Commentary for the Week of March 8

With last week’s powerful finishing stroke, the U.S. stock market continued to thumb its nose at reality, rampaging higher on economic news that seems to be getting worse by the day. Around mid-week, readers of the Wall Street Journal could have glimpsed a perfect storm gathering on the horizon.  Numerous articles spread across two inside pages summed up a darkening global economic picture.  We learned that China’s economy is decelerating at a rapid pace, Europe’s is dead on arrival despite blather about further stimulus, and even a lean and muscular Brazil has cut interest rates to get in step with increasingly desperate central banks around the world. In the U.S., a carefully spun recovery story was starting to unravel just in time for the election with warnings that Q2 earnings are going to stink. It would appear that the jobless "recovery" is finally starting to take its toll on consumer spending.  Henry Ford was right after all: business prospers only when companies are hiring workers and paying them well. Meanwhile, so much for the notion that a lean, mean manufacturing sector is going to lead America back to prosperity.  In fact, perhaps for lack of products to sell to the world, the U.S. trade deficit has begun to grow anew. This problem barely gets a mention in the news these days, presumably because other problems, most particularly stagnant U.S. incomes, falling consumer confidence and intractable unemployment seem more immediate and potentially fatal. Through it all, and despite a global picture that is as grim as any we can recall, the Dow Industrials finished the week with a 204-point upstroke that was as blithe as it was bizarre.  Bearish as we’ve been, we saw it coming.  The night before, under the headline “Big Dow Rally Ahead?” Rick’s Picks alluded to a

[The stock market has been so miserably stupid and boring lately that it barely warrants a claim on our attention.   So let’s talk instead about something that truly does matter:  fracking.  I must confess that most of what I knew about this subject came from sources like the Wall Street Journal that are perhaps a little too friendly toward fracking.  Decidedly un-friendly is one Cliff Willmeng, author of the letter below to the editor of the Colorado Hometown Weekly. I am republishing it for two reasons: to alert those of you who were as ignorant as I was to the risks of fracking; and to elicit the usual, spirited discussion from readers. Also, for counterpoint, here’s a link to a strongly pro-fracking piece that I found online.  RA] I would like to write in regard to the topic of hydraulic fracturing that is bearing a weight down on Boulder County, its neighbors to the north and east, and on Lafayette. The practice of fracking is an industrial activity that uses more than 600 chemicals, millions of gallons of water, and utilizes the air around wells as a dumping ground for volatile organic compounds such as benzene, a known cancer causing agent. The oil and gas companies are using the state government as a proxy to push this practice into communities across the front range. Boulder County, and particularly Lafayette and Louisville are the next towns slated for drilling as both lay above the Wattenberg Shale. Fracking is exempt from all major environmental regulation and will pollute our community's air and water to the point where raising families here will become questionable at best. It will lower property values, strain our infrastructure and dismantle the community as we know it, all to make gas companies wealthy. This practice does not belong

[Our good friend Victor R. is finding it increasingly difficult to sell things online and at garage sales.  Could it be because everyone has turned seller in order to pay some bills? RA] The media frequently report the chronic disappointment of the political elites that the economy isn’t rebounding.  Is this perhaps because people with different incomes see the economy differently?  The simple fact is that people buy less if they are jobless or working part time.  These days, quite a few of them , including those The Government would count  as employed, are seeking additional sources of income. It may be all the same to the Labor Department’s statisticians whether the economy is creating full-time or part-time jobs, but the latter don’t put much spending money in the hands of those who hold them. Buying power is something that those who work full-time with benefits and some sense of security possess.  Those are the jobs we all want, because they amount to a career. For everyone else, needing to make ends meet leaves one scrambling for other sources of income.  Holding garage sales or selling things on eBay are popular ways to go.  I have experience in both, as a garage-sale seller and the eBay seller. As a garage sale veteran, I have noted patterns of buyers who can be grouped into four waves.  If the sale starts at 9 a.m. the first wave is there and raring to go a half-hour early. When the clock strikes 9:00, they give the merchandise a once-over in less than a minute, then they either leave or make a low bid on one item.  These early birds are the eBay buyers, and they know exactly what they’re looking for and nothing else.  After them comes a second wave of buyers -- dedicated

