Commentary for the Week of March 8

Helicopter Ben was deep in denial yesterday following a two-day Fed meeting, telling reporters he’s puzzled by recent signs of deterioration in the economy.  "We don't have a precise read on why this slower pace of growth is persisting." Is this guy a hoot, or what?  Earth to Bernanke: The Great Recession never ended!  In fact, the term “Great Recession” itself is popularly used by plain folks to assert that economic hard times are very much with us, notwithstanding brazen statistical claims to the contrary.  As anyone can see, many trillions of stimulus dollars have yet to improve a dismal employment picture one iota -- only kept it from getting worse; nor have those “dollars” boosted household incomes or real estate prices. What they have boosted are bank profits and the prices of stocks, commodities and basic goods.  Surprising no one, Mr. Bernanke also failed to mention the still-deflating housing market as a possible reason for the punk economy.  Who but a Fed chairman could fail to connect the dots?  It seems not to have occurred to him that consumers are no longer binging because their homes have continued to plummet in value – another 4.2% in the last quarter alone. In a policy statement issued after the meeting, the Fed muckety-mucks blamed the usual suspects for the weakening economy: higher energy prices and the disaster in Japan.  Perhaps Bernanke had second thoughts about trotting out such a lame explanation, however, and that’s why he deflected the matter by feigning cluelessness. Whatever the case, although he further widened the cognitive gap between the government’s spinmeisters and the working stiff, the Fed chief may have bought time to feign yet more cluelessness when he admitted that the..."sluggish recovery" could linger into next year.  We wonder what he sees for 2012 that

An article entitled Government Stays Glued to Mortgage Market topped an inside page of the Wall Street Journal’s yesterday, offering a mostly trenchant assessment of the real estate crisis but no easy alternatives. The 1,200-word think-piece, written by one Nick Timaraos, ponders the chicken-or-egg question of how to lure private capital back into mortgage lending. Should The Guvvamint pull back on support and hope investors fill the void?  That’s the solution some policymakers are advocating, according to Timaraos, but we doubt they fully understand what it implies. They seem to think capital would return over time if Fannie and Freddie were made to compete for savings honestly with higher fees and no open-ended guarantees. And return investors would, although presumably not before housing prices collapsed a further 30%. Valuations would undoubtedly have stabilized by then, although we doubt that’s what policymakers have in mind when they talk about helping to promote price stability in the housing sector. Wading into the fever swamps of the academy for answers, Timaraos quotes Berkeley professor Kenneth Rosen, although we’re not sure why. Rosen’s one idea goes down easy enough – it’s only when you think about what he’s said that you wonder how his name wound in a Journal reporter’s Rolodex.  “We’re not going to get a recovery in housing until the average borrower can get a mortgage,” avers Rosen. We’d like to think the good professor meant to imply that, if and when housing prices fall far enough, the “average borrower” will be able to afford a home.  And we mean “afford” in the old-fashioned sense of the word --  i.e., putting 20% down, and making monthly payments no greater than 25% of one’s gross income. Since real incomes have shown no growth in this country for nearly two generations, it seems obvious

America appears primed for a political revolution, but will it happen?  Or are we too glutted with middle class amenities to put creature comforts at risk?  A similar theme permeated Will the Soviet Union Survive Until 1980?, an important essay published in 1970 by Soviet dissident Andrei Amalrik. Amalrik predicted revolution would come despite the seductive appeal of the middle-class life that many Russians were beginning to experience in the post-Khrushchev era.  With so many households so close to owning a Lada automobile, a washer/dryer and a color TV, why would anyone risk rocking the boat? The average Russian had lived like a serf for centuries, after all, and so the promise of significant improvements in the standard of living was no small thing. Such concerns may be no less relevant today in the USA, where the economy even in recession has sustained bourgeois luxuries at levels not far below the civilizational peak achieved in 2008, just before the Great Financial Collapse.  Indeed, even as joblessness mounts and the country continues to wallow in what has cynically come to be called The Great Recession, one needn’t leave the couch to enjoy a surfeit of bread and circuses that puts Rome at its most decadent to shame . However, and ironically, the escapist trash of reality TV has distanced huge swaths of the populace from reality itself.  In such a climate of hedonism and shop-till-you-drop hubris, the Founders’ concerns with liberty and the tyranny of government hold about as much interest as a philosophical treatise by Plato, Mill or Emerson. And yet, even for those who care more about Snooki and the Weiner affair than about the state of the union, there is no ignoring the by-now overwhelming stench emanating from Washington. We have watched the most liberal president in the

