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Morning Commentary

This Song Ain't Got No Melody

By Charles Payne, CEO & Principal Analyst
5/2/2013 6:34 AM
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Question of the Week

The Fed seems clueless and as arrogant as ever. I'm not sure what the hell they are doing.

What do you think Ben Bernanke is trying to do and will he be successful?

Post your answer below.

Knowledge may give weight, but accomplishments give luster, and many more people see than weigh.
Earl of Chesterfield

When President Bush declared "Mission Accomplished" he was just a little early and in the end the mission was simply to leave. The exit was out of his hands, but the question remains-what was the mission? I still can't believe they didn't use the Powell Doctrine of an overwhelming force cleaning out all the nooks while keeping on key personnel of the Iraqi military. There's no doubt that whatever the mission was at the beginning, it became something else later.

When President Obama bragged about pulling the economy out of the ditch, I scratched my head and wondered if he would follow up that line of thinking admitting the economy came out of one ditch and slipped into another. The exodus from the jobs market and massive government spending to spike the last GDP into the November elections painted a false narrative. These days we hear nothing about jobs, only about those petulant children of the Republican Party that can't grasp common sense. Certainly when it comes to fixing the economy, the mission is far from accomplished.

This brings us to Federal Reserve chairman Ben Bernanke.

What the hell is the goal of all this money printing? Last September the Fed added $40.0 billion in monthly buying of mortgage backed securities to his bag of tricks. Then he bumped it up with an additional $45.0 billion of Treasury securities. The numbers are jaw-dropping, surely this could be defined as shock and awe, but the results have only been awful. Officially the Fed has a mandate that covers employment and inflation, but there is no mistake Bernanke is trying to spark a revival in the housing market. On all three fronts Bernanke has the kind of false facade that makes for great backdrops for declaring victory.

At this point, Bernanke & Co may feel they have no choice other than to go for the luster, even if it means moving farther down this insane road, believing it is better than admitting they've tried, they've acquired knowledge, and they've failed.

Jobs = The unemployment rate is down as people sit out this dance. More than 9 million quit the work force.

Inflation = non-existent using government cautions, but that's backfiring as deflation is now a major worry.
Housing = Prices rebounding and inventory scarce, but ownership is plunging as investors gobble up supply.

Great Question (and song) Billy Preston

So, the question is what is Ben Bernanke trying to accomplish-the virtuous cycle? What a joke! You, know, that circle that grows wider and wider with joy and prosperity. Our assets inflate in value, we go shopping to celebrate, they hire more people at malls, shippers, and factories, and the next thing you know our paychecks move higher, too. Just think, we could go in circles like that forever, the perpetual motion machine, once it gets kick-started.

The question of will it fly high like a bird up the sky is really a two-part puzzle. On the surface it's all working well and key components of the economy seem to be flying high. But none have much to do with Ben Bernanke. Heck in 2008 59,180,000 Americans worked for minimum wage, and at the end of 2012 60,367,000 worked for minimum wage. The job situation needle hasn't moved and we wait with serious angst for tomorrow's number. The stock market has benefited from being oversold and led by great American companies making money in all four corners of the planet.

Inflation calculations on the CPI seem like something Charles Ponzi may have conjured up.

Defining the bad guys these days is a matter of perspective, but one thing is for sure; the good guys aren't winning. People aren't buying houses in part because they can't get a loan (in addition to many simply giving up on that jazz), but where is all that money the Fed is printing going?

Better yet, how does the Fed's purchasing of $40.0 billion in mortgage backed securities and $45.0 billion in treasuries find its way into the pockets of regular Americans? If you subscribe to the notion that the bad guys reside at the top, then this is that once-in-a-while instance when they are winning big time.

The Fed must know this, hence Bernanke says they will either increase the madness or forget luster and go for honesty. It's all so confusing. It's like we're all going round in circles...

