WASHINGTON, April 7, 2015 – Just a day after Monday’s annual White House Easter Egg Roll—not the first time this Administration has rolled the public—and a day after Monday’s surprising insta-crash and insta-recovery, Tuesday’s trading action remains nicely but tepidly positive as of 2 p.m. EDT.
Meanwhile, the center of official Washington, D.C,. is out of power today for unknown reasons. According to CNBC,
Pepco, the D.C. electric services provider, said it had scattered reports of outages for “unknown” reasons, and that it was looking into the matter. The utility said in a 1:25 p.m. ET update that it had recorded 123 active outages and 2,481 affected customers (which include buildings and office spaces).
Some metro stations in Washington were running on emergency lighting, according to the city’s transportation authority. Several area museums were affected by the outage. The National Portrait Gallery, the Air and Space Museum and others were evacuated, the Smithsonian Institution said in a tweet.
Department of Homeland Security officials said they were looking into the outage, but believed at this time that there is no reason to believe the power failure has any connection to terrorism or other criminal activity.
ZeroHedge puckishly notes that “minutes before” the post-Easter White House and most government facilities and offices in and near the Mall were plunged into darkness, “Rand Paul commented that “the time has come to take away the power from Washington D.C…”
Is this a sign from above? Time will tell for this year’s second announced Republican candidate for president in the upcoming 2016 national elections.
Meanwhile, ex-Pimco bond guru Bill Gross’ onetime best pal, Mohamed El-Erian, opined on CNBC this morning that his best investment idea right now is cash. This tracks somewhat with our own notions, at least in the sense that most of what we’ve tried lately seems only to have added to our ever-warming planet’s deadly carbon miasma.
Opined El-Erian, whom we greatly respect as an economic realist,
“I am mostly concentrated in cash… because I think most asset prices have been pushed by central banks to very elevated levels. Central banks look at growth, at employment, at wages. They are too low. They don’t have the instruments they need, but they feel obliged to do something; so they artificially lift asset prices… Because they hope that they will trigger what’s called the wealth effect, but there is a massive gap right now between asset prices and fundamentals.”
Emphasis here via ZeroHedge. But it’s a telling point. Here’s why it’s on the money: The Federal Reserve’s main weapons for aiding the economy, stabilizing the banking system and (supposedly) alleviating unemployment are, effectively, interest rates and money supply. But another weapon that pundits often neglect to remember is that more elusive Fed tool known as “moral suasion.”
In this era of post-Clinton situation ethics, we suppose that term can mean whatever anyone thinks it means. But what it really connotes is that the Fed has the ability to do some public jawboning and propagandizing to sway banking, business and public thinking over to the Fed’s point of view.
This “moral suasion” can work both ways. Some 30-plus years ago we saw then-Fed Chair Paul Volcker swoop in without warning to simultaneously destroy the Hunt Brothers’ virtual corner on silver bullion, wiping them out overnight by jolting margin rates up from 10 percent to 50 percent, and jack prime and real interest rates up to the point where the nation’s heads went spinning. Almost overnight, excess speculation, and housing and currency inflation were all crushed. It was the kind of “tough love” no one would put up with today. But back then, people still respected their government, however grudgingly.
The fiscal medicine administered at that time was obvious and effective. But so was the “moral suasion” part. The Fed’s message here was, “stop this all—and stop it now.” Everyone did. The Fed had spoken, and quite definitively. We got a short, nasty recession. But then, within two or three years the economy went on its biggest boom ever, zooming stocks to the stratosphere for nearly 20 years in an immense bull market.
Today’s Fed, however, is stuck with a totally different situation. There’s zero growth, thanks to the administration’s asinine excuse for domestic policy over the past seven years. The problem has been compounded by the administration’s incessant litany of outright lies, including the “fact” that it supports the aspirations of America’s middle class.
This classic Big Lie is meant to conceal the classic Marxist contempt for the middle class, the petit bourgeoisie, the main impediment to any successful revolution. This administration want to wipe the middle class out, not help them. The middle class had better figure this out before the rest of them disappear.
