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?"