one side of his mouth he was labeling POSs to insiders on his e-mails. His actions hurt a lot of people, make no mistake about that. Of course, like most of these cases, we know he's now sufficiently contrite.

But Blodget did what many of his Wall Street brethren do once the Attorney General of New York came calling: He bought his way out of jail. In 2003 he was charged with securities fraud by the SEC. True to the Wall Street code he agreed to a permanent ban from the securities industry and coughed up a $2 million fine and another $2 million disgorgement, legalese for when one is forced by law to give up profits obtained by unethical, illegal acts.

But it gets better.  Blodget's first writing job after the air cleared was for the left wing rag, Slate, covering the Martha Stewart insider trading trial. But Martha didn't fare quite as well as Henry. She went off to camp in West Virginia for a brief stay.

Meanwhile, you got to hand it to Slate for giving the assignment to Blodget. They obviously recognized a universal truth: It takes one to know one.

One of the things you should also note is throughout this entire blog we never called Mr. Blodget a former crook.

FUNNY HOW TIMES CHANGE

It's really funny how times change.

Bob Woodward, a long-time Washington Post editor, slams Obama accusing him of madness over the sequestration mess.  Woodward and his former colleague in journalistic legerdemain, Carl Bernstein, a couple of left-over scabs from the 1970s, bases part of his criticism on Obama's dry-docking a navy ship set to sail to the troubled and dangerous mid-east.

Reason: lack of funds.

Navy ships is something Woodward should know a thing or two about, having fresh out of college been a crew member aboard a US spy ship and his long-time, clandestine snoozing around with Pentagon pals.

Woodward and Bernstein in case you forgot or are too young to remember blew the whistle on defrocked President Nixon and what became the original of all future gates, Watergate. He and his Warren Buffett cronies at the Washington Post despised tricky Dick. Now we have tricky Barrack.  As we said, it's funny how times change. We know Buffett's position. But for Woodward this is an out-of-character pose that should send your suspicion counter barking.

This is not to say Woodward's accusations are incorrect. You don't have to be or have friends in high places to clearly discern the Obama crowd's drift. It's a leftward wind that wreaks with the odor of "useful idiots."  But Woodward strikes of a man devoid of loyalties, something psychoanalysts define as a characteristic of acutely dangerous people

This could be an example of the old it takes one to know one. Now you should realize Helicopter Ben is not alone. He's got company.

A HINT FROM THE POPE

Pope Benedict resigned today becoming the first pontiff in 600 years to quit while still on the job.

Addressing a crowd estimated at 150,000 in St. Peter's Square outside the Vatican, he reportedly told the throng he was stepping down for the good of a church racked in recent months by charges of corruption and sexual abuse of children by priests in Europe and in the US.

According to one report, he said there were occasions when "It seemed like God was asleep." With all due respect to the retiring pontiff, his comment and the reason for his announced decision seem more than a little fitting for most of our esteemed elected officials in Washington.

Most of them have been asleep for years. And most of the rest are do-nothings sucking substance at the public trough. Stepping down for the good of the country would constitute, if we can use a quasi-political term, a magnanimous gesture befitting such a regal group. 

Just one more thing. We are now at least a couple of pay checks into the new year. In one of our almost daily meanderings we speak to not just small business owners but many of those who actually do the heavy heaving.

The new tax bill this administration worked so diligently to foist on the so-called exempt middle and poorer classes, well, our survey, however unscientific and un-agenda funded, has yet to encounter anyone whose check isn't short come take-home day. 

In fact, not that any of these folks really care about facts, many of the workers, to borrow a socialist term, are actually working more hours just for the privilege to take home less.

The sums may not to many of the anointed seem like much. But like the proverbial rock in the shoe, sometimes it doesn't take much to really hurt.

BERNANKE SPEAKS

Federal Reserve Chairman Ben Bernanke spoke before Congress today and the stock market listened, with home building and consumer stocks leading the way. Two stocks, Home Depot and Macy's, led the upswing.

Bernanke's testimony was laced with what the market apparently needed to hear. On the upcoming sequestration issue, he recommended the old kick-the-can technique, suggesting the heavy so-called front-loaded cuts due to take effect be slimmed over a longer period owing to its possible harmful impact on a still struggling economy.

So much for cold turkey. 

On inflation it was again more of the same: "Measures of longer-term inflation expectations have remained in the narrow ranged seen over the past several years. Against this backdrop, the Federal Open Market Committee anticipates that inflation over the medium term likely will run at or below its 2 percent objective."

Bernanke defended the Fed's bond buying spree saying any real risks were manageable. Why that's reassuring to anyone except those who seek to move the market for some quick profit is befuddling to say the least. Did anyone think about sequestration he was going to vault into the chamber and recommend taking the meat cleaver to the obscene national debt now?

And his blowing off high energy prices with an aside about its impact on recovery was first-rate bureaucrat-speak. At one point under some fairly direct questioning he bragged about keeping the inflation rate near the bogus 2% level better than any other Fed chairman. 

