Is the Populist Mob Right?

As we approach G20, the temperature is not only rising in official circles in Europe, but also among public crowds literally in the streets. This is all per the forecast we made two years ago, in harmony with our ‘epic debacle’ call for the economic future. We have a new Administration that promised ‘change’, and we got it: ‘small change’. The Captains of the Titanic are still figuring out why the iceberg was in the way, not whether they had plotted their course incorrectly and needed to respect Mother Nature.

That these ship captains are not at the bottom of the ocean is because they were first to get on the lifeboats and then allowed to command new ships, rather than being fired. That’s the logic of questioning why both the governmental heads and banking chiefs are largely still the same who steered the financial ships into the icebergs originally. It is true that some of these leaders promised new understanding and direction, but for the most part that was to convince all their financial heroin and meth addicts to purchase new fixes at least for now. This is what we at ingerletter.com, with all due respect and a partial admiration for several as individuals, have been warning about while properly calling for the biggest catastrophe in our nearly 40-years of market analysis since pioneering a concept then known as financial television (at the time without any hidden agendas; and without a prediction of a glass being half-full or beholden to anyone but the investor class).

Now you have the CEO of General Motors (GM) fired, while the bankers are still employed. You have distributors of heroin being subsidized with additional leverage while all the kings men generally advocate reducing mortgage costs for normal people (but of course not availability of funds) while it seems they encourage surplus funds be used for spending, rather than savings or ‘real’ stimulus. This is not the change the world demanded or the U.S. requires.

Actually, France’s President Sarkozy has the right idea - don’t gloss over the situation with phony G20 accord press releases unless there is a real agreement equivalent to the Bretton-Woods conference, as it’s that important for the world’s future. Meanwhile the Obama Administration essentially adds leverage to the system so as to stoke addiction to pre-confidence-cash, without emphasizing that deleveraging that is essential, since clearly we have to adjust to the real world ahead, not that of the past.

Leaders try to guide consumers and citizens into ratcheting down their living standards gradually, while never explaining how there can be no return to lifestyles of the past. A confusing conundrum of advocating fiscal responsiblity and excess spending simultaneously. This understandable desire to deflect panic (by spending like 'drunken sailors'), while purporting to defend against foreclosures, actually prolongs the misery, so extends the duration of overall economic contraction.

Our members know the variables that exist and the bias to continue heavily in ‘cash’ throughout this two-year 'epic debacle' forecast timeframe. All the while the Feds listen to Keynes (the socialist economist) a bit too much, even distorting his views which differentiated creditor from debtor nations (he never intended for the largest creditor nation to leverage one more time its existing leverage). I sometimes wonder if this forecast pendulum swing goes beyond ‘reversion to the mean’ long called for. Is it just mob psychology, or a brewing 'Revolution'?

The good news may be that an intended inauguration of a so called ‘new world order’ in London this week won’t happen. That globalist imperative was thrust upon people, without their acquiescence and without any transparent revelations of the motives (of course aside from bringing American wages down to lowest-common-denominator levels of the underdeveloped world, essentially destroying the future for so many without an opportunity to have their voice heard), so maybe a resurfacing of economic nationalism is actually preferable to that alternative.

Germany says they won’t spend any money to leverage their condition dangerously as has the United States. France essentially says the same, but adds (wisely) that they will not accept a glossed-over phony press release from the conclusion of G20. And, Obama still argues for dangerous leverage, to wit further providing of narcotics to addicts, without a fight against narco-terrorists.

Does this mean markets have to crash anew? Not necessarily. This is economics as its own dismal science. But it restricts the ability to get-off-the-mat by forestalling a coming-to-grips with reality; builds a fantasy that the former plotted-course can be yet-again rejoined, even though the ship is already submerged. That’s the rub, that’s why we pondered how the very same Larry Summers signing-off on repealing Glass-Steagall in 1999 could now look into cameras with a straight face and talk of historic spending at the same time as we would not be in this fix if they had learned from history before.

It’s not failing to take a higher road by the way: they should re-impose Glass-Steagall at the same time as they acknowledge those Republicans and Democrats warning in 1999 that ten years hence (we concurred by the way) they would wish ‘they’d learned from history’ because doing otherwise dooms one to repeat it. That would be ‘change we could live with’. In Detroit, workers are scraping off Obama stickers from their cars; in London and New York people wonder if Obama is really independent or controlled by the same overarching elitism that favored the globalist new world order originally. I might ask why this makes the mob wrong, as most of the non-rabble who might be in the mob, simply want to go ‘back to basics’.

