Week in Review: Bernanke, Madoff and the Energy Bill

#1 - Bernanke testifies before the House Grandstanding Oversight Committee – Thursday

For those of you who didn’t watch the four hour “display”, I can assure you that you had a more satisfying week last week than I.

I have tried my whole life to keep my nose to the business of studying companies, trends, and business models. I was more than content to keep political study on the proverbial back burner. Of course, in the past 18 months, that simply hasn’t been an option.

I’m a cynic by nature; it makes for a great investing psyche, but can make other seeming simple actions excruciating. Actions like watching Congress laid bare in the national spotlight. There’s not a lot to be proud of, folks. See my earlier post on the pre-TARP legislation events to share a chuckle over my prior frustration.

My site was never meant to be a discourse on politics, and my personal feelings are irrelevant to the broader discussions. There are good reasons why 95% of capitalists are card-carrying Republicans. We don’t want government “getting in the way” of our attempts to gain – and retain – wealth.

If these next comments convince you that I’m in that rare 5%, so be it. I belong to the Pragmatist Party (not to be confused with the Libertarian party, as they might have folks believe in the pamphlets). In my political party, the biggest travesty isn’t a high budget, or big government, or increased financial regulation. The biggest travesty is waste. And our Congressmen and women all seem to have the same impressive Ph.D. in wasting – of time, of resources, of our votes.

Rather than spend all day Thursday sitting in small groups to have productive discussions on how to craft a smarter energy bill, or talk through some of the many real challenges that healthcare reform poses to the economy, they wasted the entire day asking Ben Bernanke if he was a lying bully. Over and over. Different words (at least they can craft those), but the same question, over and over. Did you lie? Did you bully? Did you threaten?

After an oath is taken and the first “unequivocally, No” answer is given, why not just consider the matter as resolved as it’s gonna’ get right now, and move on to things of much greater long term importance to all American citizens?

Why? Because grandstanding and aligning themselves for 2010 elections are the only “To Do” items at the top of their list, each and every day.

Before I digress too much (further), let me say that to accuse Mr. Bernanke of bullying is like accusing Fox News of being “too liberal”. Bernanke has spent his entire life in the ivory tower, so if he did indeed lean on Ken Lewis in any way, it was in a language far too erudite for any Congressman I watched on Thursday to understand.

Now Hank Paulson, on the other hand, is not a guy I’d want to run into in a dark alley with a full wallet. That guy, definitely a bully. But he’s not around anymore, so Congress decided to throw its stones at the egghead in the corner who silently brought the economy back from the abyss last fall. An overall shameful display.

#2 - Madoff Sentencing; Or, The Comics Page

Bernie Madoff had pre-sentencing hearings last week, and his attorney amusingly asked for a shortened 12-year sentence, saying that Madoff was “receiving death threats and anti-Semitic emails” (there’s an onion’s worth of irony layers in that one), had turned himself in (point of order - the plunging stock market turned him in), and will “express his remorse” in a court statement on Monday. Sources report that several courtroom members in attendance needed oxygen to treat hysterical laughter.

While no sane person would argue that Madoff shouldn’t die in jail, there continues to be a part of me that would rather seem him released, but forced to live a small Manhattan apartment with a big neon sign above the roof that reads, “Bernie lives here”. Oh, and there’s not allowed to be a lock on the front door. Now that would be a shortened sentence.

#3 –Markets In Review

On to the markets, where major indexes ended the week essentially flat after slumping to begin the week and gaining some ground on the back end. Individual sector performance can be seen below: (Click to enlarge)

There were a few decent earnings reports (Oracle (ORCL), Bed Bath & Beyond (BBBY), Palm (PALM), a few weak ones (Monsanto (MON), Nike (NKE), Walgreen (WAG), Paychex (PAYX)) and a bunch of mixed bags (Red Hat (RHT), McCormick (MKC), Conagra (CAG)).

The market finds itself unsure of where to go, and both bulls and bears can make good claims to having the right “read” on the market. It’s an evenly matched fight, but I have to give the nod to the bears at the moment. Earnings estimates are starting to drift in for the full year, and even when comparisons are solid year-over-year, we are seeing consistent signs that few industries are getting back to 2007 earnings levels.

The much-hyped “reflation” trade is seeing the same fate, with constituent stocks continuing their selloff from the prior week on Monday and Tuesday, only to see some buying interest later in the week. In line with this theme, U.S. Treasuries had a decent week, with yields on the benchmark 10 year ending at just over 3.5%, down from 3.7% last week. One promising sign is that our auctions continue to go extremely well and are oversubscribed.

We need this trend to continue for the foreseeable future, but we know that demand will at some point falter, and the economy needs to be on more solid footing when that happens so it’s a risk-seeking issue on the part of global investors, and not a larger consensus on our government policies.

#4 - Energy Bill Passes House Vote By Narrow Margin

In what I considered a surprise, the house voted 219-212 on Friday to pass legislation aimed at reducing greenhouse gas emissions up to 17% by 2020. It’s fate in the Senate is unclear, as Democrats will need at least one more vote against what is shaping up to be one helluva nasty filibuster.

The bill is an imperfect one, not because of its aims (which are admirable and certainly achievable) but because of the near-certain short term consequences. I’m a big believer in the “Necessity is the Mother…” philosophy, but utility companies are just too old school to not pass on down every extra dime they see on the cost side. There are plenty of good market-base solutions that will, in time, give us a much more efficient energy backbone in this country. But until we get there, it’s going to be a lot of trench warfare, and there are sure to be casualties.

The sooner we can get a better grid/transmission system in place, the sooner that the low-cost producers can exert their influence on the market. This is the theme around which I will be making my next addition(s) to the Secular Trends Model.

Comments

[Ferdinand E...:]

What a wonderful piece of news: the energy bill passed the House by only a few votes. Almost makes me feel like putting my tennis and cafe life aside in order to explain to the voters what a piece of nonsense it really is. I predict that this is exactly what I will be forced to do if the local morons (in Sweden) get too enthusiastic..

Jun 29 10:03 AM