Advances lead declines on the NYSE 2:1 while on the NASDQ the ratio was 3 stocks up for every two down.

Despite what the market clearly saw as good news the S & P 500 failed to breach the 1,500 mark, closing at 1,496.64, raising the issue is the 1,500 level now a point of resistance rather than support as some hailed it until the recent downturn.

Time, as they say, may march on, but so does bureaucratic BS.

POLITICIANS

One of the fun things about blogging on a regular basis is readers look at whatever sources or reading list you post besides what you blog and make a decision.

You're a liberal or a conservative, a Democrat or a Republican. You're a libertarian or a Whig, a Rotarian, Presbyterian, sectarian, vegetarian or egalitarian, to name a few.

 There's a sound reason behind it although it's really like those vapory, reflective patches that look like water on sultry hot summer days way down the road most of us have seen at least once or twice in our driving lives, just a mirage. 

People feel more comfortable if they think they know where you are, what you are. Snap decisions and big-time assumptions, seemingly opposite ends of the spectrum, aside. Douce bag or troll, saint or wizard, people love labels.

Back in grade school my best friend, I'll call him Jimmy C. to protect the guilty, used get in trouble so often he became a permanent fixture in the principal's office.

Jimmy was a bright kid who always hung around guys four or five years older than him. Jimmy knew how to dress, he knew how to talk to girls and he knew when he had to how to scuffle and fight.

Unlike many of the other kids who'd break out on the playground whenever they could to play, Jimmy was always reading something, a magazine, a newspaper, a box label. Sometimes he 'd get into trouble for bringing it to class. But that never stopped him.

 Back then corporal punishment hadn't been banned yet by the PC crowd. So Jimmy learned pretty quickly about free lunches; there are none. He took his share of whacks, way more than anyone else, and he took them well.

They hurt and they hurt bad, but you'd never learn that from Jimmy. What I did learn from him was this. One day after another of his tours in the principal's office, where they kept him waiting a long time before doling out his punishment, a form of punishment in its own right, he told me he sat their watching people freely come and go.

A lot of the teachers would pop in, see him there again, and just shake their heads. Most came to check their mail boxes, tiny little cubicles all neatly lined up and alphabetized. The longer he sat there watching the parade, he later told me, the more he realized what those boxes symbolized.

They're categories, he said, categories that people constantly seek to put you into for their own benefit, their own comfort. It makes them feel better, superior. That way they think they know how to deal with you. If they believe they know where or what you are it's easier to hate or like or ignore or discard you. They can relax and feel good, justified.

When I asked for an example, he gave me a one-word answer I'll never forget, politicians.

We moved that summer and I lost track of Jimmy after that. Years later I learned after high school he got drafted, went to Nam where he did two tours. He was wounded twice, received a battle field promotion and came home with a box full of metals he never threw farther than the attic, all in the name he told me later of a political war he never believed in.

When he came back he married, had a couple of kids and used his GI Bill to get a law degree, though he never worked a day in the profession. I ran into him one Saturday morning a few years later at Home Depot. He and his wife were getting ready to celebrate his 50th birthday that weekend.

She came home from shopping later that day and found him on the living room floor. He was dead at 49, a myocardial infarct.

NOT ON ICE

Was in the super market the other day picking up some fresh tilapia for dinner.

It's a good source of protein popular with athletes especially in body building and weight-making sports. When you work with elite athletes, particularly weight-making ones, there's usually a time frame involved and lots of money at stake if they fall short.

The butcher was wrapping a few well-selected pieces for me and my girlfriend when I noticed his name tag said Coach. Since I frequent the place fairly often I knew by his accent he was from somewhere back east, like Massachusetts.

He told me he coached hockey for some local kids and tossed in a few well chosen words about discipline and training, a game he played and loved as a kid. But he saved his best for last. It was brief and to the point. "Times may be changing," he said, without the slightest hint of nonchalance in his voice, handing me the package, "but not on the ice."

Not on the ice and not in the gym. And most especially not in the markets. Without discipline you're just without.

THE NEXT TEAR DROP

"Before the Next Teardrop Falls" was one of the late great Freddy Fender's big hits.

According to a recent article in Forbes, since 2007 the average salary for college graduates is down 5%, even though the Bureau of Labor Statistics claims average workers' earnings are up 10%. (We recommend a quick visit to the old salt lick before you swallow that BLS stat, however.)

Point is the value of a college degree is falling while the cost is skyrocketing. It's the cost part you want to keep your financial eye fixed on as "America's college student loans ballooned into a $900 billion crisis."

So forget rock turning and distant lands, the next teardrop in right in front of you. The Forbes article explains it all in one short, declarative sentence: "It's the federal government."

The nation's total credit card indebtedness is roughly $690 billion, auto loan debt $730 billion. And student loan obligations, just one more once, $900 billion. That's roughly 30 times the Scold of Omaha's worth. But don't expect Mr. Buffett to bail them out unless there's some kind of package deal with mezzanine financing involved.

