Fed Sees No Recovery in 2009

Here’s a fun tidbit from our friends at the Federal Reserve, out economy is not going to be getting any better this year. When last they spoke (oh, gosh, must have been.. four weeks ago) they said that the best we could hope for would be an economic recovery in late 2009. Now they’ve since come out and said that we would see no recovery this year.

Hmmm. Well if that’s the case, why is the government spending all of this money to “stimulate” the economy and bail people out? Was that to speed us to a swift recovery? Now I understand that back before the days of the Fed, when downturns or banking panics would happen, that they might take a year or so to work themselves out. The Panic of 1907 took less than a year. The Panic of 1893 didn’t see the market bottom for more than a couple of years. But that was back in the economic dark ages. Back when our money was backed by gold and we didn’t have sage bureaucrats or wise central bankers ready to print money at the drop of a hat (roughly $13 trillion and counting according to Bloomberg) to bail everyone out. Why, wasn’t the whole reason for all of this stimulus and bailout so that we wouldn’t have to far a protracted economic downturn?

Well, that was the justification given for it anyway. Liquidation doesn’t work is what Ben Bernanke told us, it just makes things worse. So instead let’s bail out the troubled economic actors and get back on the road to a quick recovery. The Fed is now admitting that this recovery of there’s is not going to come quickly. In fact, in comparing the amount of time old style economic liquidations used to take compared to take, the post economic recoveries of the Fed era seem to take quite a bit longer. As I discuss in my book, when you compare the economic history of the pre-Federal Reserve era to what took place after the Fed, it’s pretty clear that we went from an era of frequent economic panics to infrequent economic collapses. That suggests that all the Fed is doing is to postpone an economic downturn until later, but at the cost of greatly adding to its length. Which isn’t really all that great of a service to society when you think about it? Continue reading Fed Sees No Recovery in 2009

Liquidation Returns to the Stock Market

“Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate … It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people.”

That statement was reportedly attributed to Andrew W. Mellon, Secretary of the Treasury under Herbert Hoover. October has historically been a horrible month for stocks, but it seems that this November is moving stocks even lower. Today, the Dow and S&P both closed at five-year lows. I was lucky to actually not lose much at all; Barrick Gold (ticker symbol=ABX) closed up .33%. Big relief for me, actually. For the last couple of months, it seemed Barrick has been performing at multiples of the stock market: the market would move one way 5%, and Barrick would move the same way 10%. Today, the Dow closed down 5.1%, but Barrick finished up. I find that very encouraging. To me, it seems like gold and gold miners are starting to divorce themselves from the larger market.

Gold has traditionally been a safe haven in troubled times, and any step back in that direction makes the market seem more sane to me. The month of October saw a lot of good stocks and assets being liquidated with the bad as hedge funds had to meet margin calls. Rumor also has it that banks flooded the COMEX with paper gold sales in an effort to raise money, in the hopes that they wouldn’t have to make physical delivery. Today, the COMEX spot price of gold itself was essentially unchanged on a day of rather pronounced liquidation. Citigroup, by comparison example, declined 23%.

It also makes sense that on a day when stocks are seeing a huge sell-off, just after the Fed hints that it’s about to lower interest rates again to less than 1%, that gold would start to rally. And I’m all for returning to a market that actually makes sense to me as opposed to the month of October, where everything fell but the dollar during a time when the dollar was being printed at the largest quantity in history. If this turns out to be a bottom for COMEX paper gold and Barrick stock, then it will make for a very happy holiday season for me.

The above reasons to rally in gold are not even counting the amount of new Socialist policies that have the potential to be introduced in the next two years under the Obama administration. And speaking of Socialist policies — whatever happened to the TARP bailout? You remember — that bailout Bush, Bernanke, and Paulson were telling us were necessary to buy up all the troubled assets on bank balance sheets? Except, it turns out that none of the money apportioned to do so actually went to buying up troubled assets. Which was … y’know … the whole justification for the program to begin with.

Why, I remember way back in the far-off days of last month when the whole justification for the bailout was that the taxpayers would show a profit by buying these troubled assets. Oh, well. You can’t trust the government to actually use the money they raised for the program on which they claimed the money was to be spent.

You heard it here first folks.