A Sad Day
No. I do not refer to the devestating effect of Hurricane Wilma. Nor the defeat of the Boston Red Sox, New York Yankees, St. Louis Cardinals or the abomidnable Anaheim Angels. I am referring to the President's nomination of Ben Bernanke to be the next Chairman of the US Federal Reserve.
It is hard to imagine a worse candidate, at least from the list of likely nominees. Coming on the heels (no pun intended) of Supreme Court Justice nominee Harriet Miers, one has to wonder what has taken hold of our Commander-in-Chief. First of all, Mr. Bernanke's comments regarding preventing deflation that "we can take comfort that the logic of the printing press example must assert itself, and sufficient injections of capital will ultimately always reverse a deflation." do not inspire confidence. You can find the entire speech here: Bernanke deflation speech. Sober words from an individual committed to the integrity of the US dollar. Secondly, anyone who has a doctorate from Harvard has to be suspect, since it is doubtful that they have any "real-world" experience. Finally, my impression (which is not really worth much, but here it is anyway) is that this is another instance of a leader (our President), under pressure, retreating to the comfort of known quantities in close comrades (read sycophants). Not only does this not bode well for George Bush's second term, it does not augur well for our Republic. George Bush missed a generational, maybe even epochal, opportunity to shape the highest court in the land and has now missed a pivotal chance to steer our economic future toward a day when the dollar was grounded in solid, objective value (read gold or some other material resistant to debasement) and our resulting finance, both public and private, was predicated upon sound principles of propriety and thrift. Instead, we will get what we, as a people, deserve. That is a dollar which is worth half of its present value (if we are lucky) and a "lost generation", who will experience wrenching reductions in standard of living. While I suspect that Chairman Bernanke's tenure will be short-lived, its impact will be far-reaching and of impressive longevity. "What are you talking about?!", many are no doubt yelling at this point (if anyone was actually reading this blog).
In plain terms, the future holds a series of unfolding crises which will likely plague us for the next generation, as the last generation has been surprisingly benign and unexpectedly resilient in the face of numerous challenges. In even simpler terms, while the last 20 years or so has seen virtually nothing go wrong (with a few relatively minor exceptions), the next 20 years or so is likely to see nothing "work right", no matter how hard we try. Instead of the US dollar appreciating 200+% as it has since Nixon put the final stake in the heart of the gold standard, we will likely see a 50+% loss in the value of the US Dollar. Instead of the DJIA moving from less than 600 to over 10,000, we will see stocks lose more than half of their "value", possibly much, much more, if the wrong policy choices are made (with Mr. Bernanke's nomination, I have faith that they will be). Gold, contrary to the expectation of my fellow super-bears, will likely see a nauseating slide followed by a dizzying rally to new heights (yes, I recognize that this implies a gold price denominated in quadruple digits). Oil will probably see a similar roller coaster ride (at least in dollars), as it inevitably will be traded in currencies other than the US Dollar. Other commodities will probably see similar wild oscillations in price.
In the short term, we are in the midst of a short-term rally. How far will it go? The market will ultimately answer that question, but there are some key levels to watch and basically, those are the levels that we are at now. It would be reasonable for the rally to pause here and collect itself for an ultimate run to higher highs. We had a valid follow-through day on good volume last week, so the best strategy is probably to sit tight and watch the nature of any correction. Shallow, low-volume down days could lead to bullish set-ups, while any sell-off on good volume would doom this rally. Higher interest rates should be deadly to any rally, according to theory, but with the modest speed that rates are increasing, the yield curve could stay positive a while longer and extend stocks rally. So it is probably wise to cover any shorts and stay on the sidelines, with the execption of the homebuilders, whose participation has so far been limited in this rally. Again, higher rates are theoretically bad news for builders, but theory always needs to take a back seat to market action, so stay tuned to volume and momentum in these stocks. But the most negative indicator for this sector is the trend, as measured by the moving averages. Most of the homebuilding stocks are trading below their 50-day MA, with many below the 200-day MA. While any of these stocks could rally at any moment from oversold levels, under no circumstances should anyone be long these stocks.
