Fleck: King Al Recommends Tax Hike
By Bill Fleckenstein
02/11/2003 18:13
Index Close Change
Dow 7843.11 -77.00
S&P 500 829.21 -6.76
Nasdaq Composite 1295.51 -1.17
Nasdaq 100 971.74 +1.78
Russell 2000 359.96 -2.14
Semiconductor Index (SOX) 266.74 +1.27
Bank Index 706.39 -10.29
Amex Gold Bugs Index 137.24 +4.56
Dow Transports 2128.28 -16.46
Dow Utilities 196.85 -3.92
NYSE advance-decline -593 -1,052
Nikkei 225 8484.93 +36.77
10-year Treasury Bond 3.96% -0.020
While Asia snoozed overnight, Europe bounced this morning, though that did little for our stock index futures, which were mildly positive. Once the tape got going, however, the buyers climbed all over tech, beefing up the Nasdaq vs. the S&P and the Dow . Naturally, the SOX was leading the charge in the early-going sea of green. Today, the PC sector kicked back in, with Dell DELL and CDW Computer Centers CDWC motoring ahead after dogging it yesterday.
Al Jazeera and Alka-Seltzer : The early-morning rally fizzled out just as Easy Al began to speak (more about that below). From there, the market ground lower all day long, with the slide enhanced by angst over the most recent bin Laden tape. We saw a small short-covering rally into the close, but for all intents and purposes, the prices you see in the box scores are the lows of the day. Today's downside leader was the bank stock index, which is never a healthy development, while tech was again the port in the storm. Tonight we will hear from Applied Materials AMAT , though given its preannouncement a week ago, we shouldn't expect anything too surprising. In any case, it will be interesting to see how stocks trade in the wake of its news.
Away from stocks, fixed income and the dollar saw small moves that were not worth commenting on. The metals were slightly lower. Earlier this year, when gold was around $340, I talked about trying to determine whether an eagerly awaited setback would occur, or whether gold would see another run. I never did reach a conclusion, and though gold went on another run, it didn't really do much for the gold stocks.
Obviously, a setback has been under way for the last $30 or so. My guess is that gold will be under pressure, off and on, until the war starts. Sometime around the war (slightly before or slightly after), there ought be a very good juncture to buy gold, because with war uncertainties resolved, gold can concentrate on being the monetary asset that it is. I will try to identify that juncture for people to either get long gold and gold stocks, or to add to their positions. I plan on doing the same.
Fiscal Fed Fake : Shifting to matters of domestic incompetence, I must again break my promise not to speak about Easy Al. His boundless arrogance leaves me no other choice. Today, our unelected self-important king gave his fool-on-the-Hill (formerly called Humphrey-Hawkins) testimony. In a novel twist, he devoted half of it to discussing fiscal rather than monetary policy. I guess his logic went something like this: I caused the biggest bubble in history, but since the headline data still look OK even though anyone operating at ground level knows the economy feels awful , I'll just attribute all the economic weakness to geopolitical stuff, I'll vapor on about fiscal policy, and maybe no one will notice.
He actually had the nerve to blame our economic trouble on "concerns about corporate governance, which intensified for a time, and were compounded over the late summer and into the fall by growing geopolitical concerns. In particular, worries about the situation in Iraq contributed to an appreciable increase in oil prices. These uncertainties, coupled with ongoing concerns surrounding macroeconomic prospects, heightened investors' perception of risk, and perhaps their aversion to such risk." So, by implication, were it not for those concerns, everything would be OK. I think anyone in the eighth grade probably could figure out that this is simply not the case. If that were the case, the economy wouldn't have needed and been unresponsive to our last 12 rate cuts.
Al's 30-Year Trailing Yearnings : He naturally went on to credit tax cuts and productivity -- the same lame argument that allowed him to rationalize the bubble -- for why things are as "good" as they are. "Underlying productivity has accelerated considerably in recent years," he crowed. Well, one of the reasons for this "recent" acceleration is that the prior productivity he had glorified during the bubble was revised lower. Of course, he wouldn't want to bother mentioning that what he has done is not as great as what William McChesney Martin did nearly 30 years ago. As my wise friend Jim Grant noted last spring, productivity growth averaged 2.6% during Martin's tenure at the Fed from 1951 to 1970, vs. an average growth of 1.6% since King Al's do-it-yourself crowning in 1987.
Then it was on to housing, where Al basically opined that as long as housing prices keep going up, people can keep taking money out, and there aren't going to be any problems, while correctly noting that taking money out of one's house has helped to hold the economy together. So, as we deal with the aftermath of the biggest speculative activity the country has ever seen, he credits leveraging up one's house for shoring up the economy, and sees nothing to fret about. (The housing bubble hasn't come unstuck, so everything is OK.) Bubble-blind, he opines: "Other consumer outlays financed partly by the large extraction of built-up equity in homes have continued to trend up. . . . Moreover, owing to continued large gains in real estate values, equity in homes has continued to rise, despite sizable debt-financed extractions."
Green-Stamped Pink Slips : Further, he cited how consumers' debt obligations are below their previous peaks, "and do not appear to be a significant cause for concern at this time." Of course, that presupposes you still have your job, because if you don't have your job, you have a real problem. Of course, that is the trouble the country faces in large measure, as all those Chicagoans who recently turned out at dawn on rumors of hiring by Ford could testify. There is a real problem in the job market, partly because corporate America is suffering through a period of profitless prosperity, thanks to all the excess capacity that was created by the misallocation of capital from the bubble he fomented.
But nonetheless, he went on to ignore all that as he dredged up his favorite economic elixir, information technology, from which "dramatic gains . . . have markedly enhanced the ability of businesses to address festering economic imbalances before they inflict significant damage." It is rather surprising -- given what is going on in corporate America and the attendant lack of profits and the attendant layoffs spawned by the lack of profits -- that he can say information technology has allowed businesses to adjust so that a retrenchment isn't so severe. Also, I don't think corporate America sees it his way. Recently, in fact, McDonald's MCD shut down a huge IT project launched during the bubble, as part of a cost-saving measure. That is the most visible example I am aware of, but I'm sure there are many others. So, this claim is complete nonsense.
Maestro Majors in Crossover Con Artistry : Then, after basically wandering around incoherently trying to say that everything is better than it is, he spent half his time talking about fiscal policy, the budget process, and how we need more discipline here. This is something I happen to agree with. But it's sort of ironic that he could lecture Congress about discipline when in his conduct of monetary policy, he categorically refused to be an adult and in fact acted like a dolt by using productivity to rationalize the bubble.
Perhaps the most disingenuous and sleazy comment of all, and the one that really got my blood pressure boiling, was his statement that the present inflation adjustments for individual tax brackets basically are costing the government money. He suggested that the government switch its present method of using the "official CPI index" to a "chained CPI index" that is even lower. Had we done this last year, all things being equal, it would have cost taxpayers an extra $40 billion (never mind the fact that the CPI understates the cost of living in the first place).
Reinventing the Weasel : So, the man who would be czar, who in reality is the most incompetent and irresponsible Fed chairman in history, wants Congress to raise your taxes in new and "improved" ways. Unable to conduct monetary policy, he now wants to move the goalposts and lecture on fiscal policy. His ineptness is overshadowed only by his lack of shame. |
