Commentary for the Week of March 8

“Helicopter Ben” Bernanke took such a drubbing in the Rick’s Picks forum yesterday that we thought we’d jump off the beaten path to offer a few uncharacteristic words in his defense.  As forum regular Gary Leibowitz noted, going after the guy is “a natural emotional response during times like this. The frustration level is at an extreme. Rationally, how can anyone blame Bernanke for doing his job? There will never ever be a single person in such an important role that would do otherwise,” wrote Leibowitz. “Not a one. Imagine if you were placed in his position and actually had total control in implementing any and everything you think up. What exactly would you do different? Allow all the banks and financial engines to fail? Yeah that might feel good for the moment but what would be the result?” In our heart of hearts, we’d have to agree. Had we been chosen as “Easy Al” Greenspan’s ill-fated successor, we’d probably have made all of the same mistakes that Mr. Bernanke has made – even knowing full well that they were mistakes. We’d have bailed out the banks by taking all that bad mortgage paper off their hands. We’d have done whatever it bloody well took to keep the assembly lines rolling in Detroit and Dearborn. And we’d have doled out hundreds of billions of dollars for road projects, transit systems, lab equipment and teachers’ salaries. After all, what’s the alternative? Only One Remedy From a purely economic standpoint, there is and always has been just one remedy for the very dire straits we are in:  Let the economy crash, let the banks fail; and let every state, county and municipality fend for itself, even if they have to go bankrupt to jettison pension obligations that are guaranteed to crush as

(Today’s commentary, from our friend Steven George Fair, a frequent contributor to the Rick’s Picks forum, dares to challenge the ivory-tower qualifications of Ben Bernanke to run the U.S. economy from his aerie at the Federal Reserve.  Sure, Steven’s just blowing off steam --but we’re letting him do it here because it’s so obvious that Mr. Bernanke,  for all of his academic accomplishments, has so badly botched his mandate to keep the money system stable that the U.S. economy may not get out alive. RA) Resume of Ben Bernanke Federal Reserve System 2005-2006    Chairman of the U.S. President’s Council of Economic Advisers 2002-2005     Board of Governors of the Federal Reserve System 1990-2002     Member of the Academic Advisory Panel 1987-1989      Visiting Scholar, Philadelphia 1989-1990     Visiting Scholar, Boston 1990-1991, 1994-1996    Visiting Scholar, New York Teaching 1996-2002   Chairman, Princeton Dept. of Economics 1985-2002   Professor of Economics and Public Affairs, Stanford 1983-1985   Associate Professor of Economics, Stanford 1979-1983   Assistant Professor of Economics, NYU Department of Economics 1989-1990, 1993 Visiting Professor of Economics Education, MIT Education 1979    Ph.D. in Economics, Harvard 1975        B.A. in Economics, Summa Cum Laude, Harvard Awards and Achievements Harvard:  Best undergraduate economics thesis; outstanding senior in the Economics Department.  Guggenheim fellowship. Sloan fellowship. High school valedictorian. Received a 1590 out of 1600 on the SAT.  Self-taught calculus. South Carolina state spelling bee winner. Books Authored: Essays on the Great Depression; Macroeconomics textbook; Principles of Economics; Principles of Microeconomics; Monetary Policy Alternatives at the Zero Bound: An Empirical Assessment. ***** All Theory, No Experience Our Fed chairman is certainly no slouch, as his resume makes clear. No one would dare question the intellect of the man.  No one would dare challenge his education under the cadre of theory-producing progressive think-tanks. But what do we really have from Ben Bernanke other

