Irrational exuberance seems to be a hard thing to eradicate...
After a Grueling Quarter, Investors Still Can't Relax
A volatile period ends on a high note. Rising rates and steep oil complicate the outlook.
By Tom Petruno, Times Staff Writer - July 1, 2006
Financial markets took a haircut at the hands of the Federal Reserve and other central banks in the second quarter.
For now, the bankers have just taken some off the top. The question for the second half of the year is whether the markets risk a serious buzz cut.
How telling is it that the fate of the stock market rests in the hands of the world's central banks? How chilling is it to think that said bankers have so much control over a nation's prosperity?
Consider for a minute that our current economic `recovery' has been driven almost exclusively by the world's financial markets...investors building countless Mc Mansions on spec. A phenomenon that has resulted in soaring asset inflation that these central banks did nothing to check.
In fact, their loosened credit qualifications (if you got a pulse, you got the loan) made a bad situation that much worse...like it did in 1986.
But the chances of missteps clearly have increased, analysts say. One challenge for the central banks, and for the global economy, is that crude oil prices -- the source of much of the inflation anxiety in the markets -- refuse to come down.
Oil futures in New York rose 41 cents to $73.93 a barrel Friday, up from $66.63 at the start of the quarter and close to the record of $75.17 set on April 21.
"The Fed would feel better about stopping if oil were to fall," said John Lonski, economist at Moody's Investors Service.
The newly sinking dollar also could complicate matters. The buck has tumbled the last two days on expectations that the Fed might be done tightening. That could leave U.S. interest rates less attractive relative to foreign rates. A drooping dollar helps U.S. exporters, but it also can fire up inflation by raising the prices of imported goods.
Another more basic risk for stocks: Cash accounts and bonds are providing more competition for investable assets. Six-month Treasury bills now yield 5.23%. The yield on the 10-year T-note was 5.14% on Friday, down from 5.20% on Thursday but up from 4.85% at the start of the quarter and near a five-year high.
For some nervous investors, Lonski said, "cash is king right now."
I'm a nuts & bolts kind of guy. It makes me very uncomfortable to think my continued ability to eat regularly and live indoors depends on having a `confident' investor class.
It's the big `stick `em up' good citizen. If the investor doesn't make money products aren't produced, crops are left to rot in the fields and trucks collect dust at shipping terminals.
It doesn't matter one bit whether or not society needs the goods, all that matters is that the investor profits...which is more than a little insane, in my honest opinion.
Why is this insane? All resources [raw materials] are free from nature and labor, that which produces finished goods, is not only free to an employer, it's another income stream! Part of any company's profits comes from marking up the cost of your labor!
So to me, all of this drivel about the financial markets is just so much bullshit. At the end of the day it's not about how much money you have in the bank but whether or not you have a roof over your head and food on the table.
Let the investor class eat their money!
Which brings us to this NY Times editorial
Don't Know Much About History
Published: July 1, 2006
Somewhere between the firing in 2002 of President Bush's first Treasury secretary, Paul O'Neill, and the Senate confirmation this week of his third Treasury chief, Henry Paulson, the administration changed its tune on budget deficits. In the early days, the line was, essentially, that deficits don't matter. Mr. O'Neill's ouster was due in part to his gall in suggesting otherwise.
Now, officials dutifully declaim that deficits matter, but that Bush-era shortfalls are "within historical norms."
Mr. Paulson apparently shares that view, having offered it repeatedly when asked about budget deficits during his confirmation hearing. That's a disappointment. It takes a narrow view of history to imply that the Bush-era deficits are "normal."
As a share of the economy, the Bush-era deficits have averaged 2.7 percent. That's the second worst record of any administration in the past 60 years, surpassed only by the deficits from the tenures of President Reagan and the first President Bush, which each averaged 4.3 percent. (Five years into the Clinton era, deficits averaged 1.2 percent of the economy, dropping to a mere 0.1 percent by the time Mr. Bush took over.) To imply that the current budget gap is comfortably within historical norms because it's not as bad as the worst deficits in modern memory is, to put it politely, a stretch.
I have a problem with using the GDP as a measure of prosperity as it ignores the overall state of the nation, misdirecting our attention to the health of the nation's corporations instead of the wellbeing of its citizens.
What does it say about our nation that we have gone from being the world's largest creditor to the world's largest debtor in thirty short years?
During those same thirty years, this nation's corporations have waxed wealthy beyond belief, posting quarter after quarter of record profits while the lot of the average citizen has dropped like a stone...
Can you say `mismanagement?'
So I ask you, do deficits matter?
In our current investor driven world, yes, they matter a lot. When the gazillions in funny money [that exists only on paper, someone's estimates of relative worth] dry up and blow away, there won't be enough floating around to tend to basic necessities.
Our current economic system operates on two things, cash flow and what a buyer is willing to pay. When the buyer is broke, what they're willing to pay is a moot question. I don't think I need to point out how this impacts cash flow.
Make no mistake about it, when the bubble pops we become a third world nation overnight.
This brings us full circle to the bankers who have us by our economic short hairs...
Politically, we as a people have been helpless to stop this economic train wreck. It's fair to say the politicians and the media have kept us in the dark about what's been happening to our nation. Now that it is clear we are on the brink of an economic disaster, the unanswered question here is twofold; can we put a stop to it and if so, can we do it in time?
Can we use the system to fix the system? I think not but there is a way to restore our nation to its former greatness... a way that restores equality and justice so peace and prosperity are enjoyed by all, not just a few.
Thanks for letting me inside your head,
Gegner