Commentary for the Week of March 8

Although Russia’s move to annex Crimea has the potential to dramatically alter the economic and political landscape of Europe, we’d initially assumed it would elicit only a fleeting yawn from Wall Street. After all, U.S. investors have proven time and again over the last five years that the only news they even remotely care about is whatever drivel happens to be emerging from the pie hole of the Federal Reserve chairman. Now we’re not so sure. Recently, investors seem to have grown schizophrenic. Recall that exactly two weeks ago, the Dow rallied 250 points to begin a new week even though there was no news to suggest Putin would back down. The blue chip index held onto most of that gain until last Thursday, when it dove 300 points. Little had changed in the intervening weeks. Europe and the U.S. were still at a verbal impasse with Putin, who showed no sign of budging, and Crimea itself seemed eager to accede. Stocks Could Struggle Now, with Crimea’s vote over the weekend to join Russia, will the U.S. stock market keep its cool?  We’d bet against it, even though our technical forecast implies that a 1500-point rally in the Dow Industrials will unfold within the year.  It’s too early to throw in the towel on that prediction, especially since last week’s slide barely dented the bullishness of the Dow’s long-term chart. But in the weeks and perhaps even months ahead, we wouldn’t be surprised if U.S. investors show uncharacteristic concern about events in Europe, especially if “Crimea fever” begins to spread to the Balkans and elsewhere . Meanwhile, although probably not one hedge fund manager in ten could locate Ukraine on a map, they’re going to be hearing quite a bit more about the region than they’d care to for the

This is a cautionary tale for anyone who thinks public-private partnerships are a great way to build highways without burdening taxpayers. That’s what Coloradans thought when a $552 million expansion of the 24-mile Boulder-Denver Turnpike got under way two summers ago. The east-west thoroughfare originally opened as a toll road in 1951, but the toll was dropped in 1968 when the bonds were paid off early. Expectations were that U.S. 36 would carry 3,000 cars a day by 1980, but by the mid-1960s daily traffic was averaging nearly five times that. It has since gotten much worse, and currently as many as 124,000 vehicles use the road each day, packed bumper-to-bumper during the commute.  In 2005, U.S. 36 was ranked as the worst “heartburn highway” in the state, based on poor maintenance, congestion and accidents. The solution? A state-of-the-art reconstruction that when completed early in 2015 will be an urban planner’s dream.  The highway will feature a special fast lane for high occupancy vehicles, bus rapid transit service, an electronic toll system for single-occupant cars and a bike path. Sounds like a winner for everyone, right?  Think again. Although the road itself cannot help but improve the flow of traffic, at least for some commuters , the way in which it was approved and financed carries the stench of Tammany Hall. Consider the following: Colorado Senators and Representatives were not allowed to read the secret, 500-page contract with the Australian toll-road developer before it was signed, notwithstanding the fact that it will be in effect for the next 50 years. Neither will they be allowed to amend the contract, nor similar contracts under consideration for the refurbishment of nine other high-speed roads in Colorado. The state is required to compensate the operator if any other roads or new transit systems

Whom would you prefer as U.S. president: Vladimir Putin or Barack Obama?  That’s the topic of the week, and I want you to have fun with it.  And lest you judge Mr. Putin too harshly in the light of current events, consider how President Obama might react if half the population of California were threatening to jettison ties with Washington and unite with Mexico. That’s roughly the problem that Mr. Putin faces in Ukraine, which is verging on civil war over the question of whether the country should scorn Moscow and turn toward Europe. Regardless of whether you believe Putin’s pretext for ordering in the troops (which have yet to fire a shot), there should be little doubt that Obama would do the same thing if pro-Mexico riots were threatening to break out in Los Angeles. Violence aside, the economic consequence of Russia "losing" Ukraine are huge. The country's hopes of becoming economically significant in the world will be dead without the potential contribution of a rejuvenated Ukraine, just as America’s odds of escaping the fatal drag of The Great Recession would sink to zero without California aboard. (Nor would the loss of California’s tax revenues be a small matter for Washington, whose ponderous bloat would not survive such a radical amputation.) Channeling Jonah Hill In the meantime, we have the pathetic spectacle of Mr. Obama and his equally lame Secretary of State telling Putin, in effect, “Hey, that’s a no-no!” If this saga were given a Hollywood treatment, it would feature Obama’s Jonah Hill stepping into a UFC cage with Putin’s Junior Dos Santos.  Although the script would contrive a way for the comically inept Hill to triumph, victory unfortunately is not in the cards for the equally inept Obama.  For in fact, there is nothing the U.S. or

