UBS' Art Cashin provides the clearest 'simile' for our current economic malaise as he remembers back 90 years... On this day in 1922, the German Central Bank and the German Treasury took an inevitable step in a process which had begun with their previous effort to "jump start" a stagnant economy. Many months earlier they had decided that what was needed was easier money. Their initial efforts brought little response. So, using the governmental "more is better" theory they simply created more and more money. But economic stagnation continued and so did the money growth. They kept making money more available. No reaction. Then, suddenly prices began to explode unbelievably (but, perversely, not business activity). Think it can't happen here? read on...
European riots protests are on UBS' Art Cashin's mind. Furthermore, Art notes that Spain has seen a fifth region (Castilla La Mancha) request a billion-euro-bailout (along with Catalonia's secession concerns) and Greece is hotting up. However, it is Egypt that is becoming an increasing concerning for the avuncular aristocrat of the exchange floor, as he fears the region's growing instability along with its potential need to devalue the pound may see the current 'sporadic outbursts of social unrest' spill over into more broad based protestations on the streets of Cairo.
As we observed earlier, Spain, whose YTD expenditures are now nearly 10% greater than last year, has yet to implement any austerity (dear Spanish readers, if your standard of living has gone down it has nothing to do with less government spending, and everything to do with corruption and incompetent politicians). Yet even so, the locals (who at 24% unemployment have quite a bit of free time on their hands) are quite unhappy, and as Art Cashin observed earlier, are "occupying congress" or otherwise indicating their displeasure with the world. Those who wish to follow the major Spanish protest in Madrid, can do so here.
Somewhat under-the-radar amid the US media's attention to housing data is the growing chaos in Europe. UBS' Art Cashin ensures we do not forget that Europe still drives the bus as he reminds us of the rise of the 'Occupy Congress' movement in Spain and the protests later today. With youth unemployment over 50%, it is sure that Rajoy will be keeping a close eye on this demonstration and other European leaders (and Greek demonstrators) will also be paying close attention. As Art says "let's hope the streets don't explode," especially given the NY Times noting that the number of 'hungry' Spaniards rose to nearly one million this year, and even previously well-to-do middle-class citizens are now dumpster-diving for food.
Curious what geopolitical developments traders are looking at? Here is a complete summary, in under 30 seconds, courtesy of the Chairman of the Fermentation committee.
Dick Fisher speaks: "Just recently, in a hearing before the Senate, your senator and my Harvard classmate, Chuck Schumer, told Chairman Bernanke, “You are the only game in town.” I thought the chairman showed admirable restraint in his response. I would have immediately answered, “No, senator, you and your colleagues are the only game in town. For you and your colleagues, Democrat and Republican alike, have encumbered our nation with debt, sold our children down the river and sorely failed our nation. Sober up. Get your act together. Illegitimum non carborundum; get on with it. Sacrifice your political ambition for the good of our country—for the good of our children and grandchildren. For unless you do so, all the monetary policy accommodation the Federal Reserve can muster will be for naught.”"
While the US is only now embarking on QE3, on Tuesday night, to much fanfare, the Bank of Japan, in sympathy to the Chairsatan, launched QE 8. As we reported, the entire JPY10 trillion incremental intervention was fully priced in and digested less than 9 hours later, confirming that monetary policy is now completely helpless to do anything but destabilize currencies for a brief period of time (and at every greater dilutions). Here is how this farce of central-planner hubris looked through the eyes of UBS' veteran trader Art Cashin.
With tomorrow's CDS roll (when indices change composition and on-the-run maturities are extended) and Friday's major equity option expiration and S&P index reweightings, it would appear, as UBS' Art Cashin notes, that the action of the last few days (and even last week) will be largely driven by the creation of complex strategies to "milk out every ounce of profit that might be available in such huge [technical] shifts." Combine this technical factor with the Autumnal Equinox, of W.D.Gann infamy, and the stage is set for fireworks as we approach Friday.
"...the only smiles you see in Wall Street are on the photocopied photos of the missing that family and friends have taped to walls, mailboxes and lampposts. It may take a long time for smiles to naturally return to Wall Street. It may take a long while to find those criminals who took our smiles and our friends. But, we will have patience. As our President said – "We will not tire. We will not falter. We will not fail!"
The Chairman of the fermentation committee, Art Cashin, usually keeps a very apolitical, sober (metaphorically speaking at least) and cool head on, as all veteran traders should. Which is why we were quite stunned to notice that even the NYSE floor veteran may have finally crossed the Rubicon in his political observations. And if Art feels this way, one wonders just how the other Wall Street players, whose voices have far less need to be moderate, really feel...
With economies faltering fast; ministers to cajole; and 'promised' plans going pear-shaped by the second; is it any wonder that Mario is not popping across the pond for some R&R at Bernanke's J-Hole. As the ever-avuncular Art Cashin notes, however, Mario Draghi's withdrawl as a speaker at Jackson Hole is logical and was almost inevitable as "you don't go to your best friend's daughter's wedding and upstage him at the event." One other factor that UBS's top-man notes is next week's ECB meeting - Draghi dare not say something that might complicate negotiations within the ECB (whose statement will not be postponeable).
Some must read observations on the dangerous path down which American society is headed.
In just four short years, our “enlightened” policy-makers have slowed money velocity to depths never seen in the Great Depression. Hard to believe, but the guy who made a career out of Monday-morning quarterbacking the Great Depression has already proven himself a bigger idiot than all of his predecessors (and in less than half the time!!). During the Great Depression, monetary base was expanded in response to slowing economic activity, in other words it was reactive (here’s a graph) . They waited until the forest was ablaze before breaking out the hoses, and for that they’ve been rightly criticized. Our “proactive” Fed elected to hose down a forest that wasn’t actually on fire, with gasoline, and the results speak for themselves. With the IMF recently lowering its 2012 US GDP growth forecast to 2%, while the monetary base is expanding at about a 5% clip, know that velocity of money is grinding lower every time you breathe.
Lost in the complete and utter lack of newsflow yesterday (no pun intended) were some comments from Otmar Issing, former chief economist of the ECB. Also a German. Also an advisor for Goldman Sachs. In the absence of Angela Merkel and Schauble, both of whom are still conducting privatization due diligence on Santorini, he decided to present the German view to all the recent bluster and posturing by Europe choosing beggars. What he so conveniently explained is just why "European Union" is the biggest oxymoron imaginable, and why Germany will hardly smile quietly as the rest of the continent uses history as its only leverage to shame Germany into funding the bailout of its broke neighbors. In fact, what Issing confirms, is why any hope that a Federalist union in a continent in which deep seated hatred runs deep, and will promptly overtake any of the happiness associated with the recent 30 years of fake prosperity, is doomed. Art Cashin explains.
Confused what the Fed may or may not do in 3 weeks? Join the club (although the answer at this point is a definite nothing especially with food prices soaring not only in the US but around the world). There are those - banks - who as we have said repeatedly are in desperate need not of promises of further easing, but of cold, hard, free, electronic reserves. Then there is everyone else who doesn't care what the Fed does because it will have no impact on the economy, but at least it may raise 201(k)'s for a little longer, preserving the myth that asset values may still increase, and feed the illusion of wealth. At least until the impact of the latest Fed (non) intervention fizzles. Then there is Art Cashin, who deserves to be heard, if for no other reason, than because he is the true Chairman (of the fermentation committee).