If you're familiar with the term smell as in Pell grants, you've probably missed your calling. You probably should have been a sommelier. In 1991, Forbes states, one in ten Americans carried student loans. It's one in five today. Forbes charges "it's the huge expansion of federal grants to higher education."

Between 2001-2008 that amount tripled. And in 2008 Congress passed a five year, $34 billion a year aids package, "making federal support for colleges and universities one of the fastest growing parts of federal discretionary spending in history."

Since we're talking education, here's an easy one. What over the same period went from 40% to 80%? My old girlfriend's spending pattern is close, but incorrect.

Correct answer: The amount of these loans the fed holds.

Enter stage left Pell grants. In the 11 years from 2000 to 2011 they "increased threefold from 3.8 million to 10 million." One more point from the article. Roughly "53% of recent college grads are either unemployed or acutely underemployed" with a whole gaggle more holding down menial jobs.

In Freddy's version he sings: "If the teardrops ever start, I'll be there before the next teardrop falls."

Unfortunately, Freddy' gone. But when the first student loan teardrop hits the old terra firma, the only one who will be there is Mr. and Mrs. and Ms Taxpayer, the real lenders of last resort and the only lenders in society government views as neither too big nor too small to fail.

GET USE TO IT

Like a huge reptile, Wall Street is this giant beast that has to be fed.

The fare of choice is elastic money supply. An investment banker's worse nightmare is inelasticity. If you want to make a Wall Street banker gag, forget maggots or Paducah or your name, just mention inelastic money supply. But be prepared to perform a Hemlich if you do--unless, that is, you're not feeling particularly charitable that day.

The ties between Wall Street and the Fed are ties that bind. They date back a long way. In the beginning a Wall Street banker said: Let there be a centralized bank. And there was, two of them to be exact, both put to rest by public demand, the first after a 30 year run in 1811 and the second in 1836 following a turbulent 20-year stint and a public onslaught by President Andrew Jackson, a Democrat, a hard-money advocate and big-time foe of centralized banking.

Instead of an amen! Somebody give me a: "My how times change."

After a long hiatus the bankers as is their want we're famished. The National Banking System then in place, a brainchild of their own machinations several years earlier, wasn't cutting it. It wasn't bad. But it could be better. Centralized is to rules as rules are to who's defining them. And in this case it wasn't the bankers and it wasn't centralized enough.

To create inflation otherwise known benignly as booms you need elasticity. That's what bulging waistlines are all about. Investment bankers love their own brand of spandex. It's spelled bonuses. And in good times they come often and big.

What this world needed was a "lender of last resort," a pseudonym for too big to fail, a self-perpetuating credit expansion device controlled by bankers. A money multiplier known in less civil circles and the underworld, it's called a pyramid. The piper keeps playing until redemption day. Those old black and white photographs of long lines outside the nation's banks during the Depression era, that's redemption day.

Back then money was supported by gold and silver. An a small kid with a paper route you had to go door-to-door once a week to collect. It taught you a lot of things. How to make correct change without a computer was one. Another was how common dollar bills with the words "silver certificate" printed on the front were. It you own one today it's a collector's item. Guard it with your favorite bureaucrat's life.

So it was 100 years ago this December our current central bank was birthed. Apologists will say after the Panic of 1907 when banks were caught holding the Old Maid, something suppose to happen only to buffoons and neophytes, the call went out. Truth and facts are stubborn things. The call really started in 1896 right after McKinley defeated the silver-tongued, silver-backing William Jennings Bryan.

As with any change people must first be convinced it's needed. Fear usually serves the purpose quite well. Heroes needs villains. Preachers sinners. And Wall Street bankers need those bonuses.

So short of any serious, meaningful overhaul, look for more boom and busters. Get in, buckle up and get use to it.

CHECK OUT

Check out the chart listed in Boom and Bust on the website below for several reasons. First, it's one of the more interesting sites, started by Victor Niederhoffer, a hedge fund guy who once traded for Soros until he flamed out. Next, besides Niederhoffer, some savvy people drop in to liven up the discourse, in itself refreshing.

 Finally, the chart elicits a comment that summarizes exactly what happened to those Asian tigers in '97 that too many folks today in our view just don't get. We were in Bangkok in August of '97 and huge building cranes were everywhere. A friend called it the positive crane sign not too different from the positive suitcase sign when people show up at the ER with their suitcase in hand.  

It was just like one of my old girlfriends I call Suddenly. One day she was there, the next.......
http://www.dailyspeculations.com/wordpress/?p=8144

EVERYBODY HAS ONE

Whether you're a professor with a warped Keynesian strut and a blunted beak ensconced safely in the bowels of academe or a media Talking Head hawking books, baseball caps and Stars-and-Strips coffee mugs, everybody has one.

The Fed has spoken.

 Like Ground Hog Day it's set, another period of bond buying frenzy. For how long even Mr. G won't risk a guess. Such musings would surely fall beyond the ken of even the most rudimentary econometric paradigms. 

 That's really too sad because the furry one couldn't do much worse than the huge clutch of highly-paid economists struggling to unriddle the riddle that isn't, a seemingly birth defect of the dismal science clan.

