April 2007

We don't know what the current Vegas line is on Don Imus survival as a salaried celebrity, but it wasn't a good sign when he tried to arrange a meeting with the ostensibly aggrieved Rutgers girls' basketball team. What could the Nastiest Guy in Radio have said to them that would have brought them around? The 'I'm just a jerk' line might have worked if it were mere misdemeanor sexual crudity that was being apologized for. But a white guy dissing a person of color, or rather, a whole basketball team of color? That's a hate-crime felony, and there are no second chances for perpetrators -- especially for a guy like Imus who has made a career out of cultivating enemies. When NBC announced initially that Imus would be suspended for two weeks, it sounded as though hard business-sense would prevail. You don't just dump a guy who's bringing in $8 million a year in advertising revenues. Or so we thought. Still, NBC must have known that the two-week-suspension trial balloon wasn't going to fly with the likes of Al Sharpton, even if the girls' basketball team might in theory have been induced to roll over. The brass at NBC need only have checked their files under "Jimmy the Greek" and "Al Campanis" to see how things were going to play out. That $8 million is going to be hard for the network to recoup, since they don't make shock jocks like they used to. That is most surely true in an age where political correctness, especially where race is concerned, sometimes adopts the hairy-knuckled demeanor of fascism. Guys like Imus have to be grandfathered in, since it is impossible any more to insult all the people all the time without getting tarred, feathered and run out of town on

We may be living in 'interesting times,' but you'd never know it from watching the stock market closely. On most days, monitoring shares from minute to minute and hour to hour is about as interesting as watching mold form on bread. Stocks typically establish a trading range within the first hour, then spend the rest of the day doing the bidding of traders second-guessing each other; of computers second-guessing the second-guessers; and of supercomputers second-guessing all else. Oh, right. There was that wicked day in late February ' 'Grey Tuesday,' as it was called by some, even if old timers may have regarded it more as a tropical squall rather than a hurricane worthy of a name. Permabears should ask themselves whether it was worth the wait ' one day of exhilaration to compensate them for nearly six years worth of betting the 'Don't Pass' line. We seem to have found a way around the tedium Monday night, leveraging Comex Gold. The futures markets may be relatively thin and illiquid in after-hours trading, but that doesn't mean they are oblivious to our Hidden Pivots. The chart above shows the subtle take-off signal that we used to get long June Gold overnight. Here is the actual advice that went out early in the evening: 'We've projected upside over the near term to 693.20, but the futures will first need to push above 678.00 to create the minor bullish impulse leg that would kick off the anticipated rally. If the implied 678.10 tick occurs in the dead of night, I'd suggest getting long there with a stop-loss you can handle. Switch to a trailing stop at 678.70, since that is the point where the bull's resurgence would begin to look truly promising.' And here was an update that went out later Monday

Iran announced yesterday that its crash program to develop nuclear fuel is far more ambitious than previously acknowledged. Specifically, the number of centrifuges now being employed to enrich uranium is nearly ten times the 328 that were known before yesterday to exist. But is it possible the effort to produce nuclear fuel on an industrial scale is being driven by a need for�more fuel? Such a thought had not even crossed my mind until last week, when an article detailing the country's ruinous mismanagement of its oil resources turned up in my in-basket. Previously, my skepticism toward Iran's uranium enrichment program had been tempered by reports that the country was burning off excesses of natural gas at the wellhead. Whether true or not, the impression stayed with me that the last thing in the world Iran needed was alternative sources of energy. Milking a Cash Cow Yet, the facts suggest this might be so, and the point was driven home in the article (which unfortunately I am unable to retrieve at the moment). The gist of it was that the mullahs have been milking the cash cow of oil production since the Shah's departure a generation ago, and that years of underinvestment are now threatening to drastically curtail output. To make things worse, a government subsidy that has brought the price of gasoline down to 27 cents a gallon has caused domestic demand to explode. A surprising result is that Iran must import refined fuel. I don't mean to suggest that our fears over the rapid expansion of Iran's nuclear program are unwarranted, or that the country's intentions are as benign as Iranian President Ahmadinejad would have us believe. Indeed, any leader of a sovereign nation who has threatened to wipe another country off the map, as Ahmadinejad did Israel,

