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Wall Street Strategies has been providing independent stock market research since 1991 to individual, retail and institutional clients through a balanced approach to investing and trading. Charles Payne, our founder and chief analyst, is routinely sought after for his stock market, political,... More
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  • No More Hocus-Pocus By Charles Payne 0 comments
    Mar 25, 2013 9:45 AM

    In September 1863, a husband and wife from Taunton, England turned to a group of local women for advice on how to help their child suffering from scarlet fever. At that time scarlet fever was often a death sentence forcing parents to desperation to save their children. This particular story was retold in the local newspaper in Somerset, which called the women "jury of matrons." The women all agreed that there was no hope of survival and instead focused on preventing the child from "dying hard."

    The advice from this group was interesting in the sense that it was steeped in witchcraft that many thought was driven out of town in 1707 when the town was the last in England to hold which trials.

    While the newspaper didn't outright call the "matrons" witches, it was clear their remedy for an easy death was part of ancient superstition that crafted witch methodology and belief. The women suggested:

    Open all the doors, drawers, cupboards and boxes in the house. In addition, the parents were advised to untie any knots (shoelaces, curtain pulls or apron sashes) and remove all keys from their locks.

    The fact these women felt these actions would work and the parents were compelled to seek their advice in the first place underscores how long-held beliefs suffered no matter ridicule, laws, or conventional wisdom. Apparently, this "sympathetic magic" focused on everyday objects that could affect human behavior. The advice of the matrons was to make sure passage into eternity would be easy and secured. Another reason these beliefs lived on throughout the ages is there were times when they appeared to work.

    In this case the child with scarlet fever survived!

    It was decided later by a physician that knew the family the advice of the matrons actually helped as it led to the ventilation of the home. I learned of this story in the summer issue of Lapham's Quarterly in a piece written by Colin Dickey and thought about it this week as politicians and even celebrities continued to demagogue sequestration.

    (Harrison Ford was out last week on the fact there will be accidents with the layoffs or furloughs of air traffic controllers at rural airports. One thing is for sure, there will be accidents no matter what as it is human nature but at least there's a scapegoat. Then there's the behind the scenes plan to eventually replace laid off workers with unionized workers rendering some political dismay in the category of crocodile tears.)

    As a reminder, the Budget Control Act of 2011 was born out of the very contentious debt ceiling battle in the summer of that year which decided a plan that would see automatic spending cuts across the board would be so draconian that no politicians would allow it to happen. Moreover, since defense would take the most severe hit the Republican Party would be willing to agree to anything. As it turns out sequestration went through and as a result we may actually end up saving the patient, also known as the United States of America, in the process.

    In that regard, this situation is not unlike what happened in Taunton England more than two hundred years ago. The difference is those matrons or witches were looking for a humane answer to a difficult question and tried to avoid "dying hard." When President Obama threw in massive cuts to defense it was attempting the exact opposite. This was supposed to be an agonizing hit and something of a win-win for the administration which has never hid its goals to redirect government spending from defense to other things like so-called clean energy or other "investments."

    The craziest thing happened with Republicans allowing sequester as the lesser evil to allowing even more tax hikes following those they gave into following the Fiscal Cliff skirmish. Even though sequester was the brainchild of President Obama he panicked at the idea of drawers and cupboards of cash being locked away or tied up. The White House went on a cross country witch hunt against Republicans over the notion these "draconian" spending cuts would lead to massive public suffering.

    The rhetoric badly missed the mark because of the assumption all Americans see unchecked government borrowing and debt was fine because somehow it provides "sympathetic magic." With the debt clock racing toward $17.0 trillion the average American is beginning to think it's not a bad idea to tie up Washington and take away their keys to locked boxes and more importantly unfettered borrowing. It's clear many in Washington cling to the notion of a trickle down economy. Massive taxes confiscate wealth from working America, churn it to a form of crumbs and ashes and then shift the residue to folks not working.

    These politicians believe this notion despite ridicule, conventional wisdom and the fact it doesn't work.

    For now a bewitching plan thought to give the White House the upper hand may be the most magical event to happen in politics in a long time. Sequester has shown how selfish government spending really has become. Then to ask the same public that cut its household debt by $1.3 trillion to rally around the idea government couldn't find ways to cut 2% of its fat only added insult to injury. This may just be the beginning as we ponder more and more if the "sympathetic magic" of a lifetime of welfare, unlimited unemployment payments and massive food stamp outlays do more harm than help.

    Back in 1863 the goal for children suffering from scarlet fever was to affect a dignified and peaceful death. America is suffering from fever now too, but more often than not would-be cures make the problem worse and there's no doubt the end game to current ills would be anything but dignified and peaceful.

    No Gridlock

    The biggest news last week that got barely any ink was the passage of continuing resolution in the Senate and House of Representatives. This was once thought to be the next battleground in Washington but instead it continued spending through September passed with relative ease in Congress.

    (click to enlarge)

    Part of the deal allows the Departments of Defense and Agriculture to be more flexible with its sequester cuts and actually funds the Coast Guard more than the White House wanted. Now, the word is out that Eric Holder will avert furloughs of prison staff. I'm sure there will be more reasonable applications of sequestration making it more palatable.

    Years from now it will be determined that while it wasn't the goal, sequestration led to the eventual ventilation of Washington DC.

    Today's Session

    A deal has been reached in Cyprus, and the Russians get crushed. The new deal spares bank deposits under 100,000, which are insured per EU rules, but everything above that is fair game. The dust is still settling, but we are looking at some accounts possibly getting a 70% haircut. Those accounts by and large are thought to be Russian oligarchs and mobsters, so therefore nobody should be upset. But this will create a greater schism than the one that already exists. For the most part miscues by Cyprus banks and the lousy European economy will be smoothed out by money earned (legally and illegally) in Russia.

    The initial reaction from the market is cheerful. There will be ramifications, but for now this is found money generated outside the Euro Zone that avoided Russian taxes but will fill EU coffers.

    https://www.wstreet.com/user/register.asp?source=3

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