Dear Mr. Bernanke, A Note to Say Thanks
By Ron Coby Nov 06, 2009 3:05 pm
Great job pumping up and propping up the stock and bond markets.
Dear Mr. Bernanke,
As a follow-up to my most recent letter, I once again want to say thanks. I was so relieved on Wednesday when you announced your decision to keep short-term rates low for an “extended period of time." How kind of you to not take the market's punch bowl away.
I also want to congratulate you for doing such a great job of pumping up and propping up the stock and bond markets. Your bubble-blowing actions have allowed Wall Street insiders to make tremendous gains selling their inflated stocks to the unsuspecting public. It’s starting to feel like 2007 all over again. You remember -- the time right before investors were led to the financial slaughterhouse. But maybe that’s just me.
Here's the bad news for this propped-up government-stimulated economy: Greedy CEOs and Wall Street bankers -- those primarily responsible for getting us into this financial mess -- will be receiving millions in Christmas bonuses while average people on dollar Main Street will be looking at a lump of coal in their stockings come Christmas morning. I suppose you can’t please everybody. I’m sure you'll be receiving bales of Christmas cards this year from these newly enriched CEOs and greedy bankers across the globe as a thank-you for your efforts in bailing their sorry asses out. Enjoy the moment, Mr. Bernanke, because you remember what happened to the last Fed Chairman who was celebrated as the hero who saved the world. Be sure to enjoy your newly created bubbles while they last.
Speaking of bubbles, how about that bond market? After all that buying (quantitative easing) you did to prop up bonds, they're still at levels well below the beginning of the year. It sure looks like smart-money bond traders have been quietly hitting your bid and now your quantitative-easing bid is gone. Bonds are what I call a Gomer Pile market of “supply, supply, supply."Now let’s talk about the stock market. Wow -- you certainly would have made the Federal Reserve of the early 1930s proud. Heck, they may have even blushed a little bit when you consider the size and scope of your heroic efforts. They were only able to generate a 48%, five-month rally, after their famous 47% crash in 1929. You however, were able to produce a 55%, eight-month rally, after your 54% slow-motion crash. (Let’s not talk about the two and one-half year, 86% crash, that followed the 1929/30 rally).
How about that dollar? By telling the world you're going to keep the party going for an extended period of time, shorts are piling on the dollar like never before. Since recent sentiment polls showed that 99% of the public are dollar bears, and 97% of traders are in the bear camp too, you've created the carry trade of a lifetime. Now I know you want the dollar lower, but I’m afraid this short dollar bubble is going to blow up in everyone’s face. As investors across the globe short the dollar, giant speculators then go buy inflated higher-yielding assets like global stocks, foreign currencies, bonds, commodities, you name it. Once you're forced to hike rates, this short squeeze won't work in your favor like the short squeeze in the stock market did. This squeeze will unravel assets of all kinds, from all over the globe. Remember that 99% bears on the dollar effectively equates to 99% bulls on the stock market, since those markets are inversely correlated to near perfection.
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Reply
2009-11-06 16:05:27
Well said
I agree with you.... and the more I think the more scared I am about what will happen.
They are robbing from the poor to give to the rich.
They didn't have an exit strategy when they lauched an illegal war against Iraq on pretence and said they knew what was going on... WMD..
now they say they can manage this mess that they didn't see coming?
Trust them to get us out of it? No, they are digging the hole ever deeper and generations to come will suffer because of their foolish meddling
They are robbing from the poor to give to the rich.
They didn't have an exit strategy when they lauched an illegal war against Iraq on pretence and said they knew what was going on... WMD..
now they say they can manage this mess that they didn't see coming?
Trust them to get us out of it? No, they are digging the hole ever deeper and generations to come will suffer because of their foolish meddling
2009-11-06 16:15:23
Ben's response
Dear Mr. Coby: The job of the Federal Reserve is to manage the feelings of affluence and materialism in America. It has been obvious for quite some time that Americans have a need for un-earned income to supplement what they actually earn, in order to achieve a feeling of accomplishment through materialistic well being. We have been able to keep up with this need via the wealth effect. When Americans feel more wealthy they spend more, often times using their assetts to collateralise borrowing. We have no current wealth effect to provide for the needs of the Americans, so dog gone it we just have to print money. We will be able to reverse this course as soon as Americans begin providing for themselves through the actual creation of wealth building industries and attitudes. Sincerely, Ben.
