The Eye of the Storm
by J. Orlin Grabbe
Those crises sure come and go quickly, don't they?
It was only in July that IMF deputy managing director Stanley Fischer along with the U.S. Treasury under Larry Summers had pushed the IMF--even over IMF managing director Michel Camdessus' objections--to agree to pour another $23 billion down that rathole called Russia. And Goldman Sachs was happily stuffing Russian bonds into its customer's portfolios--after all, they would be repaid with IMF funds, wouldn't they? And Queen of Maya Abby Cohen was dangling the magic Dow 10,000 before everyone's eyes and invoking the law of inertia (“an object in motion continues in motion in the same direction unless acted on by an outside force”). No-drag Queen Abby saw no outside forces worthy of note.
That was July. Then August and September intervened. By September we were in the midst of “the worst financial crisis in 50 years.” So said Bill Clinton, the supposed President of the U.S. So said presidential lapdog Larry Summers. So echoed Treasury Secretary Robert Rubin, who denied he was leaving the administration before the current crisis was safely repelled.
Well, Mr. Rubin, it's all been solved now. The fever is gone and the patient says he feels wonderful. So declare victory and get the hell out before you get your ass whipped. Alan Greenspan has ridden his mighty monopoly to the rescue. The Federal Reserve has cut interest rates three times now in only a matter of a few weeks. Stock market lows were reached on October 8, more or less, and have been on the upswing since. The smell of fresh new Federal Reserve notes has driven the world's money junkies into an orgy of stock buying. Specialists at the New York Stock Exchange have been marking up prices as rapidly as possible as they dump their inventories off on retail customers and hapless mutual fund managers. That way they'll be in a position to mark prices down twice as fast in the next sell-off.
Enjoy the illusion while it lasts. Alan Greenspan is God. Fnord. Abby Cohen is not the Queen of Maya. Fnord.
Then there's the political dimension. The election will not be a referendum on Bill Clinton, Clinton declared. Not a referendum on Clinton, many Democrats reiterated. Then came the election, in which the spineless Republicans managed to lose five House seats. Oh, now it was indeed a referendum on Clinton. The refrain of the spinmeisters: “The electorate has spoken. They were angry at the persecution of Our Beloved Fuhrer Bill Clinton. Who cares if he's raped some grade B movie actresses (the sluts were just asking for it), had people killed, bribed Webster Hubbell, or engaged in wholesale money laundering through the Teamsters? Forget it. The happy voters are contented with their stock portfolios, and annoyed with your messing with the magic formula.”
Enjoy the illusion while it lasts. Bill Clinton is God. Fnord. Hillary Clinton is a noble human being. Fnord. Fnord.
In my article “And Now, the Financial Apocalypse,” posted on Sunday, August 2 (the Dow fell almost 100 points on Aug 3 and 300 points on Aug 4), I suggested there would be a correction, a relief rally, and then the massacre. Well, the relief rally has been going on since October 8. But the completely blind and irrational reaction to the Fed's little interest rate cuts (do you really believe “the worst financial crisis in 50 years” has been eliminated in the past five weeks by the Twelve Apostles of the Open Market Committee?) suggests to me the relief rally is just about over. Next comes the massacre. Watch the deity status of Greenspan and Clinton topple along with stock prices.
Why would anyone think things were different? Did anyone believe the worst financial crisis in 50 years would disappear within the ephemeral attention span of the average stock investor? Did anyone really think impeachment proceedings would be shoved aside on the basis of dim-witted Democrat PR ravings, or simply because some cowardly Republicans were vying for their own set of presidential kneepads?
Has Russia been saved yet? Is the Southeast Asian economic crisis over? Is Japan's economy undergoing resurgence? Has the yen-dollar exchange rate stabilized? Is the credit crunch over? Is Long Term Capital Management the only hedge fund casualty? Has Bill Clinton given up use of a private Gestapo to destroy his critics?
If your answers to the above questions are mostly Yes, then buy stock. Be my guest. If No, then get ready for the massacre.
Let the ruination begin.
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from The Laissez Faire City Times, Vol. 2, No. 39, Nov. 23, 1998
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