With China’s central bank in tightening mode, the bad guys had their best chance in months to knock down the price of gold last week. Their best efforts proved feeble, however:  When the dust had settled, gold quotes were down just five percent from the record $1388 peak recorded on October 14.  And although Silver fared somewhat worse, falling eight percent over the last seven days, even in the throes of this relative weakness, Comex futures resisted getting shoved lower for more than a single day at a time.  “Up” days alternated with “down” days, suggesting that the playground bullies of the precious metals world – i.e., Fed-sanctioned bullion bankers -- were having trouble suppressing the price of precious metals, gold in particular.  Indeed, if last week’s moderate decline was the worst damage they could inflict on bullion when the news was on their side, then we shouldn’t doubt that precious-metal prices will soon be bounding higher once again. The announcement last week that China’s central bank would boost the yuan lending rate by 25 basis points was like a kick in the teeth to global markets that had been wafting blithely skyward on the prospect of perpetual global easing. China has good reason to shun the party, however, since, even in weak fiscal quarters, GDP growth is running at eight percent or better. Last week’s announcement was an attempt to rein in speculation and to quiet inflation, and it should have surprised no one that bourses around the world reacted hysterically, as is their entrenched habit even when the news is stale from anticipation. This time the dollar’s response was worse than merely hysterical, however, since the greenback initially rose sharply on news that should have caused it to fall (i.e., stronger yuan = weaker dollar).  Go figure --

(Because it drew such a heavy response in the forum, the commentary below was originally scheduled to run on Wednesday for a second consecutive day.  However, I went with a market-related commentary instead because of the large moves in bullion and the broad averages that had occurred the day before. RA)  Here in Colorado, it’s especially difficult to escape the vitriol and mudslinging of Campaign 2010. The closely watched Senatorial race between Democrat Michael Bennett and Republican Ken Buck has attracted a torrent of out-of-state money, and it sometimes seems as though all of it, a reported $750,000 a day, is being used to finance the attack ads that have come to dominate the local airwaves. Elsewhere in the country, it’s the same unpretty story -- no doubt in part because Democratic candidates would rather not talk about, much less defend, President Obama’s heavy-handed initiatives. Thus, in the last few days alone do we find one Republican smeared with the charge of rape, and another, Rand Paul, accused of having tied up a woman 30 years ago and commanding her to worship a false idol. If you’ve been following the news, you know we didn’t make this up. Even the President got into the suppurating spirit of things recently, accusing the U.S. Chamber of Commerce of taking foreign money to back right-leaning candidates.  But even the New York Times wasn’t buying it -- nor, apparently, was anyone else -- and it now appears the mainstream news media is simply going to let the issue die before their Anointed One makes even more of a fool of himself.  And yet, putting aside all of this toxic sludge, we find ourselves positively excited about the possibility that there is a revolution brewing and that actual political change may occur as a result of the

Let’s see if we understand yesterday’s earth-rumbling response to China’s 25 basis-point increase in a yuan lending rate. For starters, the dollar had its biggest one-day rally since August (which, to remind you, went nowhere; the dollar wafted slightly higher, then scuddled sideways for nearly a month before resuming its long-term bear market). Another effect of China’s decidedly un-momentous change, which supposedly was aimed at damping real estate speculation and inflation, was that bullion had its worst day in recent memory.  Comex Gold and Silver futures contracts were down nearly three percent, and there was little evidence at the bell that bullion’s inevitable rebound was immediately imminent. And, finally, we saw the heaviest selling of equity shares in more than two months, with the Dow Industrials down 226 points at their intraday lows. Does all of this mean anything?  In a word, no. China’s modest rate hike did not change any global paradigms, and gold and silver most assuredly are not anticipating a shift toward austerity by those drunken sailors of our economic lives, the central banks.  As for the dollar, there was talk that its big rally represented the flight of capital into the safe haven of cash.  But if  that is so, why did that other treacherously overrated “safe haven” – i.e., U.S. Treasury bonds – not come along for the ride?  December T-Bond futures were in fact up a whopping nine ticks, reflecting no appreciable surge in fear, nor any increase in the demand for “safety,” even when attached to a nominal yield.  Shouldn’t the Dollar Have Fallen? One is tempted to say the whole investment world got it wrong yesterday, and that the dollar should logically have fallen on news of an increase in Chinese lending rates.  That the greenback moved the “wrong” way is akin to