[Longtime readers of Rick’s Picks will know they’re in for a bracing dose of reality when our good friend Doug B. – known hereabouts as The World’s Savviest Financial Advisor – mounts the soap box. In the essay below, Doug asserts not only that full-blown recession is back with a vengeance, but that this time the easy remedies will not even seem to work.  He notes that Baby Boomers in particular will have to tighten household budgets drastically,  and to plan on working well past past the age of 65, if they are to have any hope of retiring with dignity. RA] “Hey, Rocky, watch me pull a rabbit out of my hat! Nothin’ up my sleeve!” “AARRRR!!! (pulls out the Rhino)  Looks like I don’t know my own strength.” “Maybe you need another hat.” And now here’s something you’ll really enjoy. After all, it is part of the American optimism to believe in the unknown positive. The concept of another rabbit in the hat as investment strategy was popularized by Stan Salvigsen and Mike Aronstein back in the mid-1980s. When faced with a bearish outlook, and in the absence of any clear positives to identify to offset all the negatives, we in the financial services industry prefer to believe that there has got to be another rabbit in the hat. The concept is predicated on the fact that no one knows what the magician will do next. The hand is quicker than the eye. Mother Nature watches from the wings, though. So the magician walks on stage and his prop is a pedestal table with a small vase on it. He removes his top hat and sets it on the table. With a wave of his wand, he reaches in, pulls out a scarf and drapes it over his

Stocks got a lift yesterday from retail numbers that supposedly weren’t as bad as economists had expected. Sales dropped “only” 0.2% last month versus economists’ dartboard expectation of a 0.6% decline.  Because it was merely a bunch of economists who were doing the expecting, perhaps we shouldn’t be surprised that the numbers were so far off.  No matter though, since the not-totally-disastrous stats were exactly what the doctor ordered to send shares into a bullish spasm that left the Dow sitting 123 points higher by day’s end. The sales data evidently had been leaked Sunday night, and DaBoyz lost no time using it to put the  squeeze on bears.  They effortlessly ran the index futures up the equivalent of more than a hundred Dow points in thin trading overnight, all but guaranteeing that the broad averages would have to play catch-up on the opening bell.  This is exactly what they’ve been doing for more than two years as the Mother of All Bear Rallies has run its course, but in psychological terms, they don’t seem to be getting as much bang for the buck. There was little joy in Mudville, for one, where a trader quoted by the Wall Street Journal allowed only that stocks were due for a snapback rally. However, he added, “I don’t think one day makes a trend.” For sure. Permabears looking for the dark cloud rather than the silver-flecked lining need only ponder the hourly chart of the E-Mini S&Ps above. Notice how yesterday’s supposed stampede turned docile just inches shy of two important prior peaks.  We’d have been impressed if the rally had gotten past those peaks on the first try, but now they’ll have to try again on Wednesday, presumably with a running start from yet another thinly traded night session. While it

Is the worst of the economic crisis behind us?  We’d have thought answering that question with a resounding “No!” was a no-brainer, especially considering that the Federal Government’s multitrillion dollar attempt at stimulus has barely slowed the collapse of the real estate market, let alone lifted home prices as intended. And yet, when we asked the question at a recent panel discussion on “The Financial System of the Next Decades,” all but a handful of those in the audience raised their hands in assent, apparently in the belief that the U.S. is emerging from, or has emerged from, the Great Recession. We tried a different approach just to make sure: “How many of you think we are still in a financial bubble?” Three people in the audience of about 300 raised their hands.  What’s going on here? We thought only the nation’s newsrooms were oblivious to economic reality, but apparently not. Was this perhaps a roomful of die-hard  CNBC-watchers?  That, too, seemed unlikely, since the audience was comprised mainly of University of Virginia graduates and alumni, not the sort of stock market yobs who can stomach the likes of Jim Cramer. And the panel itself was not exactly a bunch of wild-eyed optimists either. More like a bunch of staid academicians.  It included University president and professor of sociology Teresa A. Sullivan; Prof. William Wilhelm Jr. from UVa.’s McIntire School of Commerce; and Lawrence E. Kochard, chief executive of the school’s Investment Management Company.  In his excellent post-mortem of Lehman's collapse, Prof. Wilhelm noted that, at the time the investment firm went down in flames, it was financing more than 40 percent of its portfolio with debt maturing in two weeks or less. We pointed out that the Federal Reserve is currently far more leveraged than Lehman Brothers ever was,