I’m not in favor of panic or mobs, but we advocated ‘circling the wagons' in 2007 before attack of the killer globalist extremists with their toxic porridge poisoning the wells for future generations as ingerletter.com members know. The antidote for panic was preparation in 2007. It was the effete elite who thought they could navigate unchartered waters unscathed.

Bottom line, this is not an easy market to trade. I know the majority are thinking in terms of a rally extending into May, by which time bullishness will grow. Not so simple. At the same time (provided the outcome of G20 is as mediocre as suspected), monetary improvement, if not really on the agenda, means the market has to contend with poor earnings and various defaults and delinquencies as we’ve outlined. On the 3rd of March we warned not to stay short overnight, as we expected a coordinated governmental series of interventions and an upward market. As of the last 3 days, we've warned not to stay long overnight (in indexes), as this is a potential shipwreck about the hit the rocks again. Stay tuned as we evaluate the G20 meeting.

Stock position: None.

Comments

[JHG:]

You need a metaphor coach.

Apr 01 12:39 PM

[Chimbu:]

The point here is not right or wrong, the point is an excuse to have a good old fashion riot.
Obama choose to appeal to the public, to be populist, to be outraged and fan the public flame.....
Alas for him, the election was over mouths ago, now it is up to him to sort the mess out, not to be at the head of the mob and storming the establishment that he happens to be the head of.
Odd image this.... when a mob is trashing you house, instead of trying to top them, you join in the fun....

Apr 01 01:47 PM

[Howard_T:]

The captain of the Titanic went down with his ship, but then he had a lot more integrity than some of the bankers.

My dad used to tell me that near his 8th birthday, when news of the Titanic disaster reached his remote Nova Scotia fishing town, the people were not sad, but rather were celebrating. You see, the liners had a habit of speeding through the fishing grounds and causing dories to capsize and the occupants to suffer drowning. Contrary to the laws of the sea, they never slowed down to attempt rescue. What drove this behavior was the desire of passengers to book their passage on the fastest and most luxurious ships, and anything that slowed the ships down was bad for business.

Perhaps you see where I am going with this. We are the passengers who through ignorance or greed allowed the captains (the investment bankers) and their agents (the politicians and those who headed federal agencies) to continue a course of conduct that would eventually result in disaster. Well, the disaster has happened, the Titanic has struck the 'berg and sunk, and we are left to celebrate or to swim for it. After 1912, some changes were put into effect for safety. They did not address the practices that had caused the disaster, but rather made loss of life less likely. The opportunity we have now is to throw the politicians out of office at our earliest opportunity. We must also identify exactly who is culpable in all this mess, whether out of ignorance or greed, and remove them from any position of trust or leadership in government or the financial industry. Finally, we must change the laws so that safe, conservative financial practices must be followed, and anything else must be punished.

Apr 01 02:11 PM

[User 387057:]

We arent' on "strike", we are BROKE. 30% of our spending in this country (at least, probably more) was debt fueled. The 2005 financial "reforms" in Congress pulled the rug and OVERNIGHT sucked $50 BILLION out of our spending dollars a MONTH, then removed usury laws and allowed the BANKS to raise rates on credit worthy, PAYING, customers.

And we speak of recovery?

Until Glass-Steagall is reinstated (not even on the table now), until the 2005 "reforms" are reformed to protect our small businesses and households, until the trillions pouring into banks stops, until JOBS are created for the bottom 50% of the IQs in this country and until we quit importing cheaper foreign labor, this massacre will not abate.

At all.

Enjoy your rally.


On Apr 01 08:57 AM athena wrote:

> I think that people are on strike. Noone will spend any money or
> make any investments. This is their way of protest. It may get huge.

Apr 01 02:42 PM

[William F M...:]

The recession wasn't caused by "cheap money"; it was caused by greed coupled with irrational and unjustified lending. It was caused by the fraud of bankers and financial institutions who over evaluated their holdings (mortgages) and packaged and sold them off to others. It was caused by our fractional reserve banking system operating without any government control or regulation. It was caused by the lack of application of "mark to market" accounting principles. Our bankers got gredy but they have learned. Our automobile CEOs have yet to learn.


On Apr 01 09:37 AM AndrewBaker wrote:

> I agree with the advice not to stay long overnight Whilst the politicians
> cobble together some supposedly unified solution and resort to backslapping
> each other and posing for the cameras at the G20 meeting in London,
> the economic situation will worsen as nothing so far resembles a
> solution. We are in the worst recession possibly in living memory,
> and it was caused by too much cheap money, which is what the solution
> is we are being offered. The markets moved up at the end of this
> first quarter: watch them move down in the second.

