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  • Fed Acknowledges Weak Economy, But Disingenuous on Reason by: Charles Payne 0 comments
    Jun 24, 2010 9:26 AM
    I'm Hosting "Cavuto" tonight on FBN so please check it out!

    "Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad." FOMC Statement

    I understand Ben Bernanke has been on this crusade to retain all of the secretive and opaque power at the Federal Reserve, and he's taken a page from politicians that have become so ridiculously self-promoting it's hard to listen to them gloss over every mistake and blame the other guy. I would have appreciated an FOMC statement that said all of the things from the sentence above if it didn't try to lay the blame on developments abroad. How about these developments?

    Lousy jobs numbers, lousy housing numbers, lousy morale, lousy leadership, and a lousy game plan!

    Of course, household spending has been constrained by unemployment and modest income growth. Yes, housing starts remain at a depressed level, heck months supply for new homes soared to 8.5 from 5.8 in just a single month. Yep, inflation is "subdued" right now and maybe for some time, but it won't be forever. Once the floodgates open there will be an avalanche, and the only guy that seems to care is Thomas M. Hoenig who voted against the policy action because he sees it continuing to express the expectation of exceptional low levels of the federal funds rate for an extended period was no longer warranted because it could lead to a build-up of future imbalances and increase risks to long-run macroeconomic and financial stability (read another asset bubble). So one guy is being honest, and one guy is still spinning.

    It's even presumptuous to say "the pace of economic recovery is likely to be moderate for a time." Who says we are recovering? The crazy thing about this brave new world is regular people know the deal. Regular folks are on the ground floor, heck they know more about the real economy than all of those ivy tower geeks and their spreadsheets. I guess the Fed took a step yesterday toward that elusive thing called honesty. Now, if we can get the whole enchilada at one time it would be wonderful. Yes, we can handle the truth, because we live the truth. The economy sucks right now not in spite of all of the shenanigans but in part because of them. Of course, there was a time for the Fed to cut rates and there was a place for an honest stimulus plan (read mostly tax cuts across the board), but faith in the economy and the people behind it must be expressed at some point.

    These low interest rates have been a boon for businesses but have done nothing to awaken those would-be animal spirits in people that are looking beyond typical inducements. Heck, we don't even have a budget for the nation, how can anyone effectively budget their own lives and businesses? Taxes are going up, and there will be an attempt to ram through a VAT after the midterm elections. I don't think the votes will be there but it's going to be attempted. In the meantime, Treasury has been raking it in as well, taking advantage of America's reputation. The five-year auction went off okay yesterday but foreign demand (indirect bidders) is waning, and while bid to cover remains high, total amount accepted is arching lower.
    Today should be a nail-biting day with the initial jobless claims this morning. This report has been a major disappointment. One thing we know is that until the initial jobless claims begin to decline then the unemployment rate will not improve. By now, initial jobless claims should be well under 400,000 but here we are today hoping for something better than 460,000.

    The first-time homebuyers' tax program brought out the same kind of scamsters that ripped off 9-11 assistance programs.

    > Apparently, the IRS has denied or frozen $1.2 billion in tax credits.
    > $9.1 million claims came from 1,295 prison inmates, 241 in for life
    > $18.8 million claims came on homes bought before the program went into effect
    > $134.0 million claims came from two or more people on the same address; in one case 67 claims were filed for the same address.

    I know there is no sympathy for BP, but you know grifters and associated criminals are going to make millions on false claims. Although the company is behind, they haven't turned down a single request for funds, and our staff found a story of a guy receiving a check just eight hours after he put in his claim.

    Item- Much was made yesterday over negative comments about the President's handling of the economy by Ivan Seidenberg, CEO of Verizon (NYSE:VZ) and current head of the Business Roundtable. The organization is considered an ally to the President as opposed to the U.S. Chamber of Commerce, but even they have had enough. That being said, there was positive news from the organization. The percentage of CEOs expecting to hire climbed to 39% from 29% quarter over quarter, the highest level since second quarter 2007. Capital spending slipped, and that is a critical sign as we need to know for determining the coast is really clear.

    Item- By the way, haven't heard much about financial regulatory reform lately? Apparently, the tide is shifting and Wall Street is writing large swaths of the legislation. Lawrence G. McDonald of Pangea Capital Management and author "A Colossal Failure of Common Sense- the Inside Story of the Collapse of Lehman Brothers" has the inside scoop. His thoughts are on our website at www.wstreet.com.

    Item- The tide continues to shift around the world as the notion governments can spend nations to prosperity by vilifying businesses has taken another blow. The career of Kevin Rudd is over. Once considered one of the most popular Prime Ministers Australia ever had, his demise came swiftly as his own party booted him and in the process, his myopic plan to tax mining companies 40% as a windfall penalty of sorts. Rudd is exceeded by Julia Gillard, born in Barry, South Wales; she is seen as a social moderate but will have to be a fiscal conservative. It is really amazing to consider Rudd won in a landslide, but his career was bulldozed by his own doing.

    An interesting aside, Rudd states as one of his biggest accomplishments apologizing for the Stolen Generation. From 1869 to 1969, aborigine children mostly mixed race and girls were snatched from their homes and given to white parents. The topic is touched on in the movie "Australia", but the better movie is "Rabbit Proof Fence." Rudd's economic philosophy was not unlike President Obama, who I believe will offer an apology for U.S. slavery before he leaves office.

    Item- We can't go wrong with General Petraeus taking over in Afghanistan but the episode really stinks.

    The Market

    Equity futures improved after the release of initial jobless claims but there is still a lull over the market. The cap ex. spending in this morning's durable goods report was also a sigh of relief. Still, no need to force the issue at the open as the market continues to search for better catalysts.

    Disclosure: None
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