Gold shot up $40 an ounce yesterday. US stocks were flat.
How do you like that? Mr. Market was right all along. He knew the fix was in.
This is an economy – and a society – that depends on easy credit. No way were the politicians going to stop the credit flowing. When they threatened to cut it off, Mr. Market ignored them. Stock prices kept going up.
Turned out, he was right again.
We’re back home in good ol’ Balawmer, with football season in full flower.
Our trip took us to Paris, London, Buenos Aires, Salta, Miami, Ft. Lauderdale and then home again.
The only travel problem we had came on our last stop, Ft. Lauderdale, where the agent at check-in seemed unable to operate his own computer system.
Sordid and Stupid
While we were traveling, often out of range of modern communications, Washington was making a public spectacle of itself.
Wherever we went, cab drivers, hair dressers and barkeeps kept us up to date:
“Wow… What’s going on in the US? Sounds like they’ve gone crazy,” said one.
“So, are they really going to shut down the government?” asked another. “That will be a first.”
“Have Republicans lost their minds?” began a third. “Who’s going to vote for them?”
To the foreigners, the spectacle seemed sordid and stupid. To us, as little as we saw of it, it was immensely entertaining.
First, because we never doubted that the pols would come through with a deal in the end. And second, because it would have been better if they hadn’t.
But the show is over…at least for now. From Bloomberg:
The passage last night by wide margins – an 81-18 vote in the Democratic-led Senate, followed by a 285-144 vote in the Republican-controlled House – allows the US to avoid default and ends the shutdown that began Oct. 1 and has taken $24 billion out of the US economy.
“We’ll begin reopening our government immediately and we can begin to lift this cloud of uncertainty and unease from our businesses and from the American people,” Obama said last night at the White House after the Senate voted.
The news reports of the settlement on Wednesday night told us that the agreement was reached after the standoff had “taken $24 billion out of the economy.”
People took this news as though it were a tragic fact – like the sinking of a cruise ship or a shooting at an elementary school. But how was it possible for $24 billion to be “taken out of the economy”?
Where did it go? To another planet?
This is what makes government so amusing. It is like bar-room chatter late at night: full of things that couldn’t possibly be true, but are accepted by everyone present as Gospel.
The $24 billion refers to the money that the feds did not spend. But did it vanish? Not at all.
Bad Habits
Not that we have anything against government; on the contrary, it’s always a hoot. But government at its best is a modest affair. It puts a cop on the beat – ready to knock heads, if necessary, to maintain peace and quiet.
It puts a judge on the bench, able to enforce contracts and protect property. It raises the flag on national holidays. Otherwise, it butts out.
But few people are content with Thomas Jefferson’s kind of government. They want Hillary Clinton’s kind. But as it grows, government quickly reaches the point of declining marginal utility.
Then it slips into its bad habits – like grand larceny.
The money that was supposedly “taken out” of the economy didn’t disappear. It remained with its rightful owners: neither stolen, nor redistributed. The zombies were short $24 billion. But the productive sector was ahead.
And what were the feds going to do with that $24 billion?
In the event, they shut down national parks – one of the few federal activities that might be a paying proposition. Otherwise, instead of driving to work, filling out forms and chatting over coffee, federal employees were sent home…
There, they enjoyed their leisure… or spent time on home repairs.
The money that would have paid them to come to work was saved, spent or invested in other ways.
Who’s to say that the world is a worse place as a result?
Regards,
Bill
Market Insight:
Is Political Instability Good for Stocks?
From the desk of Chris Hunter, Editor-in-Chief, Bonner & Partners
The GOP may have lost the battle over the shutdown. But they’re vowing to continue to wage the war.
According to House Republican leader John Boehner, the party’s “drive to stop the train wreck that is the president’s health-care law will continue.”
The message is clear: Expect political uncertainty to continue.
There has been plenty of wringing of hands in the press about the economic fallout.
USA Today, for instance, cites statistical research claiming that political uncertainty costs the economy nearly $40 billion a year in lost output and 250,000 jobs a year. It also claims that the unemployment rate of 7.3% would be 6.6% without the uncertainty in Washington…
At Bonner & Partners we’re skeptical of these kinds of statistics. But they’re exactly the kind of trumped-up numbers the Fed monitors.
And they’re a big part of the reason the Fed didn’t taper in September. And why it won’t be tapering any time soon.
The Fed knows that, with the current deadlock between Congress and the White House, there’s a snowball’s chance in Hell of any extra fiscal stimulus any time soon. That leaves
the Fed as the only game in town when it comes to propping up the beleaguered American consumer.
US stocks will eventually reach a blow-off top, as credit-gorged investors bid up prices well beyond fundamental values.
Investors selling their gold in the belief that QE is going to end soon will be sorely disappointed.
