Tanking crude

For years I have been saying that speculation has been behind much of the runnup in oil prices (and other commodities, more recently). It is no coincidence, then, that the drop in oil started almost to the day that the CFTC announced it would be investigating possible manipulation in the market. The media has yet to acknowledge this. Their new phrase of the dayis, "Demand Destruction." Demand destruction is nothing new; it has been happening for more than year, yet the price of oil and gasoline have been kiting higher. Dissuade speculators from buying oil--or ban them altogether--and oil prices will fall fast and sharp. That should be obvious to all by now, but, sadly, it isn't.

More on Lehman

One gambit that could work, would be if Lehman aggressively bought back its shares using borrowed money from the Fed. Lehman's very survival depends on crushing those who would like to destroy it. It's a bold and risky strategy, but it could work. At this point, that may be Lehman's only hope. In addition, what is happening to Lehman now--this siege by short sellers like David Einhorn--should be a lesson to other firms that might be next on the short-sellers' list of targets if Lehman goes under.

I'm back posting

Yesterday on Fox Business we had a discussion about whether or not the purported problems at Lehman could cause it to be the next
Bear Stearns. Several of the panelists pointed out that Lehman now has access to the Fed's discount window--where it can borrow directly--and this precludes a Bear-Stearns-style demise. However, they are missing the point. Merely borrowing from the discount window is not a viable business activity. Lehman must have clients and customers and other, real, business activities and interests in order to earn money with which to pay employees and pay back the loans taken from the Fed. If not, it still risks going out of business. If short-sellers succeed in driving down Lehman's stock sufficiently painting it as a "failed firm" or one that carries risk for anyone that does business with it, it can fail.

Sentiment Suggests Short-Term Bounce

Extreme levels of pessimism as evidenced by the 5-day average of the put/call ratio, which is now flashing the highest reading in over seven years, suggests stock market very oversold and a bounce is due. Longer term, conditions auger for a further slowing in the economy. The Fed may be forced to choose between its anti-inflation vs. pro-growth stance.

The Ben Stein/Jim Rogers dummy show

In a discussion today on the Fox News show, Cavuto on Business, Jim Rogers and Ben Stein were challenged by Neil Cavuto, who asserted that the U.S. budget deficit as a proportion of GDP was lower than in many European countries. (Neil is right.) However, in their responses both Rogers and Stein claimed, falsely, that Europe was running "surpluses." While many European countries do run balance of trade surpluses, their budget balances are in the red by amounts that are significantly higher than in the U.S.

Furthermore, the United States runs a trade deficit primarily for two reasons:

The first reason is that many of our trading partners have long employed policies that drive export driven economic growth for reasons of their own. They do this either through direct subsidy to industry, impediments to trade, currency manipulation or a combination of all three. Ultimately this is a cost to their citizens because the money could be spent on them or used to stimulate more domestic consumption. The result is that the United States enjoys a higher standard of living than these countries.

The second reason is that the United States economy has historically produced far higher returns on capital than other countries (due to our largely, free and open economy) and therefore investment capital has flowed here. This is often erroneously considered "lending" by foreigners to the U.S. but in reality the U.S. is NOT borrowing at all. In reality it is the other way around: foreigners put savings in the U.S. to grow their wealth and to sustain industries that create gainful employment for their citizens. If they didn't, they would be broke and poor. They have much more to lose than we do.

Both the budget deficit and the trade deficit are often spoken about out of context and without the necessary perspective to give a fair and balanced picture. It is meaningless to talk about debt when one does not consider income (economic growth) and assets too. For example, $1,000,000 in credit card debt might be devastating to someone who earns $100,000 per year, however, it is nothing to Bill Gates.

The Contrarian

The Contrarian

Fed ends rate hike campaign that began 27 months ago. Economy already decelerating and unemployment is on the rise. If history is any guide the Fed probably has a few more rate hikes to go before all is said and done. Economic slowdown will be very positive for bonds notwithstanding today's reaction. Stocks, particularly interest sensitive, should be okay.

Andrea Yates, who murdered her five children by drowning them, methodically, one by one in the bathtub as they pleaded for their lives, screaming, "mommy, mommy, please, don't," is found not guilty, but reason of insanity (hey, now I feel better), and is remanded to a mental institution until she is deemed harmless to society. That determination will come, undoubtedly, far to soon. In the meantime, five young, beautiful souls have departed from this earth as a result of the most heinous betrayal imaginable (for me, at least)--children put to death by their own mother.

Contrast this to the convictions of Ken Lay and Jeff Skilling of Enron, whose only crime was running a business that became the victim of mass panic on the part of stupid, know-nothing, fad-following, crybaby investors. Lay's punishment? Execution by stress. And if Skilling's lucky, he'll have the privilege of exiting prison as an old, old man.

What a sham!

Oh, one more thing. Surviror #1 winner Richard Hatch in jail now for 51 months for tax evasion.

(Those five young souls.)

Michael Jackson, child molester, is free, yet the man who ran the jet company that shuttled that sicko Jackson from Vegas to L.A. for his arrest and arraignment is now going to jail because he videotaped that sicko Jackson while on board the plane.

Sick.

With any (sick) luck, the killer of Jessica Lunsford will be cut loose too.

(That sound you are hearing is me vomiting.)

O.J. free.

Abu Graib "hazers" jailed, but terrorists must be accorded every constitutional right, even though they are not U.S. citizens.

I think you get the point.

Deficit delusions

Deficits have been common in U.S. history. Recent deficit has contributed much to economic recovery with little or no negative consequences