In reality, there’s zero inflation today, save in volatile food and fuel prices, since no one is really buying anything like they used to. And, if you use the more realistic U-6 measure of unemployment, there’s no recovery in sight for the average Joe and Josephine Sixpack either.
So, given that the administration actually offers no help (except more deficit spending on useless programs or sweetheart contracts for the already rich) and that Congress has effectively ceased to exist since Democrats have no intention of allowing the majority Republicans to rule − ever − the Fed is using “moral suasion” to (falsely) convince us that all is well, things are improving nicely and wealth and wage hikes are on the way for all. (What else is left for them to do?)
Meanwhile, they’ve been spreading free money around to the rich guys to pump up the prices of stocks, mainly by corporate stock buybacks that have the effect of increasing earnings per share even when, in fact, earnings aren’t really increasing that much if at all.
The Fed, in short, is creating an illusion, a mirage, inflating assets to convince the public that all is well and getting better and so they should all go out and spend like it’s 1999 all over again—just prior to the spring of that year when the market got hit by the dot.bomb fiasco which marked the beginning of the end for the Reagan Bull Market.
Like the Obama administration, the Fed takes advantage of a willingly gullible financial press, other media and political cheerleaders to create the impression of a genuine, widespread, ongoing economic recovery in the public mind. Indeed, the public hears nothing else anywhere in the major media. But for the average guy who’s not Jamie Dimon or LeBron James, the truth is, there’s been no recovery at all from the economy’s 2009 low point.
Which is exactly what El-Erian is talking about. To slightly shift our metaphor, El-Erian is now wondering aloud just when the majority of the public is going to finally acknowledge that, like the legendary emperor, the Royal Smart People in Washington and New York have no clothes. They want us to think everything is okay so we’ll start spending like everything is okay, so we’ll actually climb out of the recession. Seriously? Spend with what?
Without any meaningful middle class wage increases since at least the time of Bill Clinton’s occupation of the White House, the message nearly everyone holding a job today is really perceiving is not that “prosperity is just around the corner.” Rather, the actual message is: “Debt is terrible. Don’t buy a damned thing ever again until you liquidate that debt, and never get that indebted again.”
In other words, the Fed’s “moral suasion” tool is no longer working its magic. The public realizes that U.S. citizens are now on their own and must take care of themselves as best they can since their government no longer really cares what they do or think. They work around the government now, not with it or through it.
Trust is completely broken in this country, no matter what you read in the dwindling number of U.S. newspapers or hear from TV’s ignorant blow-dries, who are also being increasingly ignored, BTW.
Hence, the Fed—and the government—have both lost, perhaps forever, that nebulous but key tool of “moral suasion.” In a country whose government (and the oligarchs who quietly own it) have ceased to adhere to a once-traditional Judeo-Christian inspired moral code, moral suasion is no longer possible since, obviously, that kind of jawboning is no longer backed up by any morals at all.
That’s a little hard to grasp, we know. But this simple fact is a big part of why everything continues to meander in place right now and why things are getting so dangerous. As in the 1930s, no one believes in the “system” anymore. No one seems to have the courage to step up to the plate and say so, save perhaps for Ted Cruz and Rand Paul. But the press is already in the midst of a concerted campaign to smear them, `a la Sara Palin. This collectively low moral tone of discussion and debate places people and their investments in a precarious situation indeed, since the truth cannot find its way out into the sunlight.
No trading tips today. It’s too weird.
We remain in about 35 percent cash.
There are some who say that “cash” should be gold. We’re not quite ready to go that far. But as for now, we’re trapped by a government that has no clue, headed as it is by the coldest, most manipulative and most anti-American Chief Executive ever to occupy the White House. Trust the Maven on this one.
Wakey, wakey, people. No good will come of this unless we change the way things are done. And soon. This “recovery” has mostly been a mirage. And no one in Washington has an ounce of moral suasion left.