As a Wall Street media wag recently noted: "These folks have accurately predicted six of the last two recessions, for which some have received a Nobel. " It reminds one of the metaphysical question and answer: How long's it going to take. However long it takes.

In the eyes of many it no longer matters. The real damage is loose, out there somewhere lurking in the shadows like a night stalker waiting and ready to pounce. And next year, according to many, Helicopter Ben will stately ride Amtrak back to his beloved Princeton, closing another chapter in the fabled history of the 100 year old Federal Reserve Bank, the future of the willfully uninformed and apologetic masses once again flat lined. 

Pretend you're eavesdropping at a recent Minnesota Ice Fishing Festival around a group of well-bundled-up ice fishermen waiting for one of them to reel in a fish or fowl or large We-Love-Al Franken picnic cooler. They give away some odd prizes in the Land of 10,000 Lakes.

You overhear a guy two ice holes to the left, between a couple of loud belches, shout to three of his frozen-beer swigging buddies: "I don't know about you guys, but I just bought a shit-load of June SPY puts."

Some might think that's a contrarian indicator of the first degree. But only time and the best-looking-back-to-the-future econometric model will tell.

MARKET WRAP

An apparent disagreement among FOMC members knocked a 100 points off the DJIA as Fed decides to continue its bond buying spree until the unemployment numbers improve, according to CNN-MONEY. The DJIA closed at 13,927. 

Yesterday the market rallied on M&A activity suggesting it continues to look for any feeble piece of possible good news to move higher. Retail investors, apparently weary of paltry returns in so-called safer havens, apparently believe as one Wall Street wag put it, "a lot of darks clouds seem to be clearing."

Will Bernanke be gone in 2014 when his second term ends? Some economists think so, while others believe if he goes it will be bad for the economy. Recall Obama waited until August of 2009 to reappoint him. If he goes he will leave with the distinction of getting the most no votes for a second term of any other Fed chairman.

Gold hit a 7-month low today, closing at 1,578/oz., down over $200 or 12% since October, as it moves closer to falling below its 50-day moving average. Traders call it the death cross, when the 50-day MA falls below the 200-day MA. Some take it as one more sign to the retail crowd those dark clouds are clearing.

ALL ABOARD

Ever notice when a government-sponsored program goes snap, crackle and bust, it's an independent government agency.

The US post office should come to mind, along with several others like Amtrak, Freddie and Fanny and from what we read Sally Mae's sucking O2 from a respirator. Some even claim it's the next bubble headed to Burst City. Rumor is Sally's got an Amtrak ticket all paid for and ready.

One psychiatrist we know given this news recently told us he's handing out to all his patients a copy of his latest pamphlet, "Get Your Hard Hats Ready, Taxpayers." He claims it works circles around Paxil for new-onset or recurring depression.

Trouble is there are many of these independent or privately-run government agencies, like the Federal Reserve Bank. Most of them get deep-sixed for one simple reason. But that's the problem, don't try to tell anyone. It's too painful, too-clear cut, too simple. You'll have social anthropologists calling you out for some of their latest drivel, ethnocentricity.

If you haven't heard of it you've probably been keeping your Neanderthal gray matter away from the New York Times, not a bad hobby if you're looking for one

For those of you who don't sport scruffy greying beards and wear phony ruffled blue denim work shirts, ethnocentricity is one academia's latest attempts to explain why we're all biased. In short, it's because you were raised by the parents you were raised by and grew up in the neighborhood you grew up in. That is, unless you're from Hope, Arkansas.

In a recent Bloomberg piece one poor, benighted soul, lamenting Amtrak's wretched financial state, wrote: "One way or another, fixing Amtrak will require congressional action." 

Now that's like taking a bite from the bureaucrat that bit you in the first place.

The best, most humane way to end Amtrak's woes is to start the IV drip now.

VALUE IS TO VAGUE

If beauty is in the eye of the beholder, where does that put value?

Insiders supposedly sell for a variety of reasons.  And according to Wall Street folklore, they buy for only one. Last time we looked the G7 and a host of others in Euroland had negative real interest rates. And a good number of the others like China are manipulators.

Members of the manipulator group come and go. Membership is circumstance-based. So despite what mental behemoths like Chuck Schumer try to tell you, China's hardly alone. It can get crowded at the top.

Negative real and low nominal interest rates are designed to discourage saving and ramp up borrowing. Boosting equity prices and pumping air into the phony wealth effect many main stream economists love to cite is the neat brown wrapping on the package.  

It's we-feel-so-much better now we can rush right out and go further into some more debt.  No wonder Lenin coined the term "useful idiots."  For sure he had more people in mind than the Krugman's of the world. It's the ultimate monetary-policy elitists' insult. 

Most are aware of 1492 and what occurred. But just a 100 years later in Elizabethan England in 1592 Robert Greene's pamphlet, "The Defense of Coney-catching," first appeared. According to the vernacular of the day, a coney was a rabbit raised for food and thus tame. A coney-catcher was a thief, a con man who worked the streets preying on unsuspecting, innocent passers-by.