Because the stock market has just received the kiss of death technically speaking, traders who are looking to get short should view rallies like yesterday’s as a gift.  Notice in the chart below how the S&P 500 exceeded three prior lows without an upward correction. It would have been bearish enough if the selloff had breached only two prior lows, since that is all our proprietary Hidden Pivot Method requires to signal a trend change. But by exceeding a third low for good measure, sellers revealed their eagerness to be out of shares before summer begins.  In the meantime, let’s hope the bullish hubris continues for another day or two, since it could set up the fattest trading opportunity bears might see for a while. (Want to learn how to predict swing highs and lows yourself -- with amazing accuracy? Click here for information about the upcoming Hidden Pivot webinar.  Or here for a free trial subscription to Rick’s Picks, including access to a 24/7 chat room that draws veteran traders from around the world.) According to the Wall Street Journal, stocks rallied yesterday because the economic news was moderately encouraging. We know better, though. It was more a case of the day’s flatulent economic news seeming moderately encouraging because stocks were rallying. The news item of the day -- not counting the salacious one about Rep. Anthony Weiner’s formerly private life (and private parts) -- concerned an unexpected contraction in the trade deficit in April. That’s good news, right?  In fact, the trade deficit declined a whopping 6.7% because Americans are buying a lot less oil. And while that may be good news for the global-warming crowd, it is ominous news for the economy, since it suggests that soaring prices for an essential commodity are beginning to severely impact

[My wife, Marilyn Ackerman, has been raptly absorbed for more than a year in the works of such laissez-faire economists as Smith, Hayek, Mises, Hazlitt and Sowell. She is presently immersed in Rothbard, whose thousand-page tome, Man, Economy and State, she brought with her to my college reunion in Charlottesville last weekend. The blogging side of this quest for knowledge has put her into close contact with college students whose burgeoning interest in libertarian ideas represents a bright spot in the U.S. political scene. Below is her report from the field. RA]. The weekend commentary by Wayne Razzi,  What Are You Going To Do? generated many dismal and depressing posts. It reminded me that neither Wayne nor his tormentors  know what I know, namely that there is currently a rapidly growing movement of young Americans -- on college campuses, no less -- who understand the importance of preserving our liberties and combating tyranny. So, while it may seem to some jaded Rick’s Picks readers that there is nothing we can do about the ebbing away of basic freedoms, there is a whole new generation of liberty-minded young Americans who are not ready concede defeat.  To the contrary, these kids mean business – and they have the smarts and the drive to take on the challenge. One group at the forefront of this movement is Young Americans for Liberty. The group was founded to support Ron Paul’s presidential run in 2008 but has evolved into a fast-growing campus-based entity that gives a home to students who are uncomfortable with the liberal/progressive tone that dominates the academy in most locales. At Colorado State University alone, the figures on participation rose from a piddling three attendees at the first meeting in 2009 to an audience of more than 400 at an appearance by

[Dr. Kurt Richebächer was one of the most visible and vocal proponents of Austrian School economics at the time of his death in 2007.  Eight years earlier, at the height of the dot-com bubble, we interviewed him for the Sunday San Francisco Examiner.  In retrospect, the economic problems that he believed threatened the global economy were small and relatively manageable back then. The same problems are of course still with us, and Richebächer undoubtedly would be appalled by the extent to which they have metastasized. Although he spoke of a deflationary collapse in the interview, a close reading of his monthly newsletter from 1997-2002 reveals that he was conflicted on the subject. He used the word “deflation” only rarely during that period, and when he did, his logic became uncharacteristically muddy. Perhaps this is because, in the Austrian scheme of things, spectacular credit blowouts are not supposed to beget deflation, but rather, inflation. Arguably, if he were around today, he would still be uncertain as to which is likely to prevail when the economy finally collapses, as it must.  The interview below appeared in November 1999 under the flippant headline -- not my work, for sure -- “Economic Basics Predict Apocalypse”.  RA] The dismal science will never be the same if Dr. Kurt Richebächer's dire predictions for the global economy should come to pass. The former chief economist and managing partner at Germany's Dresdner Bank says a deflationary collapse lies ahead that will ravage the world's bourses and usher in a dark period of austerity and financial discipline. Probably not one economist in 50 shares his views, at least not publicly. Richebächer, now living in France, says many of his American colleagues have been seduced into ignorance and complicity by Wall Street's billions as well as by their love affair