It is hard to imagine a worse candidate, at least from the list of likely nominees. Coming on the heels (no pun intended) of Supreme Court Justice nominee Harriet Miers, one has to wonder what has taken hold of our Commander-in-Chief. First of all, Mr. Bernanke's comments regarding preventing deflation that "we can take comfort that the logic of the printing press example must assert itself, and sufficient injections of capital will ultimately always reverse a deflation." do not inspire confidence. You can find the entire speech here: Bernanke deflation speech. Sober words from an individual committed to the integrity of the US dollar. Secondly, anyone who has a doctorate from Harvard has to be suspect, since it is doubtful that they have any "real-world" experience. Finally, my impression (which is not really worth much, but here it is anyway) is that this is another instance of a leader (our President), under pressure, retreating to the comfort of known quantities in close comrades (read sycophants). Not only does this not bode well for George Bush's second term, it does not augur well for our Republic. George Bush missed a generational, maybe even epochal, opportunity to shape the highest court in the land and has now missed a pivotal chance to steer our economic future toward a day when the dollar was grounded in solid, objective value (read gold or some other material resistant to debasement) and our resulting finance, both public and private, was predicated upon sound principles of propriety and thrift. Instead, we will get what we, as a people, deserve. That is a dollar which is worth half of its present value (if we are lucky) and a "lost generation", who will experience wrenching reductions in standard of living. While I suspect that Chairman Bernanke's tenure will be short-lived, its impact will be far-reaching and of impressive longevity. "What are you talking about?!", many are no doubt yelling at this point (if anyone was actually reading this blog).
In plain terms, the future holds a series of unfolding crises which will likely plague us for the next generation, as the last generation has been surprisingly benign and unexpectedly resilient in the face of numerous challenges. In even simpler terms, while the last 20 years or so has seen virtually nothing go wrong (with a few relatively minor exceptions), the next 20 years or so is likely to see nothing "work right", no matter how hard we try. Instead of the US dollar appreciating 200+% as it has since Nixon put the final stake in the heart of the gold standard, we will likely see a 50+% loss in the value of the US Dollar. Instead of the DJIA moving from less than 600 to over 10,000, we will see stocks lose more than half of their "value", possibly much, much more, if the wrong policy choices are made (with Mr. Bernanke's nomination, I have faith that they will be). Gold, contrary to the expectation of my fellow super-bears, will likely see a nauseating slide followed by a dizzying rally to new heights (yes, I recognize that this implies a gold price denominated in quadruple digits). Oil will probably see a similar roller coaster ride (at least in dollars), as it inevitably will be traded in currencies other than the US Dollar. Other commodities will probably see similar wild oscillations in price.
In the short term, we are in the midst of a short-term rally. How far will it go? The market will ultimately answer that question, but there are some key levels to watch and basically, those are the levels that we are at now. It would be reasonable for the rally to pause here and collect itself for an ultimate run to higher highs. We had a valid follow-through day on good volume last week, so the best strategy is probably to sit tight and watch the nature of any correction. Shallow, low-volume down days could lead to bullish set-ups, while any sell-off on good volume would doom this rally. Higher interest rates should be deadly to any rally, according to theory, but with the modest speed that rates are increasing, the yield curve could stay positive a while longer and extend stocks rally. So it is probably wise to cover any shorts and stay on the sidelines, with the execption of the homebuilders, whose participation has so far been limited in this rally. Again, higher rates are theoretically bad news for builders, but theory always needs to take a back seat to market action, so stay tuned to volume and momentum in these stocks. But the most negative indicator for this sector is the trend, as measured by the moving averages. Most of the homebuilding stocks are trading below their 50-day MA, with many below the 200-day MA. While any of these stocks could rally at any moment from oversold levels, under no circumstances should anyone be long these stocks.
posted by Matt Butler at 7:40 PM
1 comments