Welcome Back

Lots of investors are coming back to the market, but they are making even more mistakes than the last time around. The main thing to know is there will be losers, and selling them is the real key to long term success. That being said, I regret 85% of all the exit alerts to take profits I've ever issued and 75% of alerts to take losses.

You have to be prepared to hold through rough times as long as the fundamentals don't change. Yes, macro conditions are factored in, but those are cyclical-taking market share and pricing power mean a whole lot more.

There are a ton of secrets to investing, but the most important is to understand what you own so that you can't be shaken out during down periods or don't hold because of pride and ego. It's easier said than done but necessary unless you're inclined to take losses simply because stocks are lower. If that is the case, consider yourself played. There is no way to ever make money because the puppet masters understand how to shake you out and then how to seduce you back into the game later, at much higher levels.

Today's Session

Markets go up and down, that's their nature, but how they react after difficult sessions is the best way to measured underlying determination. Stocks have been hinting at a nice bounce this morning even before the ECB announced with would cut rates 25 basis points. I actually though the market would sell-off if the cut wasn't 50 bps, but maybe calmer heads prevailed, and like the notion this isn't panicking but just part of the global race to the bottom with respect to rates.

Speaking of the globe, it's still the key driver for American businesses leading the stock market, a point underscored by Visa (VISA) which reported yesterday.

Global Card Volume Growth

What is Mr. Bernanke trying to accomplish?
1. He's attempting to make housing more affordable: highly unlikely.
2. He's trying to destroy the mREIT sector upon which a large number of retirees depend for monthly income as SS sure doesn't work, not with the price of the monthly food basket skyrocketing.
3. He's trying to devalue the dollar to the point where one dollar now equals the value of a 1955 dime (just go to the candy store if you don't believe me) or bring it to par with the Argentine peso.

Gary D. on 5/2/2013 9:33:38 AM
I haven't trusted Helicopter Ben to do the right thing since his 'personality profile' on 60 Minutes in Spring '09.

dennis logan on 5/2/2013 10:23:42 AM
I don't know his problem but here is the answer:
Put me in charge of food stamps. I'd get rid of Lone Star cards; no cash for Ding Dongs or Ho Ho's, just money for 50-pound bags of rice and beans, blocks of cheese and all the powdered milk you can haul away. If you want steak and frozen pizza, then get a job. 

Put me in charge of Medicaid. The first thing I'd do is to get women Norplant birth control implants or tubal ligations. Then, we'll test recipients for drugs, alcohol, and nicotine. If you want to reproduce or use drugs, alcohol, or smoke, then get a job.

Put me in charge of government housing. Ever live in a military barracks? You will maintain our property in a clean and good state of repair. Your home" will be subject to inspections anytime and possessions will be inventoried. If you want a plasma TV or Xbox 360, then get a job and your own place. 

In addition, you will either present a check stub from a job each week or you will report to a "government" job. It may be cleaning the roadways of trash, painting and repairing public housing, whatever we find for you. We will sell your 22 inch rims and low profile tires and your blasting stereo and speakers and put that money toward the "common good.." 

Before you write that I've violated someone's rights, realize that all of the above is voluntary. If you want our money, accept our rules. Before you say that this would be "demeaning" and ruin their "self esteem," consider that it wasn't that long ago that taking someone else's money for doing absolutely nothing was demeaning and lowered self esteem. 

If we are expected to pay for other people's mistakes we should at least attempt to make them learn from their bad choices. The current system rewards them for continuing to make bad choices. 

AND While you are on Gov't subsistence, you no longer can VOTE! Yes, that is correct. For you to vote would be a conflict of interest. You will voluntarily remove yourself from voting while you are receiving a Gov't welfare check. If you want to vote, then get a job. 