2009-11-06 16:54:51
Ron,
Quit holding back and tell us how you really feel. Although last time I read one of your posts, I thought you were still relatively long (at least until the punch bowl is removed).
Most of the Feds activities and the cash for clunkers and the home "subsidy" programs (now in version 2) are rewarding those who exhibited poor fiscal behavior. It's important that their heirs and their heirs heirs are able to live the livestyle they really don't deserve.
With respect to the dollar - if it does become stronger, I suspect gold pricing in US dollar terms will be going down.
Quit holding back and tell us how you really feel. Although last time I read one of your posts, I thought you were still relatively long (at least until the punch bowl is removed).
Most of the Feds activities and the cash for clunkers and the home "subsidy" programs (now in version 2) are rewarding those who exhibited poor fiscal behavior. It's important that their heirs and their heirs heirs are able to live the livestyle they really don't deserve.
With respect to the dollar - if it does become stronger, I suspect gold pricing in US dollar terms will be going down.
2009-11-06 17:00:00
Well said
Jeff, Yes, it's like Robin Hood in reverse. I agree with what you say here.....on all counts.
2009-11-07 10:27:03
Ron, longs with cash and some shorts to hedge for when this new liquidity bubble goes pop.
2009-11-08 05:05:03
Another great article . . .
Ron,
This second letter to Big Ben is another classic. I suspect many insiders pumped up gold knowing that Congress would pass the health plan over the weekend.
Look for gold to pop to 1150 - 1200 at the minimum . . . and woe unto the dollar . . .
I may put 50% of my assets into foreign currencies myself and 10-20% into gold with the rest on the sidelines, Even this approach may be risky, but few alternatives.
Poor Ben may have his card hand exposed now and will be forced to raise rates within the next month or two in my opinion.
This second letter to Big Ben is another classic. I suspect many insiders pumped up gold knowing that Congress would pass the health plan over the weekend.
Look for gold to pop to 1150 - 1200 at the minimum . . . and woe unto the dollar . . .
I may put 50% of my assets into foreign currencies myself and 10-20% into gold with the rest on the sidelines, Even this approach may be risky, but few alternatives.
Poor Ben may have his card hand exposed now and will be forced to raise rates within the next month or two in my opinion.
2009-11-08 15:28:03
Fleecing
Ron,
It's just a simple continuation of the "fleecing" of the country by a few baby boomers.
Consider:
“I'm sorry. These are people I love and care about. You could imagine emotionally it's not easy to see what's happened.”
-John S. Reed, retired Chairman and CEO of Citibank, on why the Congress was wrong to repeal the Depression-era Glass- Steagall Act in 1999
Right, so this guy got his money (didn't know what he was doing was wrong), made his killing and is now comfortably retired. This I think is part of the "me" generation. A few of them in power will continue to try and get what they can out of the system before they retire. And that includes "fleecing" other boomers. They don't care.
This is why I am still quite vigilant. I don't think it's over yet.
There is more money yet to be "fleeced"
Also, if you believe Uncle Ben that inflation will not be a problem for the foreseeable future, then maybe it makes sense to sell sock just like those corporate CEOs did.
Then you can thank him for reflating the markets 60% off the bottom.
Of course if your an inflationist then you should do the opposite.
It's just a simple continuation of the "fleecing" of the country by a few baby boomers.
Consider:
“I'm sorry. These are people I love and care about. You could imagine emotionally it's not easy to see what's happened.”
-John S. Reed, retired Chairman and CEO of Citibank, on why the Congress was wrong to repeal the Depression-era Glass- Steagall Act in 1999
Right, so this guy got his money (didn't know what he was doing was wrong), made his killing and is now comfortably retired. This I think is part of the "me" generation. A few of them in power will continue to try and get what they can out of the system before they retire. And that includes "fleecing" other boomers. They don't care.