Apr 01 02:50 PM

[jambo:]

Perfectly reasoned and superbly written! If I could pray for a single thing it would be that YOU dcb or a person with equal reason, were in Geithner's job. I agree that the original article was ill phrased and cumbersome to read, but a careful analysis of content shows its underlying dynamic to be fiscally correct...at least in the opinion of this patriot.


On Apr 01 10:22 AM dcb wrote:

> Are you sure you actually read the article? your reply does not go
> with what is actually written. He advocates more along the lines
> of direct to the taxpayer relief of debts instead of paying off wall
> street by reflating the credit bubble. If you want to talk about
> racism the Obama monetary policies are a disaster for the lower classes
> and minorities. How does inflation help someone with low income?
> it doesn't it destroys the savings they have. How does using leverage
> to make housing more expensive allow those with lower incomes to
> afford a home? How does propping up the stock market at every turn
> help those who own no stock? Deflation increases the spending power
> of those who make less, and a strong dollar also increases their
> spending power. All of these policy"s appear not to be backed by
> the current administration. the policy that would help the most,
> allowing judges to rewrite mortgage contracts, the administration
> is letting languish in congress. You are one very confused individual.
>

Apr 01 03:01 PM

[Just Say Whoa!:]

"I’m not in favor of panic or mobs, but we advocated ‘circling the wagons' in 2007 before attack of the killer globalist extremists with their toxic porridge poisoning the wells for future generations as ingerletter.com members know."

The author is correct--back when Republicans were in charge, the Fed's actions were "peachy-keen":

"...you can't provide responsible or prudent oversight of the monetary structure by caving-in to the unrealistic whims of (largely) the very crowd that perpetrated the core problems in the first place."

The Fed 'Gets It'; Wall Street Doesn't
Gene Inger
December 12, 2007
seekingalpha.com/artic...

Just another political partisan who is "poisoning the well" long before the medicine has had a chance to cure the illness?

Apr 01 03:03 PM

[jambo:]

You poor poor man! I wish somehow you could have your way, but that its effect would only be visited upon yourself. You are truly not ready or able to accept the result that would come of your philosophy being realized.


On Apr 01 09:12 AM friar tuck wrote:

> yadda yadda yadda. another article by a republican racist. start
> spending some of your riches and help america get out of this. sarkozy
> maybe forgot what willing and unwilling americans did for europe
> throughout the last century. there are hundreds of tons of american
> blood and bones buried over there so europe could be a free society.
> now, when our president comes to europe for help in this economic
> recovery, this ungrateful b...ard says he's going to walk out!! what
> a pig. as i was writing this article i received word that a good
> friend, who fought in ww11, passed away. in the name of Arthur Conover,
> i ask mr. sarkozy and the rest of the world leaders to step up to
> the plate and spend some your blood money!!! AMEN. YOU TOO, MONEY
> BAGS.

Apr 01 03:06 PM

[infp:]

It amazes me that the market has been recovering lately when no one knows what to do with trillions of dollars of toxic assets in our largest financial institutions. Every proposed solution from both the Bush and Obama administrations consists of the federal government (taxpayers) paying the banks trillions of dollars for toxic assets that they cannot sell on the open market. This is merely a transfer of bad debt from well connected Wall Street to clueless main street.

Apr 01 03:09 PM

[Gene Inger:]

funny... if not incorrect... the perpetrators were both bankers, hedgers, and the politicians... and here we are a year and a half later with so-called stimulus 'medicine' not yet infused into the patient. I appreciate what you're saying; however do know that the important thing is we reversed a 4-year bullish stance in February of 2007; and thought during the Spring and the Summer (when the 'waivers' that were barely reported came out allowing 'firewall' breaches between banks and brokers); and there have been only two times since that we nibbled on stocks; literally at the November 2008 low and first few days of March 2009; within harmony of an ongoing macro decline.
Anything I have written here is abbreviated or has reduced specifics, in fairness to our subscribers. I try (though realize my language is likely colored by my age and schooling that came before 'sound bite' analysis) to convey here my overall perspective, while reserving details for our own members. I do appreciate the encouragement and critiques; as they may aid my efforts at consolidating text. This increasingly is the case on our site; as I do almost all technical analysis (integrating fundamentals as appropriate) by video these days; not text.
(By the way I am neither of the left or the right; but a centrist who tries to invoke common sense over all these years.)