The term coney appears in at least two of Shakespeare's plays and Giovanni Florio's translation of Montaigne's essay, "Of The Cannibals." As a quick aside some scholars believe Florio, a scholar in his own right, was Shakespeare.  

Greene argued that there were worse crimes committed by so-called reputable folks. What Greene was pointing out swindling is still swindling, choose whatever name you like; they're male and female, high and low class practitioners of the art. Card sharks, slackers, drug dealers, pimps and prostitutes are only one layer of coney-catching. Just as many don suits, carry iPads and valet park.

The point is with all the political and economic jockeying for position the definition of value gets vague and vaguer. But it's the third part of the comparative case you got to most worry about. Bricks and mortar aside, that's a dangerous jungle.

PASS THE PAXIL

If someone walked up to you and asked: "Zero times a positive integer equals what?"

This is an elementary school example of why you should not rely on the mainstream media for your daily rush of news. Zero times anything always comes out the same, zero.

With MSM it's about marketing, not reliable information you want to stake your family or your future or for that matter anything you cherish and hold dear on.

Whether its about another freeway car chase or corporate corruption or the latest celebrity version of ménage a trios it just so much warmed-up hash. It may smell good, but taste and substance, well, they're as they always are part of the rest of the tale. And part of the rest of the story is about who gets to tell it? 

LIES, DAMN LIES AND GOVERNMENTS

There is an old saying about lies, damn lies and statistics.

Many people attribute it to humorist Mark Twain. But Twain reportedly gave credit for its origination to British Prime Minister Benjamin Disraeli. A search of Disraeli's papers, however, showed no mention of it and, according to some, the saying didn't become popular until after Disraeli's death in 1881.

 In his autobiography, Chapters From My Autobiography, in 1906, Twain wrote:

Figures often beguile me, particularly when I have the arranging of them myself; in which case the remark attributed to Disraeli would often apply with justice and force: 'There are three kinds of lies: lies, damned lies, and statistics.'

A colleague who's very much still with us takes a little different twist. He says: "There are lies, damn lies and governments."

The incidents of governments getting caught with their tongues buried deep in the disinformation jar are too numerous to list. The Federal Reserve Bank is an independent central bank. The word independent is open to debate obviously, but for now we'll deploy a Paul Harvey and leave it for later. It relies heavily on statistics to spread its financial propaganda.

So that poses an interesting question: how much of those statistics are lies, how much damn lies and how much government just being government? 

PUSH MEETS SHOVE

A lot of people who look at those Democrat-Republican red and blue maps don't get it.

In many ways those maps are similar to the maps of the 1850s before the great American Civil War. The country was divided. One of the reasons it was a north-south division is because much of the west was still territory. Statehood lay far in the future for states like Arizona and New Mexico.

A lot of people get sidetracked by what many historians have painted as the major issue behind that 1850s division, slavery. As horrible and as ugly as any form of slavery is, the real underlying cause, as it almost always is for war, was economic: One section of the nation trying to force its policies on another. 

WHO PUT THE DING-A-LING-DONG IN THE YEN?

Ever get that falling feeling?

Well, if you have then you understand what the Japanese yen's been going through the last few months, dropping about 20% of its value along the way.

With the G20 meeting the next two days in Moscow much of the foreign exchange attention will rivet on Japan and the yen.

Already the yen has captured headlines from hedge funds that have by all reports backed up their truck to haul their winnings away from shorting the yen. Perhaps the biggest investor was George Soros, famous for his previous shorting the UK pound
In 1992.

Given the Japanese government's alleged commitment to intervene if necessary to weaken one of the world's persistently strong currencies some are saying it was bound to happen. Others beg to differ.

One of those is economist Carl Weinberg. Weinberg heads High Frequency Economics, a well-known NewYork economic think tank and consulting firm.

Weinberg seems to think any real government intervention is just so much official "huffing and puffing," he noted in a recent interview. "We see no evidence of central bank intervention in the markets on behalf of governments."

Weinberg went on to say the G7 and G20 countries have to censure Japan by name otherwise they would "forfeit, forever, the option to censure China by name for currency manipulation." He predicted if the G20 don't call Japan out by name, shorting the yen again will be fair game, although he expected any sell-off to be limited.

The magic number for the yen, according to Weinberg, is around 94.20, a technical support level. The yen downturn that began in November should fizzle out there and then resume its appreciation, he said.

STRONG CURRENCY CONSEQUENCES

How many of you remember Laker Airlines?

It was run by a British fellow named Freddy Laker in the 1970s. Laker once offered one-year round trip tickets to Europe for $250.

Some at the time called him the "compassionate hip capitalists." Others referred to him as the "hippie backpacker's savior." But when Freddy and his airline got caught up in what essentially was a volatility crunch, ordering a bunch of new aircraft he couldn't pay for, most just called him broke.

