Saturday, November 24, 2007

Bernanke, the Sheep Herder

Through the ages we have had Sages that could read the future from animal entrails. Bernanke does a pretty good job at this, it’s an acquired skill, learn as you go, and go with the flow. If you are not sure, be vague.

There is only one problem. Things are beginning to go wrong and Bernanke is being blamed. That doesn’t make much sense. His interpretation of goat entrails or what ever, is a defined process and hasn’t changed much. The joke is the suggestion that this guy even belongs in the loop. As long as economy was running OK, there was no problem, his wisdom was unquestioned. Now, that things are off course, Bernanke seems to be the guy that could have saved us, if he had only read the entrails correctly.

Today’s new stock trader has been brought up on the idea of the Feds are in control. These "couch experts" are afraid to even question that premise for fear of appearing uneducated or over medicated. You hear a statement that the Feds are pumping liquidity to the banking system. Ask anyone jumping up and down, what that means, or who gets the money, they haven’t got a clue. The visual abstraction of pumping money into anything is kind of vague. You are left with the feeling that things are under control. The Feds supply the who, what, why, when and where, but you can’t drive there. Useless information that's suppose to mean something to everyone!

It’s kind of like your daughter going out on a date, and you ask what they did. The reply, “We went to the movies.” That’s all fine and dandy, until the hotel calls up and says they forgot to pay for the porn movie rental. In this case, the "pumping" is more a visual than an abstraction.

The dollar is dropping in value, and the interest rate on T-bills is decreasing. This is the equivalent of losing your brakes and steering while driving down a mountain pass (minor problem). As the dollar depreciates against foreign currencies, foreign capital leaves the country. Interest rates have to rise to attract capital back. Interest rates won't be attractive to foreigners if the dollar is dropping like a Bear Sterns CDO (the new Confederate Dollar). The odd thing is that "scared money" wants to be in T-bills for security. This is driving rates down. The expected reaction, of interest rates rising, isn't happening. This has to be big. Banks only insure 100K. T-bills insure every depositer. A rich man doesn’t have to stop at 600 banks to insure 60 million. T-bills are the McDonald's equivalent of a drive thru; fast bank insurance, for the super rich.

The only thing that can be deduced from the market right now, is that Economics 101 is not functioning as expected. Business models are falling apart. The estimates as to how bad things are, have doubled in size in the span of three months.

All of this money that has been lost, it doesn’t belong to anyone. It kind of makes you wonder if Bernanke and Company are rewriting our fairy tales for Christmas. Put some "Christmas Cheer" in your tank while you drive your Hummer to the Poor House, stop by Star-sawbucks and order up a "Bernanke Latte" (Ethanol, no cream).


Tom said...

Great post as usual Jim and thanks for your continued effort sidelining this "human-natural-disaster" that children of today will be reading about for many years to come.

"That’s all fine and dandy, until the hotel calls up and says they forgot to pay for the porn movie rental." Curious, what was the title of the flick Jim?

Seriously though, when all is said and done please compile your thoughts and write a book. I will be one of the first to buy as I'm sure is will be a page turner.


Anonymous said...

If Tom is the first to buy your book, then I`ll be the second!

Jim in San Marcos said...

Thank you both. You are very kind. It takes me several hours to compose one post, so a book would be a life sentence with no parole.

newquest said...

very interesting,I have been thinking the same thing, as the foreign buyers of our tbills begin to understand that we have no intention whatsoever of ever paying back our debt then they will pull out and the fed will have to raise interest rates rapidly and how Mr. Depression will that leave the already depressed real estate market? Just like 1930 except with computers, ipods, and SUVs(minus the gas).

Anonymous said...

What if our dollar does a "russian ruble" swan dive, could it still turn out to be a "pennies on the dollar" buyout of properties like in the depression?
Yes, I know, I`m playing the "what if" game, it`s just that the Fed seems as if they are never going to defend the dollar. Maybe they can`t defend the dollar, I don`t know.

Jim in San Marcos said...

Hi Anon 6:00

I think that every currency is guilty of overprinting. So this will affect every country.

At some point gold has to enter the equation. Otherwise the printing will not stop.