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.
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.
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.
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.
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 togirls 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.
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.
"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.
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 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.
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.