President Nixon closed the gold window in 1973, but it wasn't until 1981 that the US dollar, freed from its gold shackles, was allowed to float or fluctuate freely. The key word here is fluctuate. Given a choice most of us opt for stability and consistency.

Recall those silly exam questions many of us took to get into college, the true or false ones like coffee is to cream as sand is to the sea. Well, volatility is to fluctuation as change is to life. And savvy, successful investors learn to understand and live with volatility. Unsuccessful ones don't.

The late Peter Bernstein in his wonderful book Against the Gods The Remarkable Story of Risk, discussed the sudden outburst of volatility and how fast it can happen. "During the 1970s and the 1980s," Bernstein wrote, "volatility seemed to be breaking out all over, even in places it had been either absent or muted."

As Bernstein recounts, "These unexpected outbreaks of volatility soon littered the corporate landscape with a growing number of carcasses, providing grim warnings to executives that a fundamental change was taking place." One of those carcasses turned out to be Laker Airlines.

Bernstein again: "For example, Laker Airlines, a fabulously successful upstart in transatlantic travel, ended up in bankruptcy after ordering new McDonnell-Douglas aircraft in response to soaring demand; with most of its revenue in pounds and with the foreign value of the dollar climbing higher and higher, Laker found it impossible to earn enough to pay off the dollar obligations on their DC-10s."

THE REAL DANGER

Two cardinal sins among the many that governments commit are propping up markets and keeping interest rates too low too long.

Japan is the latest example where the propping is under way with the second coming of Prime Minister Shinzo Abe and his goal of hogtying the Bank of Japan. Japan, an export-dependent nation, is currently the not-so proud owner of one of the strongest fiat currencies around.

To say that has weakened it exports is putting it mildly. The Land of the Rising Sun has been stuck in a de-leveraging death spiral for 20 years. A small island with an aging population and few natural resources, domestic demand remains in a major funk. Leveraging usually weakens a currency, not the other way around.

CLAIRVOYANT AARDVARKS

Ran into an old friend the other day. We hadn't seen each other for a while. I'm always interested in what he has to say.

Harry's a trader. A contrarian to the core. Years ago when we we first met, I asked what he traded. 

"Everything from bonds to wives," he said, with a slight chuckle.

He's now on his fifth I think. But it's not his expertise as a wife picker I'm interested in though I think some might hold that against him. It's the old book-by-its-cover syndrome. Harry's has a good track record doing what few can really do, calling it correct and making money. And he's made some serious money.

We decided to have lunch over some Italian fare at a little strip-mall joint not far from LAX. Harry's a peripatetic soul. He likes to visit companies and countries. He calls it up close and in the flesh.

"What's your take on the bond market?" I asked, as he slid into the booth across from me and we ordered some tortellini with a bottle of Tuscan red to wash it down.

"Reminds me of my third wife."

"How's that?"

"We're in a state of if-we-don't-look-it-might-go away. She finally did too, took half my grubstake with her."

"That must've stung?"

"Every good trader has to know how to take a loss," he said, laughing at the memory.

"U.S. equities got that PT feeling to them," he said, taking a sip of wine.

"PT?"

"You been watching money flows? Money's been flowing lately into mutuals funds and ETF's faster than Bernanke can print the stuff. Most of it from retail crowd. While back they wanted no part of the action. Peak time."

"So what are you buying now?"

SURPRISE. SURPRISE

The bond market continues to conjure up a plethora of opinions. Some say it's a bubble, some say it isn't, sort of like the old childhood ditty many of us remember: She-loves-me, she-loves-not

.

I recall the tech bubble in 2002 not long before the gas came out of the balloon. At the Las Vegas Money Show thousands of visitors poured through the hundreds of exhibits daily, nearly all of them wearing tech blinders. Day trading was hotter than last year's sex symbol.

IT'S ALL IN THE WEIGHING

Since June of this year after several players on Mexico's national soccer team tested positive for a steroid, clenbuterol, Mexican officials have struggled with tracking down ranchers who supposedly spike livestock feed to make their cattle more attractive come market time.

Steers usually yield about 55% meat. On clenbuterol that yield jumps to around 62-65%. Cattle on the steroid for a month or two, according to some sources, can pack on 100 pounds or more of beef in each steer. If you can hear an old fashion cash register ringing somewhere in the background, you're getting the picture.

Problem here is one man's cash is another's poison, in more ways than one. Innocent people can get caught up like those soccer players who were later exonerated. Other unsuspecting, innocent souls just get sick from eating the contaminated beef, many winding up in the hospital.

The above is an excerpt from a story we penned in October, 2011. The point for here is, the cattle weighed more. In this case they were bloated by the steroids, something the ranchers sought, good thing perhaps for them and not so good for the unsuspecting. 

So it depends on who is controlling the scales. Here it was the ranchers. So keep that in mind as you read the following. It's from the June 4, 2008 issue of the Economic Policy Journal.  

INFLATION

With gas prices at the pump nearing $4 a gallon in So Cal (Some in LA are paying $5 a gallon.), drivers are getting fewer miles per tankful.

