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Five Things You Need to Know: Greenspan Warns "Market Identical to 1837"!; The Greenspan Way; Paulson Unsurprised by Surprising Economic Weakness; Starving Citizens Complicating Life for Politicians; Point/Counterpoint


What you need to know (and what it means)!


Minyanville's daily Five Things You Need to Know to stay ahead of the pack on Wall Street:

1. Greenspan Warns "Market Identical to 1837"!

According to the Wall Street Journal, Former Federal Reserve Chairman Alan Greenspan said the current market turmoil is in many ways "identical" to 1987 and 1998.

  • "The behavior in what we are observing in the last seven weeks is identical in many respects to what we saw in 1998, what we saw in the stock-market crash
    of 1987, Greenspan said.
  • "I suspect [it is similar to] what we saw in the land-boom collapse of 1837 and certainly [the bank panic of] 1907," Mr. Greenspan told a group of academic economists in Washington, D.C. last night.
  • But that's not all, Mr. Greenspan also said there were still other signs that this market resembles similar markets in 1834, 1858, 1974, definitely 1983, a little bit 1984, not so much 1985 and 1986, but kind of 1989, and from certain angles 1991 and 1992, although 1994 is in no way like today unless you turn the chart sideways.
  • Greenspan then took out his wallet and removed from it a small piece of a Dow Jones Industrial Average chart from 1977 that he says looks exactly like the Shroud of Turin.

2. The Greenspan Way

While former Federal Reserve Chairman Alan Greenspan is warning that this market is "identical" to 1837, Bloomberg's resident "Fed Watcher" John Berry says the Bernanke Fed is poised to handle this crisis in the Greenspan manner, by cutting the Fed Funds rate 25 basis points.

  • "If Federal Reserve officials cut their 5.25 percent target for the overnight lending rate when they meet on Sept. 18, it will be by only a quarter-percentage point with no promise of more to come," writes Bloomberg's John Berry this morning.
  • Mmmm, some "tough love," eh?
  • Only one little 25 basis point rate cut?
  • That's certainly not in keeping with The Greenspan Way.
  • Between March 1997 and November 1998, the former Fed Chairman took rates down by 75 basis points.
  • A little more than six months later, Greenspan began taking the love back, removing the 97-98 rate cuts, and by May 2000 taking back 100 basis points more to push the Fed Funds rate to 6.5%.
  • Within three years the Greenspan Fed Funds rate would be at 1%.
  • According to Bloomberg's Berry, what the FOMC does at their next meeting on Sept. 18 probably comes down to a matter of risk management.
  • "If the data and the anecdotes continue to depict a pretty healthy economy, the unusual degree of uncertainty about the outlook might lead officials to decide
    the best decision is a 25 basis point cut just in case the impact of the financial turmoil turns out to be greater than they expect," he wrote.
  • In his "Digging a Jackson Hole" speech last week, Federal Reserve Chairman Ben Bernanke acknowledged that the sudden loss of liquidity in financial markets, especially the commercial paper market, may make data for past months or quarters "less useful than usual for our forecasts of economic activity and inflation."
  • Speaking of less useful than usual, this brings us to today's Number Three...

3. Paulson Unsurprised by Surprising Economic Weakness

According to Bloomberg, U.S. Treasury Secretary Henry Paulson said the decline in U.S. payrolls in August was not a surprise.

  • "Data does not always move in a straight line, so occasionally you will find some surprises," Paulson said.
  • At least it wasn't a "surprise" in the same "surprise" sense as, say, discovering that after 25 years of marriage your wife is really a man.
  • Now THAT'S a surprise!
  • But a Wall Street-trained government bureaucrat's inability to predict economic weakness spreading from housing to the rest of the economy?
  • Not so much.

4. Starving Citizens Complicating Life for Politicians

According to the Financial Times, the United Nations' top agriculture official has warned that developing countries face serious social unrest as they struggle to cope with soaring food prices.

  • Jacques Diouf, director-general of the UN's Food and Agriculture Organization, said surging prices for basic food imports such as wheat, corn and milk have the "potential for social tension, leading to social reactions and eventually even political problems."
  • Eventually even POLITICAL problems?!?!?!?!?
  • NOOOOOO!!!!!!!
  • Clearly, when starvation threatens to cause political problems, the time to act is at hand.

5. Minyanville Presents: Point/Counterpoint

According to Bloomberg, James Simons, the highest-paid hedge-fund manager last year who raked in $1.7 billion in compensation, could pay enough in Medicare taxes to provide health insurance for about 4,800 senior citizens. But Simons' income is largely exempt from Medicare and other payroll taxes because it is considered a capital gain. Meanwhile, according to Bloomberg, stories such as this are at the heart of a proposal now in the U.S. House of Representatives seeking to raise taxes on hedge-fund and private equity managers.

The change, which Bloomberg says would raise as much as $1 billion annually and cover the cost of insuring about 98,000 people, would give a boost to Medicare, which the article says is estimated to exhaust its assets by 2019.

The proposal is creating quite a debate between those who favor increased taxes on the rich and those who oppose them,but it is also just one piece in a larger puzzle of increasing strife between the Haves and the Have Nots. Wherein lies the answer? Below, Minyanville presents Point/Counterpoint in an attempt to shed light on this important civic debate.

Gap Between Haves, Have Nots Creating Social Unrest

We increasingly live in a world marred by strife between the Haves and Have Nots. Over the past two decades, the income gap has steadily increased between the richest Americans, and those at the middle and bottom of the pay scale.

The wealthiest 20% of households in 1973 accounted for 44% of total U.S. income, according to the Census Bureau. By 2002, however, that share had jumped to 50% while the share for households in the bottom fifth shrank to 3.5% from 4.2%.

Meanwhile, the income gap is showing up in booming sales of luxury items. Porsche Cars North America Inc. says sales are up significantly for the year. As well, strong sales at Neiman Marcus, Nordstrom (JWN), Tiffany (TIF) and Saks Fifth Avenue (SKS) are more than making up for relatively lackluster (by comparison) sales at discount stores such as Target (TGT), Walmart (WMT) and Costco (COST).

If this gap continues to expand, we may find ourselves facing a crisis of social unrest as warring classes go to battle over assets and resources.

Hey, Check Out My New Watch!

Hey man, sorry I didn't get your call last night. I was out in the Hamptons at a private party where Eric Clapton was playing and because I was sitting next to him by the pool I couldn't see my personal valet signaling me that my global satellite phone was ringing. I would have called you from my helicopter after the party, but those things are so loud inside.

Anyway, what I wanted to tell you was check out my new watch! It's a Blancpain with mono-pusher split-second chronograph, split-second hand isolator, minute repeater, tourbillon, bi-retrograde perpetual calendar, and a see-through sapphire back. Hey, good eye! It IS white gold I could have gotten the platinum model for $1,600,000 but, who wants something that gaudy. This was a steal at a million solid. No, they don't do sales tax on purchases over $250 dollars.

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