On Apr 01 03:03 PM Just Say Whoa! wrote:

> "I’m not in favor of panic or mobs, but we advocated ‘circling the
> wagons' in 2007 before attack of the killer globalist extremists
> with their toxic porridge poisoning the wells for future generations
> as ingerletter.com members know."
>
> The author is correct--back when Republicans were in charge, the
> Fed's actions were "peachy-keen":
>
> "...you can't provide responsible or prudent oversight of the monetary
> structure by caving-in to the unrealistic whims of (largely) the
> very crowd that perpetrated the core problems in the first place."
>
>
> The Fed 'Gets It'; Wall Street Doesn't
> Gene Inger
> December 12, 2007
> seekingalpha.com/artic...
>
>
> Just another political partisan who is "poisoning the well" long
> before the medicine has had a chance to cure the illness?

Apr 01 03:30 PM

[Fighting Yoda:]

Governments have miserably failed; people have no choice to take the matter on their own hands. London riots are much justified – they are simply giving the message – we are disgusted and fed up of being screwed.

America caused this problem - simply too much greed and zero oversight. Now it wants to simply throw money at the problem – if a Trillion does not work we will throw $12.8 Trillion. Yes $12.8 Trillion has been either spent/lent/committed/lost already by our Govt. This is colossal amount. $ being the reserve currency rest of the world is rightfully worried – if US or the $ goes down – the entire world goes down.

We still have the same people – Geithner, Bernanke etc at the helm. These are people that caused the problem, or at best never saw it coming. We continue to follow the same policy – cheap easy money – borrow and consume. The strategy has been regulation later let’s spend first. Sarkozy is exactly opposed to this, regulation first money later. That is how we got into the AIG bonus pickle.

AIG bailout is simply a way to bailout the cronies like Goldman etc in tune of 10s of Billions. Who is paying for it we the tax payer.
Public-Private fund is another scam – shift toxic assets to the tax payer. The same cronies will double deal and overpay on the buy side and will make out like bandits. Once they get the toxic stuff out they will arrogantly return TARP and continue the looting.
The bankers have looted us for last two decades by blowing bubbles and collecting fat bonuses. Now the bonuses are under scrutiny so BofA is deciding to double the salaries. What arrogance and utter shamelessness.

Paul Krugman had an interesting OpEd in NYT a couple of days ago: ‘America the Tarnished’:
“…Indeed, these days America is looking like the Bernie Madoff of economies: for many years it was held in respect, even awe, but it turns out to have been a fraud all along….
… Still, it’s a fact that the crisis has cost America much of its credibility, and with it much of its ability to lead…
… The financial crisis has had many costs. And one of those costs is the damage to America’s reputation, an asset we’ve lost just when we, and the world, need it most. “

More power to the protesters.

Apr 01 03:36 PM

[dcb:]

yeah, I was feeling the same thing. take a look at his web site, he mentions that he has never made any mistakes. told people to buy on march 9th. (Like that was a hard one. we were only as far away from a 50 day moving average as has ever happened. ). He doesn't even understand that the reason we had a long bull market was because volker cut off credit, restoring monetary stability, and deleveraged the system. he wants to reflate the credit bubble despite the fact that every financial crisis was caused by excess credit. predicts oil will cost a fortune again very quickly, and dow will rocket. Of course it will, if you debase the currency it goes up. his perscription is a disaster. As an MD, i advise you go back on your medication


On Apr 01 03:15 PM User 383096 wrote:

> Is that Cetin or cretin???

Apr 01 04:36 PM

[dcb:]

wrong again. Like Gm these financial companies could have a controlled bankruptcy allowing them to function in an orderly manner while being broken up. the reason Lehman was a disaster was because Fuld had no bankrupcy plans and closed shop overnight. Ditto with AIG. These companies play a gam of chicken with the governemtn and have no plans on purpose so they can blackmail the tax payer.

As for the validity of my claims I will put down a link to a book written by the stern school of business suggesting ways to solve this crisis that would cost less and cause less disruption. I assume the finance dept of NYU is a valid source? The book is endorsed by Paul Volker, and you don''t see him out and about saying what a good job is being done by this administration.

www.amazon.com/Restori...



On Apr 01 04:23 PM dcb wrote:

> I hate to be insulting, but from reading your posts, you do not appear
> to be dealing with the same reality as the rest of the world. Perhaps
> you should disclose your stock positions. Nobody in their right mind
> could say the things you do without some financial gain.