Bill Gross, the Pimco bond guru in his latest newsletter discussing monetary policy and the economic recovery, wrote:

Each additional dollar of credit seems to create less and less heat. In the 1980s, it took four new dollars of new credit to generate $1 of real GDP. Over the last decade, it's taken $10, and since 2006, $20 to produce the same result.

Gasoline and GDP both start with the same letter in the alphabet, inflation.

PLATO'S TREE IS MISSING

It probably begs the question, but we'll ask it anyway.

 Why do politicians of whatever political philosophy never seem to understand what Malcolm Gladwell in his book of the same name,The Tipping Point, clearly noted: There
is a limit, as in people will alter their behavior?

The following is from a recent story in The New York Times about what's going on in Greece since the debt crisis began there where salaries and pensions have been cut, unemployment soared to nearly 27% and people are doing what people do when their pain threshold gets crossed or tipped, retrenching.

In raising the taxes, government officials hoped not just to increase revenue but also to equalize taxes on heating oil and diesel, to cut down on the illegal practice of selling cheaper heating oil as diesel fuel. But the effort, which many Greeks dismiss as a cruel stupidity, appears to have backfired in more than one way.

For one thing, the government seems to be losing money on the measure. Many Greeks......are simply not buying any heating oil this year. Sales in the last quarter of 2012 plunged 70 percent from a year earlier, according to official figures.

So while the government has collected more than $63 million in new tax revenue, it appears to have lost far more — about $190 million, according to an association of Greek oil suppliers — in revenue from sales taxes on the oil.

Grade school math says that's more than three times what the government took in and they most likely pissed a bunch of Greeks off in the process. This is a story about heating oil, in case you didn't catch it, poor, middle class and no-so middle class people trying to heat their homes and stay warm in the winter.

Meanwhile, many Greeks are suffering from the cold. In one recent survey......nearly 80 percent of respondents in northern Greece said they could not afford to heat their homes properly.

The return to wood burning is also taking a toll on the environment. Illegal logging in national parks is on the rise, and there are reports of late-night thefts of trees and limbs from city parks in Athens, including the disappearance of the olive tree planted where Plato is said to have gone to study in the shade.

At the same time, the smoke from the burning of wood — and often just about anything else that will catch fire — has caused spikes in air pollution that worry health officials. On some nights, the smog is clearly visible above Thessaloniki, Greece's second-largest city, and in Athens, where particulate matter has been measured at three times the normal.

All this in what officials describe as not an unusually cold winter and, according to one official, so far there are no signs that the tax has discouraged illicit sales of heating oil.

Government officials, however, according to the story, say it's "too early to judge the new tax. The winter is not yet over." And Harry Theroharis, the Secretary General of the Ministry of Finance, called the situation a complex environment too complicated to blame the result solely on the new tax.

Meanwhile, though it's just hearsay. One recent cold night in Athens two elderly gentlemen involved in a heated discussion were spotted rubbing their hands together over a crackling bonfire. A passerby reportedly overheard one telling the other: "Aw, hell, it was an old tree anyway."

VIEW FROM HERE

Jobs, Jobs, Jobs
There's been much discussion about the recently released unemployment numbers and the so-called new discovered jobs from earlier months.

The key item here is new discovered jobs or upward revision. Though this is not new, quite often the numbers often get revised, up or down. That's the part you should be paying attention to, revisions as in suspect.

Supposedly they found more new jobs but overall unemployment went up to 7.8. With the so-called unemployment number set for the Fed to turn off the monetary printers at 6.5 you should be asking what's so magical in that figure?

The next thing you ought to be asking yourself as an investor is what's on the list of things the government does efficiently: balance the budget, control spending, run Amtrak and the postal service?

HIP-HIP HOORAY
Pay-to-delay may be on its way out with the impending departure next week of the Federal Trade Commission head Jon Leibowitz.
According to some, Leibowitz has been a big thorn in the side of big pharmaceuticals and their pay-to-delay deals with generic drug manufacturers.

Simply put, the big boys would agree to a settlement to pay up if the generics would delay production of the knock-off drugs and end any litigation. Leibowitz argued the delay cost consumers money and were anti-competitive.

Costing folks money--especially if its big pharmacy--will get you some attention. Next month the Supreme Court will review those agreements. However the court decides, they'll most likely be some hip-hip hooraying going on by one group or the other.

The Market And Boxing
In boxing there's an imaginary line separating the fighters. Once one of them crosses that line, it's on. The same applies to markets that get ahead of themselves, something many believe this current market has. Different traders have different numbers they're looking for to signal the start. But be assured there's one there and most likely it's much closer than retail investors think

PIMPING

PIMP ZONE

Pimps come in all sizes, shapes and colors. It's got to be right up there with the oldest professions, like lobbying. 

There are pimps on the left, pimps on the right, pimps in the media, pimps everywhere. It almost sounds like something from a Tennyson poem and we the folks are the noble 600.