Savers and retirees aren’t the only ones getting screwed by interest rates that have been artificially suppressed by central banks around the world.  These days, banks themselves are finding it increasingly difficult to earn even a nominal return on instruments they consider safe. Just last week, Denmark’s Nationalbanken set its deposit rate below zero for the first time, effectively charging commercial banks and others a fee for parking their surpluses in krones. There are numerous reasons why the krone would be a magnet for idle money. For one, Denmark’s economy is among the strongest in Europe. Also, because Danes rejected euro-zone membership in 2000, they enjoy a degree of political and economic autonomy that their neighbors do not have. This will presumably make Denmark less susceptible to the shock waves that follow the inevitable implosion of Greece, Spain, Italy et al. Small wonder, then, that the global stewards of OPM would consider the krone a safe haven even though it now guarantees them at least a small loss on their money. From Denmark’s standpoint, the decision to follow the European Central Bank’s latest rate cut was unavoidable. The alternative would have been to sit idly by as the krone appreciated, hobbling the country’s exports and destabilizing its balance sheet. Meanwhile, those who have been predicting hyperinflation should have noticed by now that the trillions of euros that have been injected into the banking system are having the opposite effect. For in fact, all those euros have merely weighed down the return on capital with a mountain of liquidity for which there has been no market demand. Moreover, as benchmark rates around the world sink below zero, the U.S. Fed’s vital objective of managing (i.e., promoting)  inflationary expectations lies nakedly exposed as a failure. Under the circumstances, the odds of inducing

How much higher might Europe’s latest dog-and-pony show push stocks, bullion and oil? All three soared on news last week that bailout funds can now be plowed directly into sovereign debt without the pretense that the money be used to stimulate “growth.”  It’s tempting to say that the markets got it right, discounting Europe’s apparent lurch toward promiscuous, no-strings-attached, American-style monetization.  That would surely be inflationary, right?  In theory, yes. By threatening to walk if Merkel didn’t roll over, Spain and Italy have indeed set the European Central Bank on course to promote a credit blowout whose magnitude would be unprecedented for Europe. Trouble is, this approach wouldn’t be the brazen, hairy-knuckled sort of monetization that Helicopter Ben has used -- not without some success -- to inflate U.S. stock prices. Instead, a substantial portion of the eurofunds would come from actual lenders and not be pulled from thin air as is the Fed’s custom. To underscore the formality of the process itself, it was agreed that the eurofunds will not subordinate private creditors. This amounts to pre-emptive riot control, since private lenders will be able to fall back on the provision without fear of being laughed out of court. (Or do we believe that the Powers That Be would sit idly by as Spain and Italy -- is it too early to mention France? -- go down the tubes before allowing lenders to get stiffed.) So, does Europe’s decision to put Spanish fly in the punch bowl warrant an inflationary explosion in bullion, stocks and energy prices? We think not, mainly because the region long ago passed the point where it can hope to inflate much of anything, even by pumping a trillion euros into the financial system. Try as they might at this, Europe’s economy has begun to

Explosive rallies like the one we saw on Friday are opportunistic, launched to milk the last ounce of buying power from ostensibly positive news – in this case, word that Europe had come up with yet another plan to deal with its financial crisis.  Of course, the very word “milk” implies that there were agents working behind the scenes to stage-manage the rally. This is not exactly correct, although it is close enough to the truth to stand scrutiny. Here’s how it works. Although we all “know” that Europe cannot possibly grow its way out of its mess, and that sooner or later the euro currency system will unravel, the mere pretense of doing something about it will always be sufficient to buy more time, at least until the day arrives that the system actually does fail. This means that those who have bet on the collapse of the banking system will continue to lose money until the day they are right, but not before. And while that day may seem inevitable to many of us, betting on it – especially with put options whose value decays with each passing week -- presupposes a gift for timing that few humans possess. Indeed, it’s possible that perfunctory bailouts of no real consequence could keep the markets afloat for yet more months or years, if not indefinitely. This prospect should not seem farfetched to anyone who has watched the cycles of feigned hopefulness alternate with periods of disappointment and despair. In the lingo of chartists, we might say that waves of mass psychology have been “trading in a range.” Looking at it from the technical side, these spectacular rallies occur simply because those who make their living by taking the other side of them step away whenever a stampede of buyers, including