Apr 01 04:45 PM

[jambo:]

Oh MY, YESSS!! The metaphor is deliciously apt, and yet we can take no joy or solace in the awful truth.
When all is said and done, the same prudence that insured the survival of our ancestors -back to stone age- is what we and hence our government should be about right now. Spend ourselves into riches??? that math has not yet been invented.


On Apr 01 10:54 AM ebworthen wrote:

> Well Done.
>
> We're giving our drunk unemployed Uncle a case of whiskey and another
> $5,000 in cash to go on a bender to Vegas so we can feel good about
> ourselves.
>
> He warned us that "we had to do something" or he might get sober
> and get a job.
>
> Solving debt with debt, robbing the responsible taxpayer, rewarding
> the irresoponsible and unethical, devaluing the currency and building
> a deficit that will force collapse and war; brilliant.
>

Apr 01 05:31 PM

[I am not a ...:]

Cetin...perhaps you only need to look at Japan in the 1990's as it tried to spend it's way out of the crises resulting from it's own bubble economy. Fiscal Stimulus ,also known here as a '"cash splash" didn't work . Australia did it last november by wasting a 20 Bn surplus by giving all taxpayers $900 each. Again it hasn't worked. The retail sector stated last night that Feburary 2009 was the worst period for 8 years.
So again we have another package aimed at us,this time with 40+ Bn borrowed from the Chinese and Middle east. It hasn't even been handed out yet and the prime Minister is speaking of a third Package.
The Government is where the blame is held,afterall they 'Govern'. It is the responsibility of any democratic regime to ensure that the economy works to the benefit of all not asa means to enrich those clever enough to gain advantage for little effort as has appeared to have happened in the US.
If the Government were not so busy lining the pockets of their Cronys ,especially throughout the Iraq Debacle and kept a closer watch on the money in the US treasury,would the world be facing the abyss today? i wonder....



On Apr 01 04:00 PM Cetin Hakimoglu wrote:

>
> The govt. didn't cause this problem, and it's far too early to conclude
> the bailout efforts have failed. This whole 'crisis' is merely a
> market correction evidenced by contracting PE ratios. Sure there
> are some troubles in the financial markets but to say the govt. failed
> or that America caused this problem due to excessive greed is flat
> out wrong.
>

Apr 01 07:54 PM

[aware:]

Get your guns and get ready.Can you make it in the real world?

Apr 01 08:20 PM

[aware:]

Get your guns and get ready.Can you make it in the real world?

Apr 01 08:23 PM

[Lee Eugene ...:]

You say that this is not a problem caused by government, yet you admit that it is the result of banks' overleveraging to stimulate lending, leading to both lower lending standards and higher asset prices. How can banks just overleverage--manufacture their own money? No. They get it from the government, which gets it from debt issuance. The government controls, in a very real way, how much liquid is greasing the wheels of the American economy. By now everyone must realize who is ultimately responsible for creating the environment in which this has occurred.


On Apr 01 04:00 PM Cetin Hakimoglu wrote:

>
> The govt. didn't cause this problem, and it's far too early to conclude
> the bailout efforts have failed. This whole 'crisis' is merely a
> market correction evidenced by contracting PE ratios. Sure there
> are some troubles in the financial markets but to say the govt. failed
> or that America caused this problem due to excessive greed is flat
> out wrong.
>
> On Apr 01 03:36 PM SB-tiger wrote:

Apr 01 09:54 PM

[techzone12:]

To get to the source of the problem, just look at how we elect politicians. Most of the politicians in Washington have ties with special interest groups. It's the traditional "pay to play" scheme. It's what called "lobbying". Does anyone remember Abramoff? How about Madoff (he ran his scheme for 20 years, and he was the head of Nasdaq at some point)?

That's why they are bailing out the banks and not the people. Then they would use scare tactics (anyone one remembers the scare tactics that Bush used to wage war on Iraq!). They will tell the average Joe that he will loose his job, if they don't bailout the banks. They will tell him that the bonuses to the crooks are a necessary evil to get the job done.

That's why I argue that this crisis is more political than being economical. Both republicans and Dems are responsible. So far, the change that Obama has promised did not materialize. Because he has "advisors" telling him that he needs to be careful as to "not rock the boat".

The solution is really simple: "Don't Let the fox guard the henhouse"

Apr 02 10:46 AM

[Chancer:]

The populist mob is never right.

They elected Obama.

60% of the people are almost always wrong on 100% of the issues.

Apr 02 06:57 PM