Commentary
Benny
and the
By Gary Tanashian, http://www.biiwii.com March 3, 2007
Finally it is here. Finally the bears get to be right not only on their superior read of macro funnymentals of the debt for consumption global economy, but they are right in practice as well. The complacent and content bulls? They are now neither. You can just feel things changing in a big way, can't you? Various Fed heads got on the stump this week and attempted to calm nerves and rationalize events. Of note was this from gentle Ben: Bernanke says globalization may boost inflation. Here are Ben Bernanke's quotes followed by the interpretations of a lowly skeptical market participant (LSMP) -- apologies in advance to the Mogambo Guru :-) BB: "When the offsetting effects of globalization on the prices of manufactured imports and on energy and commodity prices are considered together, there seems to be little basis for concluding that globalization overall has significantly reduced inflation in the United States in recent years; indeed the opposite may be true" LSMP: Uh oh, this man sees inflation coming. I am not sure what he's driving at just yet but I think he's channeling Greenspan or at least circa 2002 Bernanke. BB: "Empirical studies also find that U.S. monetary policy actions retain a powerful effect on domestic stock prices" LSMP: Greenie has proven again and again this is true. So what's a little shove further out on the precipice of debt and currency devaluation? In fine bullish fashion, we can all happily march forward with money policy the main underpinning of our economy and hence the stock market. BB: "I still think that there's still some overstatement, and Federal Reserve estimates are, depending on the indicator, somewhere between half a percent and a percentage point of overstatement of the inflation rate" LSMP: Yes, you read that right. Mr. Bernanke is saying that the government OVERSTATES inflation! Pssst, the man is telling you something. He's telling you to get ready for some serious inflationary policy to meet any trouble situations (yen carry, mortgage & credit bubble, derivatives, etc.) that lie ahead. It's a Fed shifting into Making sure "it" doesn't happen here mode. Let the rationalization begin. BB: The central bank chief said the Fed finds it difficult to pin down a fixed number for any natural rate of unemployment. "There are a couple of problems that have emerged with using a fixed number like that for analyzing the macro-economy" LSMP: Why should there be any level of unemployment? Only in a bizarro world where too many gainfully employed people spend too much funny munny created out of thin air can this be so. Inflation is the creation of said funny munny after all, not the out of whack prices and costs that result. See this from ESPN: Money flying on first day of free agency. By the way, the Pats are closing in on signing that linebacker they desperately need. BB: Bernanke said that globalization has not "materially affected the ability" of the Fed to influence U.S. financial conditions, "nor has it led to significant changes in the process which determines the U.S. inflation rate." LSMP: We were able to get off the gas while the yen carry conveniently did the heavy lifting for the global inflation economy. Also, the Chinese cannot be expected to continue a regime of ever-increasing claims on our debt notes, but hey good news! We've got interest rates back to a decent level, the choppers are warming up and we can drop our notes at will over the land. And given the stress of late in the markets, you will greet our efforts with thankfulness and good cheer! BB: "Accordingly, in the past several years, the effect of growth in developing economies on commodity prices has been a source of upward pressure on inflation in the United States and other industrial economies" LSMP: Okay, this is getting a bit sublime. Growth in developing countries is responsible for rising commodity prices? What about the massive increase in money supply that keeps the consumer stuffed to the gills with all the things these "developing economies" produce? Which came first, the cart or the horse? The article ends with the usual globalization Koolaid: At the same time, increased trade with China and other developing countries has led to slower growth in the prices of imported manufactured goods, Bernanke said. He cited a study concluding that trade with China alone reduced annual import price inflation in the United States by about 1 percentage point over 1993-2002. The Fed is devoting more resources and time to trying to understand the effect of increased global integration on inflation and the central bank's ability to maintain price stability and ensure low unemployment, Bernanke said. It is possible that trade promotes greater productivity and thus lowers costs, or that global demand influences domestic pricing decisions, but those effects remain to be conclusively shown, he added. Last week was challenging but ultimately quite exciting. That is because we reside at a time where some will make the wrong choices, listen to the wrong interpretations and propaganda and just run with whatever herd seems to be taking the most convenient path. Others will see through the b/s, think for themselves and position accordingly. I noticed that Peter Grandich is out with an article in which he can barely contain his bullishness on gold. He is not fooled. Take a look at this post from the blog: What about the barbarous relic? There are some ratio charts that I use in trying to gauge gold's progress versus other assets, but just click the first chart. It is a simple nominal view of gold. People are getting quite bearish on the one asset that shines in times of a) uncertainty, b) contraction and c) a Fed that is rationalizing its future course in manipulating the money supply. And the fact that so many people seem to be über-bearish at $640 per oz. as Mr. Grandich noted, well... that ain't bearish but it is exactly what Mr. Bernanke needs along with a dropping stock market; he needs to be called to his raison d'être after all. It would be rude to force it upon people. http://www.biiwii.blogspot.com
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