It seems simple enough to us. Almost too simple.
Birds gotta fly. Fish gotta swim. The feds gotta print money. Why? Because there isn’t any other good way for them to get it. And because the economy is getting worse…not better. The feds feel they have to “do something” to fix the situation. That is the depth of their simpleton machine philosophy – a correction is a “problem”…problems need to be fixed.
The problem as they see it is that Americans don’t have enough money. And since they don’t have enough they don’t spend enough. And because they don’t spend enough, the whole consumer economy sinks.
Yesterday, the Dow lost another 219 points – it has given up almost all the post-ZIRP gains. You remember ZIRP? Zero interest rate policy. The Japanese tried it; it didn’t work. So, now it’s America’s turn. After the Fed announced its ZIRP, the Dow shot up more than 300 points. Now, the Fed has used up its last 100 basis points…and the Dow is back to where it started.
We’ll give you the rest of our market update and then return to our point:
The Washington Post suggests that hedge funds might go extinct as a result of this downturn. That would be a shame; they are such a convenient way to separate fools from their money.
We didn’t notice it when we were in LA last week, but California has been especially hard hit. House prices in many areas are down 40%. Towns are going bankrupt. And the state has had to stop billions of dollars’ worth of new projects in order to protect its remaining cash. Bankruptcy…drought…fire and brimstone – our California Babylon seems to be getting an almost Biblical judgment.
And now we’re seeing the Revenge of the Dustbowl. You remember, during the ’30s, there was a drought in Oklahoma, Kansas, and parts of Texas. The rich earth turned to dust and practically blew away. The poor farmers couldn’t pay their mortgages…and couldn’t raise crops. So, they loaded what they could salvage onto their Tin Lizzies and drove to California, where they tried to get jobs picking fruit.
The natives weren’t always friendly. Californians had their own problems. They didn’t want any more Oakies on the job market. So, they tried to turn them back at the border.
Now, 75 years later, it’s the Californians who are pulling up stakes. For the first time in history, more people are leaving the Golden State than entering it.
And pity the poor old folks in Palm Beach. The island was one of Bernie Madoff’s favorite haunts. And the island’s rich retirees and trust fund heirs were his among his favorite prey. He bilked them out of billions. And now, the Chicago Tribune reports that the pawn shops in Palm Beach are doing a jolly business…
Gold fell $7.90 yesterday…the price is now $860, still well above where it began the year. Gold is the only thing we know that has resisted this bear market. Why so? Because investors suspect that this drama has another act or two. Which brings us back to our point.
The outlook is too simple…too obvious.
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