In his latest commentary, Pimco's Paul McCulley argues that the Fed should shift its inflation 'comfort zone' higher in order to better manage the risks of both inflation and deflation. The comfort zone is currently 1%-2%, but maintaining price stability within that range forces the central bank to react 'asymmetrically' to the ebb and flow of deflationary risk, he says. When inflation gets down toward the lower end of the range, the Fed is forced to ease aggressively to keep the economy from slipping into deflation. However, when inflation approaches the high end of the range, the central bank will typically react with only measured tightening. Raising the comfort zone to, say, 1.5%-3%, says McCulley, would allow the Fed to respond in a more symmetrical way to changing risks. He further develops this idea by examining it in the context of the Fed's role in managing not just inflation, but inflationary expectations. Although one would surmise that McCulley believes the Fed capable of succeeding at both, at least in theory, and therefore of keeping the economy on a stable monetary path, he separates himself from the pack of Fed devil-worshippers by alluding to 'skinny risk premiums borne of hubric [sic] presumptions about the Fed's ability to fine-tune the business cycle.' Why McCulley fails to even acknowledge the far greater risk of financial-asset deflation is a mystery to me. Granted, in the context of a $14 trillion U.S. economy, the percentage-point shift he is advocating for Fed policymakers is not insignificant. But compared to the global financial economy, which includes derivatives markets with notional values aggregating into the hundreds of trillions of dollars, price inflation in the goods-and-services sector is a relatively piddling concern. By splitting relative hairs in discussing CPI-related problems, McCulley would appear to be yet one more economist

Is the economy about to experience one last boom before everything comes crashing down? iTulip founder Eric Janszen evidently thinks so, and that is the crux of my argument with him. We debated this issue yesterday, along with some others, including whether economic life as we know it will end in inflation or deflation. Regular readers of Rick's Picks will already know where I stand on that last question. As far as I'm concerned, there is no avoiding deflation. Eric doesn't entirely disagree with his, but he does think the Fed will be able to avoid economic disaster for at least a few more years. My strong opinion is that no amount of stimulus will surmount the deflationary drag that has already begun to pull the U.S. economy into a black hole. And yet� I thought we'd had it back in 1991, when debt had reached what many observers concluded at the time was unmanageable levels. In retrospect, the U.S. household was a relative model of thrift fifteen years ago. No one could have imagined the extent of the further borrowing that would ensue in order to keep the economy nominally afloat. And that's exactly what we've been doing -- living well, off inflated assets values and mounting debt if not income growth. What Helicopter? Could this continue for at least a little while longer? I seriously doubt it, especially since the erstwhile Helicopter Man, Ben Bernanke, appears reluctant to stomp on the throttle at the moment. It's inconceivable to me that he would be unaware of the mounting threat posed by a real estate collapse. But my earlier expectation that easing would have commenced by now is mistaken, and at this point it would come too late to save us from the impending spring/summer collapse of the housing sector.

2007

Because Citigroup has been in the financial dog house lately, we look to the shares of Goldman Sachs Group for clues about the health and longevity of this bull market, now in its 24th year. It stands to reason that a company so thoroughly entrenched in the smoke-and-mirrors business, not to mention extremely well-connected to people in high places, would outperform until the U.S. economy toppled over the edge. They used to say that, as GM goes, so goes the business of America. That's true enough if one is referring to the U.S. manufacturing sector alone. But manufacturing is no more the locus of the nation's business these days than Atlantic City is 'The World's Playground.' I bring this up because Goldman is nearing a very important number on its long-term chart (see above). We discuss this in greater detail on the Touts page of Rick's Picks, but suffice it to say, a decisive signal concerning the relative health of the bull market could be no more than a week away. I could be wrong, but I doubt it, as will anyone else who has dabbled in the black arts of technical analysis. We'll keep a close eye on this one, since it looks as though something is about to give.

We'll ignore Friday's meaningless dirge on Wall Street for the moment, focusing instead on the seasonal delights of Baja whale-watching. The following is a first-hand report from my sister Linda, a San Francisco attorney who was recently in Mexico visiting some old friends. She got first dibs on the writing genes in my family, so don't be surprised if you find yourself hankering to visit the Baja after you've imbibed this marvelously atmospheric piece. She writes as follows: This has been a remarkable experience. Las ballenas are very different from you and me--and yet, they're willing to meet us as close to halfway as we can both get. For out part, to meet them, small groups of us went out on San Ignacio Lagoon in pangas, which are about the size of life guard boats. We were surrounded by the gray whales that go there to calve and mate--and store up on plankton for the return trip to the Bering Sea. They spout, breach and the males spyhop --poke their heads up out of the water, presumably to check out what's going on. (Click on picture to enlarge) For whatever mysterious reason, or absence of reason, the females and babies are willing to make contact with humans. The babies come up to the boats and let us touch them--scratch them on the head and under the chin--sometimes the mothers push them up on their backs, and sometimes the mothers want to play too. It's an indescribable sensation to touch these creatures, which apparently want to be touched and also could easily flip the boats we're in, but don't. One mother kept going under our boat, even occasionally bumping it, but she never turned us over, and for some reason, I never felt threatened by her 14-foot whale self, or by