What the pimps on the left like economist Paul Krugman and his Twitter crowd don't seem to want to get is there's a lack of confidence owing to a disease all politicos seem to have, left, right or abstaining, the acute absence of fiscal responsibility. A cynic might argue any responsibility. 

In musical terms it's a bad case of the economic blues not completely of our own doing.  And what they all miss is, to paraphrase that famous St. Louis economist Chuck Berry, sooner most likely rather than later, Beethoven is about to roll over and give Tchaikovsky the news.

THE HOT SWEDISH MODEL

No, we're not talking T&A here, something much more solid than that. So spare us the PC epithets.

 Is there something US politicians and the American public can glean here? A key word in this interview is pragmatism, as in a tradeoff between deficit spending and deficit entitlements.

"Northern Lights: The Nordic countries are reinventing their model of capitalism" is the feature article in the recent issue of the Economist.
  

YOU'RE ON YOUR OWN

With the DJIA breaking above 14,000 today for the first time since 2007, here's an update on our Zimbabwe article, "It Can Happen."

May be even a little food for cogitation, maybe not.

What many retail investors and retail voters alike apparently only vaguely comprehend is purchasing power. And the loss of it. Sometimes it's insidious, like the old boiling the frog trick. See Federal Reserve Bank here.

Two of America's finest institutions celebrate their 100th anniversary in 2013, The Federal Reserve Bank and the IRS.  A detailed research project of any meaningful magnitude will have a hard time finding two institutions that have destroyed more purchasing power than these two since their birth. But for now that's part of the rest of the story. Back to Zimbabwe.

A former British colony known as the Republic of Rhodesia for many years, Zimbabwe gained its independence in 1980 with Robert Mugabe Prime Minister and the Zimbabwe dollar replaced the old Rhodesian currency. At the time the Zimbabwe dollar held more value than the U.S. dollar (See U.S. inflation rate 1980-81).

In the early part the last decade we had the of pleasure visiting Zimbabwe and traveling around the country. Back then they wanted fresh U.S. $20 bills at the airport when you entered the country and another one when you flew out. A couple of elderly people sitting on weathered wooden folding chairs at tattered metal folding tables with cigar boxes stuffed full of the bills greeted visitors with a friendly smile. It all seemed rustic enough .

Another face, this one unsmiling, that greeted visitors everywhere was pictures of then president Robert Mugabe. One day at a checkpoint crossing into Botswana right in front of the guard shack there was a motorcycle accident.  A couple of us stopped to see how bad one of the riders was hurt. We helped him up and into the guard shack. When we turned to leave there it was, an over-sized picture of Mugabe on the wall staring down at us, taking it all in. A friend looked at the picture, then at me and rolled his eyes. As Hemingway might say: "It wasn't a good feeling."

A short time after Mugabe became president he instituted a destructive redistribution plan, seizing farmland owned by white farmers and began redistributing it. An avowed socialist, Mugabe sought to right the wrongs of what he saw as British colonialism. Over time his plans proved disastrous as food scarcities soared, manufacturing tanked and unemployment hit 80%. Violence erupted and foreign aid dried up adding to Zimbabwe's woes. It quickly became a monstrous mess. To pay its debts and to try to restore some stability the government ran the monetary printing presses until the smoke coming out of them was visible miles away. But things only got worse.

Zimbabwe inflation rates rocketed in 1998 from 32% a year to an estimated high of 11,200,000 in 2008, according to Zimbabwe's own government statistics when officials issued a new 100 billion dollar note. At that point the government stopped trying to keep tabs. In 2008 Zimbabwe's rate of inflation was so bad prices were doubling every 1.3 days, the second highest in history only to what Hungary experienced in 1946 where prices doubled every 15.6 hours.

Around the same time, talk about pouring H2O on the head of a drowning man, Transparency International, an organization that tracts public sector corruption in 176 countries around the world and publishes an annual Corrupt Perception Index,(www.transparency.org/2012), from the least to the most corrupt, listed Zimbabwe among the worst. Capital fled the country faster than one can say Usain Bolt.

Kyle Bass is the founder of Dallas-based hedge fund Hayman Capital Management. He is also a guy who knows a thing or three about inflation. Bass reportedly made roughly $500 million shorting the sub-prime mortgage miasma. Anyone now think subprime paper wasn't inflated?  Give or take a couple tens of millions here and there he's had other successes.

Bass appeared on CNBC today (2-1-13) discussing monetary policy, inflation and rising stock prices. "You lose sight of what's important if you're focused on nominal prices in equities," he said.

"One of the best performing equity markets of the last decade has been Zimbabwe. But now your entire equity portfolio only buys you three eggs."

That's the big whammy in your lunch pail most people don't get. That's the be careful what-you-get-use-to factor because it can and most likely will change.

"You have to really focus on the insidious nature of what inflation is," he concluded, "and how real returns might be negative on both equities and bonds. You're losing purchasing power."

And that's the point, Mr. Krugman. You lose purchasing power. And nobody--not Bernanke or Krugman or anyone else, not a police, fire or Indian chief, will sound the tocsin before hand.

You're on your own.