Here in Colorado, it’s especially difficult to escape the vitriol and mudslinging of Campaign 2010. The closely watched Senatorial race between Democrat Michael Bennett and Republican Ken Buck has attracted a torrent of out-of-state money, and it sometimes seems as though all of it, a reported $750,000 a day, is being used to finance the attack ads that have come to dominate the local airwaves. Elsewhere in the country, it’s the same unpretty story -- no doubt in part because Democratic candidates would rather not talk about, much less defend, President Obama’s heavy-handed initiatives. Thus, in the last few days alone do we find one Republican smeared with the charge of rape, and another, Rand Paul, accused of having tied up a woman 30 years ago and commanding her to worship a false idol. If you’ve been following the news, you know we didn’t make this up. Even the President got into the slimy, suppurating spirit of things recently, accusing the U.S. Chamber of Commerce of taking foreign money to back right-leaning candidates.  But even the New York Times wasn’t buying it -- nor, apparently, was anyone else -- and it now appears the mainstream news media is simply going to let the issue die before their Anointed One makes even more of a fool of himself. And yet, putting aside all of this toxic sludge, we find ourselves positively excited about the possibility there's a revolution brewing and that actual political change could occur as a result of the election.  Yes, we know, it doesn’t much matter whether the country elects Republicans or Democrats -- the long-term results will always be roughly the same.  But when we talk about revolution, it has less to do with changes in the political make-up of the House and Senate than with vastly larger changes

(Are stocks and Treasury bonds w-a-a-y too revved-up over the prospect of more quantitative easing?  Our good friend Doug B. thinks so, and he is predicting that it’s all about to end badly for the bulls. Americans are about to experience a collapse in the standard of living, says Doug, and there is nothing we can do about it. The good news is that the pain and sacrifice that lie ahead will allow us to rebuild a balance sheet that has left the nation asphyxiated by debt.  A financial advisor based in Boulder, Colorado, Doug is a disciple of the legendary Bob Farrell and an occasional contributor to Rick’s Picks. He is an outside-of-the-box thinker who has gotten the big trends right over the decade we have known him. In the essay below, he builds his argument one brick at a time with “gozinta” and “gozouta” -- sophisticated accounting terms representing the generic sum of all inputs into an entity and the generic sum of all outputs from that same entity.  RA)  I have two long held and very strong opinions -- one about the stock market and the other about the Treasury bond market. I believe that, before the secular bear market in stocks that began in 2000 runs its course, we will be lucky if we do not achieve lower valuation levels than were typical of previous secular bear market lows. That implies a 6% dividend yield and a P/E multiple of eight on the S&P 500. (And I mean the index as a whole -- more on that later.)  In addition, I believe that the Great Bull Market in bonds, which began in 1981, will end in parabolic fashion. The consensus will believe that inflation is off the table for at least a generation and deflation is

Stocks and bullion are moving so closely in-step these days that gold bugs may soon find themselves in the uncomfortable position of rooting for higher share prices. For many of them this will be quite a stretch, since gold and silver are popular now mainly because they’re regarded as hedges against the kind of economic disaster that would sink the stock market. To be sure, there are some who see the concurrent strength of shares and bullion as stemming from the same source – namely, inflationary pressures.  The argument is solid and there is no way to refute it, since no one can say exactly why shares are rising.  Whatever the reason, bullion’s ascent is easier to understand:  It is occurring simply because the central banks have been inflating their respective currencies to the point of valuelessness. But while this ever-accelerating process of debasement has the potential to drive precious-metal prices into the ozone, it seems unlikely that share prices would benefit from such a scenario, implying as it does a looming catastrophe for the global economy. What this suggests is that although bullion quotes could conceivably be goosed to the moon if the world’s currency system were to collapse, shares prices could be driven only so high by panic. For in the final analysis, corporate stocks are tethered to the real world of earnings multiples, cash flow, inventory and depreciation in a way that gold and silver are not. And while the imagination can run wild with gold and silver valuations in a world presumed to have lost all trust in paper money, the future value of, say, IBM’s service contracts is going to be limited ultimately by more mundane concerns. Extreme Predictions So, if the stock market were to plummet, do we expect gold and silver prices fall