Art Cashin

As usual getting Art Cashin's pragmatic take on something as important as the Fed's decision (which at this rate will need to be revised very soon), is quite a morning coffee, or for some, "fermentation", treat.

The chairman of the "Friends of the Fermentation" committee dives into the two topics preoccupying the world: Bernanke and Greece, and as usual, deconstructs both with his laser-focused pragmatic perspective. That both of these are closed loops that only get worse as they "get better" is becoming increasingly clear to everyone even remotely interested in events away from the top 20 items in Google Trends.

Some pure poetry from Art Cashin today which explains why future US generations may want to hold a referendum on being born...

As usual, UBS' Art Cashin, who may suffer the occasional pint but never outright idiocy, cuts right to the chase. His bottom line: "According to the Tax Foundation, after the 1929 crash, Congress proceeded to raise the top marginal tax rate from 25% to 63% by the end of Hoover’s term.... As you may recall, hiking those rates may have made folks feel that rates were more equitable but it sure didn’t help the economy."

Nothing actually new here, but listening to Art Cashin retall the latest end of the world episode in that wise, grizzled voice of his brings a soothing element to what is set to be another dramamine-friendly week."Over the weekend, the battle has shifted. German authorities talk openly of the likelihood of a Greek default. They are said to be developing a plan to backstop German banks in the event of a Greek default. That puts pressure on other banks, especially French banks, since there is no Gallic backstop plan. Collateral damage could be to bring no bids to the next Greek auction, or make them pay such high rates as to make the auction toxic. The Euro crisis is quickly evolving into a Gordian Knot....U.S. markets are at near-critical levels. The uptrend line that caused the last bounce (S&P 1140) is around 1145. Key support levels are 1140, 1132, 1120 and ultimately 1101. The new Battle of Thermopylae is on the way."

Yesterday we documented that the by now widely bashed Operation Twist has been a failure before it was even launched as confirmed by recent trends in mortgage refinancing, or more specifically, lack thereof. Today, none other than market (and alleged bar) veteran Art Cashin confirms precisely what we said: that the one goal of the Twist - to get mortgage rates lower and refinancing higher - is and will be a failure. Again, it is very unfortunate that what is by now glaringly obvious to all will never become clear to the Fed until after the economy has finally been pushed over the precipice.

An already ubercynical Art Cashin chimes in on Obama's much anticipated, and very controversial (recall the latest Boehner flap on the issue) speech tomorrow and comes out sounding even more jaded than usual. In a word: don't expect any imminent rise in Obama's already record low popularity rating as a result of this speech, which if recent history is an indication, will likely generate even further class animosity within US society, now well on its way to confirming some of the more violent teleological theories postulated by Karl Marx.

Consumers used to have discretionary income which they would use or not use depending on their mood. Beginning in 2008, consumers had less money but the price of commodities shot up and that has kept consumer spending high – but that doesn’t mean they are happy about it.

About a month ago we penned a post to refute some misconceptions about a material spike in M2, which led such luminaries as Andy Lees and Art Cashin to get confused that this may be an indication that either the government was forcing money into the population with the end of QE2, or that this was actually a confirmation that QE was working. It was neither. As we explained it was a combination of the Treasury general account on the Fed's balance sheet soaring (from a balance sheet standpoint), and due to the repeal of Regulation Q (from an actual flow perspective), that led to the move. Sure enough, in the 3 weeks following, M2 dropped to very much unremarkable weekly change levels. Until the week of August 1, or the week in which the specter of a US bankruptcy came to life, and in which the market took its first notable leg down. In that week, the broadest publicly released monetary aggregated - the M2 - soared to an all time high $9.5 trillion, or a $159 billion weekly change. This make it the third largest weekly spike in history After the Lehman bankruptcy and September 11. Then again, this data includes the traditional seasonal fudge adjustments by the Fed. A look at the non-seasonally adjusted time series indicates that last week's spike in M2, primarily in demand and savings deposits at commercial banks, was the highest on record! Sure enough, the bulk of this cash ended up in America's largest depository institution, Bank of America. And yes, this was in the week prior to the massive market rout. Yet as the charts show, following every massive inflow of money into demand deposits and savings accounts, it goes right back out the next week. Which is why we wonder: is Bank of America, so flush with cash a week ago courtesy of the debt ceiling fiasco, suddenly cashless, as investors follow up with the kneejerk withdrawal of capital from the depositor bank due to worries of bank runs and other less quantifiable reasons? Does this explain why, in addition to the fact that the bank's sale of its China Construction Bank stake is not going well, BAC may soon be forced to enter the capital markets to raise equity capital, just as we have been predicting all along?

Resolved for a moment or not it's time to give this chasm in American political and economic life a closer look from a decidedly off South Main Street USA perspective.

In the past two days, both UBS Andy Lees, Dennis Gartman (of the world renowned Gartman ETF which is just off its all time lows), and now even Art Cashin, have been stumped by the "dramatic" increase in the M2 and the Adjusted Monetary Base. To wit, per Art Cashin's take of Andy Lees' recent note: "US M2 money supply surged by USD88.7bn for a 2 week gain of USD165.6bn without any compensatory rise in the Fed’s balance sheet. Andy goes on to ponder whether this has been conscientious attempt by the government to beef up as QE2 ends. There is some evidence but not fully conclusive." Actually no, there is no evidence, and unlike many other instances of shadiness involving the Fed, this is not one of them.

Stocks dumping, dollar at all time lows against a plethora of FX pairs, while gold (and silver) is sticky as superglue and remains just a few dollars away from its all time nominal highs, and just short of $1,600, which we expect will be taken out as soon as the world realizes that the Greek 2 Year spread to Bunds is now over 30% and that Europe is not fixed. Perhaps Bernanke would like to take another stab at that whole "is gold money" question...

Art Cashin, the skeptical floor veteran, and always practical and easy-spoken observer of market moves and developments, shares his latest set of views on the happenings in Europe. Granted this is backward looking, as things in Europe change from one total mess to another in minutes, but still a good summary for new entrants into the utter chaos that is a EUR-driven market with 1.000 correlation to the European currency.

Yesterday's ominous selloff (today's very temporary EURUSD, and 100% cross-asset correlation, bounce notwithstanding: after all the data just got even worse courtesy of the Philly Fed, meaning much more pain for the S&P before QE 3 comes) got you a little jittery, with Flash Crashy overtones? You are not alone. Market veteran Art Cashin recounts that yesterday's market action was not so much reminiscent of 2010, or even the 2008 uber-volatile market, but really 1987.