This is why I am still quite vigilant. I don't think it's over yet.
There is more money yet to be "fleeced"
Also, if you believe Uncle Ben that inflation will not be a problem for the foreseeable future, then maybe it makes sense to sell sock just like those corporate CEOs did.
Then you can thank him for reflating the markets 60% off the bottom.
Of course if your an inflationist then you should do the opposite.
2009-11-08 20:18:26
Another great article . . .
thanks M TB. Gold is the biggest bull market in the world. We are getting a little overbought but you are right, Gold should continue to work higher.
I'm thinking I should do a Dear Ben once a month as I have fun doing them.
I'm thinking I should do a Dear Ben once a month as I have fun doing them.
2009-11-08 20:21:13
How about that!
Donald, in my book, Discover The Upside of Down, I spend quite a bit of time talking about Alan's role in all of this. Especially in the "Today's Dollar is worth less, tommorrows dollar could be worthless" chapter.
2009-11-08 20:54:33
National Security Justification
The fact that Goldman Sachs lost money on just one day last quarter proves statistically that they, along with JPM most likely, are being utilized by the Treasury/Fed to accomplish two tasks:
1. They are "painting the tape"- creating chart patterns to draw in shorts. They are doing this with the intention of destroying all shorts and ending that activity.
2. They are supporting asset prices and the main indexes to maintain the confidence of the Public. Many aspects of this are done openly, others covertly, and extra-Constitutionally.
These activities are being done with the approval of the President, who has probably been convinced by the "Failed Men" that the Nations economy, admittedly on the brink of destruction (admitted to by Paulson and Bernanke in the context of either obtaining extraordinary powers/immunities or self-congratulatory praise for pulling us back there-from) depends upon these actions.
I would have strenuously disagreed with this thesis a few months ago. And I still believe that the structural debt collapse and turn in social mood will prevail, most likely leading to a Deflationary collapse. But a group of excellent traders, with trillions of dollars at their disposal, and a belief (professed anyway) that they are doing what needs to be done to SAVE THE COUNTRY, would certainly have levitational abilities Houdini might admire.
As an aside, the Market should have collapsed when Geithner turned down an offer of up to one trillion dollars for unrestricted use in September. This confirms, almost as solidly as the Goldman statistical impossibility, that several trillion more in losses remain in those off-book JPM and Goldman vehicles- in Goldman's case the bets may be correct but the counter-parties are dead. I actually thought I imagined or had dreamed of that trillion dollar turn-down until I Googled it last week- did that incident even make the first page or two of any newspaper and was there any analysis or follow-up of the import of that event?
1. They are "painting the tape"- creating chart patterns to draw in shorts. They are doing this with the intention of destroying all shorts and ending that activity.
2. They are supporting asset prices and the main indexes to maintain the confidence of the Public. Many aspects of this are done openly, others covertly, and extra-Constitutionally.
These activities are being done with the approval of the President, who has probably been convinced by the "Failed Men" that the Nations economy, admittedly on the brink of destruction (admitted to by Paulson and Bernanke in the context of either obtaining extraordinary powers/immunities or self-congratulatory praise for pulling us back there-from) depends upon these actions.
I would have strenuously disagreed with this thesis a few months ago. And I still believe that the structural debt collapse and turn in social mood will prevail, most likely leading to a Deflationary collapse. But a group of excellent traders, with trillions of dollars at their disposal, and a belief (professed anyway) that they are doing what needs to be done to SAVE THE COUNTRY, would certainly have levitational abilities Houdini might admire.
As an aside, the Market should have collapsed when Geithner turned down an offer of up to one trillion dollars for unrestricted use in September. This confirms, almost as solidly as the Goldman statistical impossibility, that several trillion more in losses remain in those off-book JPM and Goldman vehicles- in Goldman's case the bets may be correct but the counter-parties are dead. I actually thought I imagined or had dreamed of that trillion dollar turn-down until I Googled it last week- did that incident even make the first page or two of any newspaper and was there any analysis or follow-up of the import of that event?
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