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Signs of the Times
"Class
War in the New Gilded Age"
"Americans
of all stripes are increasingly aware that they have been getting the shaft,
while big banks, corporations and money have been pocketing the gold. Large
majorities believe their legislatures are essentially corrupt - more
responsive to their donors than their voters."
~ Reuters,
December 21
For a major
news service this is rather libertarian. One can't help but wonder about the
corruption of liberalism. Prior to the mid-1960s it meant individual freedom
and limited government. Then "liberals" began to change the meaning
away from liberty. And in reviewing the "fiscal cliff" story this
week, the liberal mob has become fiscal libertines.
"America's
Boomtown"
"While
the Economy Sputters, Washington Flourishes"
"By any
way you calculate it, the Feds will spend more than $3.5 trillion this year,
and a lot of money will be spilled in the District of Columbia."
~ Wall Street Journal, December 27
"Cuba
cuts state payroll, private sector jobs grow 23 percent in 2012." -
Reuters, December 28
"French
Court Says 75% tax rate on rich is unconstitutional - Fails to Guarantee
Taxpayer Equality"
~ Bloomberg,
December 29
"I think
myself that we have more machinery of government than is necessary, too many
parasites living on the labor of the industrious."
~ Thomas
Jefferson, Letter to William Ludlow (6 September 1824)
Perspective
What a wild
world!
Communist
Cuba reduces the number of state employees by 5.7 percent and the number of
private sector jobs increases by 23 percent. The story did not mention if
regulators were laid off, but Cuba could be on to something. Would a 12
percent drop in parasites prompt a 43 percent increase in private-sector
employment?
In the
meantime, Washington D.C. continues to boom at the expense of a private
workforce suffering not just high taxation, but chronically high
unemployment. The worst since the 1930s.
Also in the
meantime, consumer confidence numbers remain relatively high and the
administration is enjoying a 57% approval rating.
As we like to
note: "So long as the price of the 'penny dreadful' is going up the
public will believe the most absurd story." This applies to credit
expansions and central banks as well. Until the end of the year a number of
the junior golds ran out of "belief" as
confidence in the Fed manipulations improved.
Out of the
general dismay in early November, stocks, corporate bonds and commodities
were expected to improve into January. And then there has been the case for
small caps outperforming from mid-December until this week, which has been a
winner. Ross is updating the trade.
The
"deal" represents a huge advance for authoritarians of all stripes
and the equivalent setback to fiduciary responsibility. But it has galvanized
the "risk on" trade. On the longer-term this will add to financial
instability. On the near-term, normally on approaching a timing target we
would start watching for signs of being overdone. Let's keep in mind that
this move started in mid-November.
Using the
10-year Spanish bond, Euroland yields have been
declining from a panicked 7.5% in July to 5.03% this week. A few weeks ago
there was a report that Spanish regional governments had racked up EU13
billion in unpaid supplier bills. That was for the first nine months of the
year and it is difficult to see how lower rates can do much for insolvent
countries.
Not only is
Spain stiffing suppliers now it, with other governments, is stiffing at least
two generations of future taxpayers.
The above
quote about "parasites" by Jefferson was written in 1824. The most
outstanding bubble since 1720 blew out in 1825 and during that preceding era
of reckless finance Europe suffered the French Revolution and Napoleon's
dictatorship. Political change during that post-bubble contraction gradually
reduced that experiment in unlimited government.
Napoleon
scorned England as a "nation of shopkeepers". Thankfully, that
nation of shopkeepers was instrumental in ending those brutal experiments in
authoritarian governments in France and in Spain. Ironically, in 1989 East
Germans helped end that experiment in totalitarian government by insisting on
going "cross-border" shopping.
Border guards
lost the will to prohibit shoppers from shopping and laid down their AK- 47s.
Will American
shopkeepers forcefully react to Obama and his "Rules for Radicals"
government? An admiring reviewer describes Alinsky's
book: "The Prince was written by Machiavelli for the Haves to hold
power. Rules for Radicals is written for Have- Nots on how to take it away." The concept is to
destroy the private economy by overwhelming the welfare system. Widening
understanding of Obama's disruptive intentions seems inevitable.
In a
traditional liberal democracy the power is in the hands of the
consumer-taxpayer. Not in the hands of Chicago-style community organizers.
Currencies
A couple of
weeks ago, the USD again bounced off support at the 79 level. Considering the
extreme dysfunction of the US federal government this is remarkable. Perhaps
some of the support is due to the old problem of servicing debt into the
financial center - this time New York.
The popular
view is that White House bullying on the fiscal thing has prompted the
same-old "risk on" play. Our view is that it is an acute accelerant
to financial disaster and we are uncertain how long it will take before it is
widely realized.
Whatever - a
low for the USD has been expected in January and it is uncertain if the low
of a couple weeks ago was it.
The Canadian
unit was expected to rally into January and this week's jump seems a step
towards a good high. The low was 99.43 in mid-November and at 101.7 now there
is overhead resistance at the 102 level.
Credit Markets
Central bank
compulsions remind of St. Augustine's prayer "Oh, Master, please make me
chaste and celibate - but not yet!".
As we have
been noting a couple of US central bankers have been calling for an end to
radical policies, but it is not happening. Recklessness will continue; the
mission is sooo important. For some it is the
intense ambition to prove that interventionist theories have been and still
are correct. Others are merely trying to save the world.
Along with
the good times in stocks and some commodities, the long bond has declined
from 151.66 in early November to 145.25 earlier today. In the past six months
this is the fifth decline to this level.
Will it hold
one more time?
Perhaps not,
the daily RSI is not oversold and as the following chart shows - a twentymonth
uptrend line has been violated and not regained. If 145 is
taken out, the next support is at the 135 level.
After a
significant hit Munis (MUB) have rebounded to
serious overhead resistance.
The Spanish
yield has decline to 5.02%. Going back to July 2011 there is substantial
support. In so many words, at low yields central bankers and their fellow
traveling fund managers have been buying high.
It seems that
Euro-bond yields could rise.
The Future of the Bond?
 
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