This week’s discussion is wide open to anyone who can shine a positive light on bitcoin, a digitally encrypted, virtual currency whose manic popularity should vex every prudent man.  Bitcoin’s appeal as a speculative trading vehicle is understandable, given that its violent price swings promise huge profits to anyone on the right side of the moves. (And for the record, speaking as a trader, I have only respect and admiration for those who have been able thus far to exploit the hordes of greater fools who have flocked to the game.)  It’s also easy to see why bitcoin would appeal philosophically to those looking for an alternative to sovereign currencies that have been rendered hollow by the Banksters and their political lackeys. But bitcoins as money? This makes no sense to me.  Granted, a peer-to-peer payment system that cuts out the middle man sounds appealing in theory, since, as far as swindlers go, the world’s central banks make Bernie Madoff look like a paragon of rectitude. But why would any business that offers services or products accept payment in bitcoin when the electronic currency’s value could fall by half overnight? Worse has actually occurred. In the last month alone, bitcoin has traded for more than $1000 and less than $100. Even the wackiest Nasdaq stocks never behave that psychotically. Can You Spot a Fake? Just this weekend, one of the busiest bitcoin exchanges, Mt. Gox, based in Japan, was on the verge of collapse due to security problems.  A “transaction malleability” flaw reportedly made it possible for crooks to trick the exchange into double-sending withdrawals. This could be likened to counterfeiting, but with a key difference: While anyone can learn to recognize a counterfeit bill, only a cryptographer can tell fake bitcoin from the real thing.  Merchants use computers to

Spin control cannot conceal the fact that Obamacare is the worst policy disaster in U.S. history. For scores of millions of Americans, the hardship it has already inflicted on them is too acute to assuage, much less refute. It has put a choke hold on the economy the effects of which are being felt by virtually every business and household. That is why mere political debate must soon give way to more urgent measures that will effectively kill the law. If so, it can’t happen soon enough. Healthcare costs consume nearly 20% of the nation’s GDP and are a key concern of every employer. How long can businesses survive the ponderous uncertainties that Obamacare has placed on them?  How long can spending by America’s middle class continue to hold up if household incomes are being depleted by soaring insurance premiums and policies with five-figure deductibles? Given the huge new tax represented by Obamacare and the chaos it has visited on businesses both small and large, it seems inconceivable that the economy will grow in 2014.  If a slowdown is coming, however, the prospect doesn’t appear to be troubling Wall Street’s tiny, fevered brain. Although the Dow Average got off to a horrendous start in 2014, dropping 1248 points in the first five weeks, two-thirds of that has been recouped in the last eight trading days. This was to be expected, since short-covering rallies are typically far more ferocious than those sustained by merely bullish buying.  But is this one sufficiently overdone that prudent bears should be thinking about getting short again? A Timing Problem The answer is yes, but with an important caveat. Although we’re convinced that any rally to new record highs is Mr. Market’s way of setting a trap that will ultimately inflict as much carnage on bulls

What a difference a week makes! Last Monday, with the Dow Industrials approaching the nadir of a nearly 1200-point slide, one might have thought the world was about to end. In just one issue of The Wall Street Journal, we read about a nascent slump in housing and auto sales; a deflationary trend in pricing power for a wide swath of U.S. businesses, particularly mid-tier retailers; a shift toward defensive stocks by portfolio managers; and, alarming growth in the debts of emerging nations. It didn’t help that the neutron bomb called Obamacare continued to emit deadly toxins, threatening to consume what remains of middle-class households’ meager after-tax savings. There was even talk in some quarters of reversing the Fed taper and perhaps even increasing the amount of funny money injected into the banking system each month above the original $85 billion. By late Friday afternoon, however, the Dow had rallied 450 points from its lows and all was seemingly right with the world. The Indoos closed on the high of the week with a 165 point gain,  Wall Street’s obsidian heart melted, and all was sunshine, roses and lollipops. Would it be churlish of us to mention that the entire rally over the course of the week was driven solely by short-covering rather than investors betting on America’s future? This was very obviously the case, even if business reporters were reluctant to acknowledge it.  Granted, there were no celebratory headlines. But this was probably because of the daunting news that the U.S. economy had generated only a measly 113,000 new jobs in January – barely better than the previous month , when 75,000 jobs were added.  Regardless, the mere fact that the stock market had recouped in just three days more than a third of 2014’s losses must surely have