Recall that a little more than a week ago, in a headline atop one of these commentaries, we invited you to “Join Us as We Short Every Stupid Rally.” And why not?  Stocks are probably in a bear market now, and making money on the short side should be as easy as stringing beads, right? Well, not exactly.  In the several years that have passed since we last experienced a full-blown bear, we’d forgotten how devious he can be. Expecting the worst, we somehow still put out advice to Rick’s Picks subscribers Wednesday night that had them looking for a last-gasp rally to get short. We even gave them a go-ahead to get long cautiously, based on a buy signal in the E-Mini S&Ps that had been triggered a day earlier. When stocks opened Thursday morning, however, what we saw instead was a 170-point collapse in the Dow on news that the Supreme Court had upheld Obamacare.  The funny thing is, even bears who stuck to their guns could have lost money, since stocks came roaring back in the final hour. Of course, all of this was stage-managed by institutional traders who make their living stealing from widows and pensioners, front-running their own customers and deftly exploiting fear and panic that they themselves have helped to incite. In this case, They pulled the rug at the opening, even knowing that the Supreme Court’s ruling seems likely to whip anti-Obama sentiment into a frenzy, sparing us four more years of the most rabidly anti-business President in U.S. history. Investors seem to have figured this out for themselves, and by day’s end they'd pushed the Dow back to nearly even at the bell. For DaBoyz, meanwhile, exploiting the 350-point swoon was all in a day’s work. Too, Too Scary So where does

Those who have witnessed the epic fire in Colorado Springs’ Waldo Canyon say it looks like something out of a disaster films. “It’s  surreal,” said Gov. John Hickenlooper in an interview at-the-scene with NBC News. Behind him, monstrous flames leaped skyward, spreading through the hills at speeds that threatened to overwhelm firefighting crews at any moment. They are tasked with triaging rescue efforts, saving homes that look savable while letting others too far gone burn to the ground. Winds as high as 65 mph made their success unpredictable, and so far the fire is only 5% contained. Some who watched from lower elevations could see their homes burning, while others could only speculate. And pray.  So far, 32,000 people have been evacuated, including students and faculty at the Air Force Academy. Some popular tourist attractions are gone, including the Flying W Ranch, where millions of visitors, including your editor, enjoyed chuckwagon dinners and cowboy music since the early 1950s. Here in Boulder, a hundred miles to the north, the so-called Flagstaff fire threatened to inundate houses and forested hillsides, although only 28 dwellings are currently under evacuation orders. Pre-evacuation notices have gone out to hundreds more residents who will at least have time to pack up essentials and valuables if their worst fears should materialize. Thundershowers and light rain on Wednesday afternoon raised the humidity slightly, but they were accompanied by lightning that sparked some small fires. Fortunately, they were quickly extinguished, but winds were expected to persist and the sun to shine on Thursday. With record-breaking 100-degree heat as a backdrop and more of the same on the way, firefighters will have their work cut out for them as the weekend approaches. Meanwhile, heroic efforts were starting to pay off in the battle to contain the High Park fire

So engrossed were we in dissing Facebook’s IPO that we almost failed to notice that the stock had recouped nearly 40 percent of the losses it suffered after mid-May’s abortive IPO.  FB opened that day at $42 and shot up to $45 momentarily before embarking on a three-week dirge down to 25.52.  That low was hit on June 6, but the shares have since perked up a tad, hitting a recovery high of 33.45 last week.  On Wall Street, where too much of a bad thing can hold perverse enticement for opportunity-starved investors, perhaps all that was needed to attract a new wave of buyers was a little bad publicity. That, the company has gottern in spades.  First came the fallout from the IPO itself.  Investors are claiming $500 million in losses caused by glitches in Nasdaq’s order system. Some who bought the stock that day may wish they hadn’t, but it’ll be interesting to see whether the size of their claims shrinks or grows as Facebook creeps back toward its IPO price, as seems possible. Other, recent news stories have reflected poorly on Facebook’s business model, which entails gathering as much intelligence as it can on 900 million users and selling said data to advertisers. Nothing wrong with that, of course -- asssuming that the fact-gathering is on the up-and-up and the information is not abused. Unfortunately, Facebook has flunked on both counts, and badly. A couple of weeks ago, there was the widely circulated story about a web surfer, Nick Bergus, who stumbled on a 55-gallon vat of sexual lubricant for sale on Amazon.  Bergus posted a link to the item’s Amazon Facebook page and jokingly inserted the caption: “For Valentine’s Day. And every day. For the rest of your life.”  Amazon took Bergus’s “endorsement” and ran with