Critically Speaking

From the Daily Reckoning we read…

Money makes the world go round. Which is why watching money is so entertaining. It is like watching the Three Stooges – it’s one absurd pratfall after another.

While Wall Street redistributes wealth from the novices to the pros – from ‘weak hands” to strong ones, as the pros themselves put it – corporate America does its own share of redistribution, taking it from the soft hands of retail investors and pensioners and putting it into the calloused paws of elite insiders.

But we remind readers that the shows change. Sometimes, it’s a gay farce that viewers want to tune in to. Other times, it is a sour tragedy. Sometimes, investors are perfectly happy to pay their hired hands millions; other times, they get stingy and hold back every cent in case they need it. Sometimes too, they rush to buy whatever Wall Street offers them. Other times, the poor stockbrokers wait by silent phones.

The difference lies in the quantity of money. When credit expands, people get a little free and easy with it. They spend and lend recklessly, sure that there will always be more of it. Inevitably, they get too much of a good thing. Soon, people can’t pay their bills…lenders get scared…consumers cut back…investors panic. Then, the whole spectacle changes. No more light-hearted tap-dancing. Instead, viewers want to see the proud protagonists punished. They want to see the powerful humbled and the rich roasted.

How will you know when the playbill changes? Watch the bond market. Bond yields have been rising. This makes it tougher for the housing market to recover and pokes a hole in the huge credit bubble. So far, it is just a tiny puncture. But the hissing sound is probably enough to discourage the Fed from raising rates. And if it grows louder, it could signal the end of the biggest show on earth.


Now you might say “Come now. Why the stark pessimism?”. We reply simply with the words of the man that so many have come to know, but so few seem to understand. “Be greedy when others are fearful, and fearful when others are greedy” Warren Buffett said. Like Ben Franklin before him he is known as the world’s greatest capitalist. To transfer money begs for no more than a degree in finance, but to create wealth requires a strong sense of “frugality and industry”.

So are we being too pessimistic or are we just thinking more critically, revising our biases and attempting to rationalize an unkempt reality? To find out for sure we catch up with Big Al…

The Book of Greenspan

Alan Greenspan, the former Fed chairman, was the world’s most powerful government leader from 1987 until 2006. He was paid a reported $8.5 million advance for his forthcoming book, The Age of Turbulence: Adventures in a New World – the second highest advance ever for a non-fiction book (Bill Clinton got $10 million).

Normally, one wouldn’t expect to pay such a handsome fee for a straight-laced economist and dry government official, but Greenspan promised to deliver some “shocking surprises” in his 640-page memoir due out in September.

Sources who have been admitted to a closed interview with Greenspan explain his take on the global financial markets. He was fearful after the Stock Market Crash in October 1987. “We were on the edge of a world-wide financial collapse,” he said. It was “scary.”

Similarly, in 2001 after the terrorist attacks on New York and Washington, Greenspan again categorized the scenario as “scary” injecting over $40 Billion dollars of new liquidity, as well as slashing interest rates to a mere 1%.

Greenspan is apparently deeply worried about another case of “irrational exuberance” in the financial markets. “The biggest surprise to me is that real interest rates all over the world are at near historical lows!” he quoted in warning. He reiterated how all crises’ are “unpredictable”. The October 1987 crash, the 1997 Asian currency crisis, the 2001 terrorist attacks – they all were like “black swans,” to use Nassim Taleb’s term for unforeseeable events. Greenspan’s conclusion: “Because we cannot forecast these events, we must be prepared to deal with them when they occur.”

What should you do to get prepared? Mark Skousan tells us, “If you are currently invested in stocks (something we advise not to commence at the moment) use protective stops to get you out in times of a stock market collapse. Buy gold and silver coins for survival protection and keep a large position in cash. If Alan Greenspan and his successor Ben Bernanke are preparing for future “black swans,” maybe you should too”.

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