Despite the poor start to 2014, there is still room to debate whether U.S. stocks have entered a bear market. My own forecast, made several months ago, calls for a final Dow run-up to 17622. I’d need to revisit that scenario, however, if January’s weakness gathers force in the weeks ahead.  One thing’s for certain:  If a bear market has already begun, the jig is up for the Fed’s crackpot scheme to borrow our way back to prosperity.  It will instead be Katie-bar-the-door-time – and deflation, here we come!  Japan will at last have company – not just from the U.S. and Europe, but from China, whose bubble-blowing days would not survive even a month  of U.S. recession piled atop the already suffocating weight of Europe’s deepening deflation. As for the stock market, the dam could burst at any time with unimaginably destructive power. Keep in mind that the main catalyst for rising share prices is not bulls betting on a brighter tomorrow, but bears covering short positions gone awry. Indeed, merely bullish buying is rarely sufficient to drive stocks through the thick layers of supply that accumulate just below each successive new peak. It is only when those who have bet against the stock market are stampeded by margin calls that this gravity-defying feat can be accomplished.  Meanwhile, as long as easy money and institutional mindset are present to keep stocks buoyant during quiet stretches, bears are held in a jittery state of alert, ready to cover short positions with market orders at the first sign of an outbreak of irrational exuberance. Bears Cover Prematurely The bears also tend to be too-eager buyers on the dips – exactly what we’ve seen so far this year.  Each time they do so, however, the strength of short-covering grows a little more

With stocks plummeting in January, of all months, it’s tempting to think something in the big picture has changed, or is about to. The evidence becomes even more compelling with the apparent reversal in gold and silver.  Bullion prices have been in a relentless downtrend for more than two years, but they seem, finally, to be getting traction. If their reversal portends an economic sea change, what could possibly be its cause?  A plausible explanation is that Obamacare, by far the biggest new tax ever imposed on Americans, is starting to take its toll. Burdened by health insurance premiums that have been doubling or even tripling for some households, and with astronomical deductibles that leave millions of ACA enrollees more vulnerable than ever to bankruptcy in a medical emergency, consumers have beaten a hasty retreat to their bunkers. If so, The Great Recession is about to resume with 1930s vengeance. Moreover, and putting aside the painful impact of Obamacare on individuals, let’s not overlook the fact that the ACA has pushed a nearly 20% swath of the U.S. economy into chaos, if not to say, to the brink of collapse. Considering that uncertainty is the one thing Wall Street supposedly cannot abide, perhaps we should be wondering why the Dow is not trading 5000 points lower rather than a mere 400. Bullion’s Rally Worrisome An imploding economy would not explain the firming of bullion prices that has occurred in recent weeks, however.  Gold and silver have been so weak for so long that it’s difficult to imagine that they are moving higher now merely in reaction to the stock market’s relatively rare bout of weakness. We might conclude that if the precious metals sector has in fact embarked on a new bull market, something more dramatic than falling share prices

Will the 2013 holiday shopping season turn out to have been brick-and-mortar retail’s last stand in America?  I’d say so, particularly if one considers Best Buy an accurate barometer of consumer trends.  If they can’t turn things around, who can? I’ve tracked the sad decline of Best Buy for nearly two years, and even wrote a glowingly optimistic commentary when they took aggressive steps early in 2013 to radically revamp the way they did business. First, they hired a young marketing whiz who brought some terrific ideas to the job. A profile in Wired magazine made his appearance on the scene at Best Buy sound like the Second Coming. His plan was to upgrade the sales force by training experts for each department. Best Buy would also match the price of any online competitor item-for-item. To better compete with Amazon’s two-day shipping, they would use their vast chain of retail stores to create a de facto network of warehouses – one  that would allow customers to retrieve items from stores within a day or less of placing an order online. Finally, Best Buy would leverage its Geek Squad protection plan, a technical support option that I can say from experience is the best in the business and an unbeatable value. The service plan is available at a very reasonable cost and covers both hardware and software. It has helped separate Best Buy from competitors who would rather let customers freely exchange PCs, laptops and other electronic devices they have recently bought than have to provide support for such products. Great Ideas Fall Flat Although the hotshot bailed on the company just two months after taking the reins, Best Buy subsequently implemented all of his ideas. Unfortunately, the effect of this on the bottom line has been negligible. Holiday sales actually