Spencer on 5/2/2013 10:24:28 AM
Anything you can do I can do BETTER

Josef Brunner on 5/2/2013 10:45:39 AM
Fed Ben is trying to buy time for the US$. Failure is imminent. The game is now in its end stages and the derivatives house of cards is soon to be revealed, at the peril of the depositors in those banks. They are no longer depositors, they are lenders and the Fed has set it up to steal their money for "bail-in". I am telling my friends it is time to get out of the system. Cyprus unveiled the plan, it was confirmed by the Dutch Finance minister, and now the evidence is in...even Canada has written "bail-in" into the 2013 federal budget, page 144 & 145.

Robert on 5/2/2013 10:58:29 AM
I fear not. Bernanke may be a student of the Great Depression, but he acts as if he has never heard of the Weimar Republic inflation.

Andrea Watson on 5/2/2013 11:26:02 AM

Just listened to you and Stuart talking about how the Fed's money moves into stock market.

There's been a lot written on this subject on SA and a good part of it was written by me. My supposition is that the primary dealer banks, e.g., JPM have acted in concert with the Fed to backstop market sell-offs when the news is particularly negative.

The empirical support for this is extensive. For example, the fiscal cliff which should have produced a sell off but didn't do so as the Fed (my opinion) pushed the market with QE4 money.

Banks aren't supposed to own stocks but there are different rules for primary dealer banks and they do own stocks - purportedly as inventory for their market making activities. For example, JPM owns about 7,000,000 shares of Google as I noted on a recent piece about the 57,000 share order that produced the flash crash.

The subject is much to extensive for a short email but the Fed has manipulated this market through their surrogates for almost 4 years now and there is only one period where the sell side volume produced a disconnect between Fed balance sheet expansion and the Dow and that was when the US credit downgrade occured.

The market is artificial and contrived and based on the Fed's belief that the wealth effect agenda will stimulate borrowing and spending but the truth is that hasn't happened and most of the Fed's money remains in excess reserves. That is bank cash and can't be spent in the economy.

By the way these activities are outside the scope of the Fed's mandate and techically in violation of the law. A private sector actor doing what the Fed is doing would end up in trouble.

If you are interested in my thoughts on this I will send you the link to some of the pieces I have written. It would indeed be nice to see someone such as yourself - expose some of this as it is not well understood.


joseph stuber on 5/2/2013 11:43:42 AM
Since WWII housing has led the U.S. out of every slump. Ben has been trying to force the issue with rates this low. He miss judged the mag. of the bubble and the supply of homes. I have homes in Fl., Ga., and Wis. In all 3 markets there are many empty homes not yet on the market.

Alan Kunard on 5/2/2013 11:45:55 AM
Bernanke's just like everyone else in this administration. At the end of the day, they ride off into the sunset only caring if they made ideological change, not caring if that change was detrimental to us as individuals. They are the only individuals in their collectivist society! They'll be long gone before the total damage is reported.

Greg on 5/2/2013 1:39:55 PM
BB is trying to "save" the economy from going from the Great Recession into a prolonged Great Depression. He only has so many tricks in his bag so he is basically building a Tower of Babel with endless worthless money that he keeps printing. This is starting a new housing bubble that will ultimately burst along with perhaps our own currency system. Maybe we need to change the mandate from unemployment to the labor participation rate. I don't see how our economy will get better when fewer and fewer people are working. It's crazy to look at the chart showing unemployment declining and the labor participation rate plummeting.

Michelle on 5/2/2013 1:41:08 PM
Bernanke, along with others in positions of accountability and power, seem more concerned with staving off any calamity on their watch rather than looking to the best interests of everyone's future.

Patricia Flynn on 5/2/2013 3:26:51 PM
What ever he is doing isn't good for the country, but that's the plan Sam...

Gail on 5/3/2013 2:13:46 AM
The fed by buying 85bil month are keeping rates from rising.
We are the biggest debtor on earth rates rise deficit goes through the roof

Rich Donato on 5/3/2013 5:58:52 AM
There have been numerous historical examples of governments printing money and the resultant devastating hyper-inflation. Apparently Ben Bernanke chose to ignore these facts. He is arrogant and clueless just like the administration he serves.

Jan Karas on 5/3/2013 6:48:50 AM

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