Editor’s Note: In this series of articles, we include important or interesting videoclips with our comments. Our Web Software does not permit embedding of the clips into our articles. So we shall have to be content to include the links to the actual videoclips. We are very happy with the tremendous response from readers to this series of articles. We thank them sincerely and profusely.
This is an article that expresses our personal opinions about comments made on Television and in Print. It is NOT intended to provide any investment advice of any type whatsoever. No one should base any investing decisions or conclusions based on anything written in or inferred from this article.Investing is a serious matter and all investment decisions should only be taken after a detailed discussion with your investment advisor and should be subject to your objectives, suitability requirements and risk tolerances.
A Week & An Election To Remember
The sovereign debt problem in Greece worsened this week but investors hardly noticed, especially American Investors. They were suddenly confronted with the specter of the Obama Presidency coming unglued and they sold, sold & sold.
It is hard to remember that Tuesday marked a new high in the post-March stock rally. Then, on Tuesday night, the election results shocked the world. The victory of Scott Brown, the independent Republican, was not a surprise. But the margin and breadth of his victory was.
Every Democrat saw in this election a crystal ball of their own future in the November 2010 elections. They unraveled. Unfortunately for America, so did President Obama. He is in the early second quarter of his Presidency. Every successful football coach would have told to not panic or suddenly jettison his game plan. But President Obama does not have old, shrewd advisors.
So the Obama advisors got themselves a brand new populist plan – attack the Banks as a symbol of excess in America.
President Obama & His conversion
Wyatt Earp stood up to the angry mob that wanted to lynch his prisoner. Wyatt stood alone in front of the crowd with a shotgun and said the mob could only have his prisoner over his dead body and the bodies of several men in front of the crowd. The crowd dispersed.
In 2006, President George W. Bush stood firm in front of his detractors and the newly elected Democratic Congress. He remained steadfast and challenged the Democratic Congress to cut off the funding for the Iraq War. The Democratic Congress folded.
The American People admire courage, the courage of a man’s convictions and his courage to stay a sensible course. That is what they admired in President Bush. The American People also admire the courage of a leader to change his course and lead them on to a sensible new path. This is what they admired in President Clinton in 1995 when he stood up to a triumphant Newt Gingrich and began governing as a centrist.
Unfortunately, President Obama did not display either form of courage. It was evident to all that President Obama panicked after the Scott Brown victory. He changed his course suddenly and embarked on a populist course simply because it seemed politically convenient. We think the Obama Administration and the Democratic Party will pay for this mistake.
Unfortunately, President Obama put in jeopardy the one great ally he had, the one symbol of his economic success – The Stock Market. Right or Wrong, every body looks at the Stock Market when they want a quick verdict on the economy. Even when the real economy is limp, even when the average Joe & Jane find jobs hard to get or find incomes hard to live on, the success of the stock market creates a hope that someday the real economy will follow.
We believe that the American People will not be fooled by President Obama’s sudden conversion to anti-Bank populism. American investors have already given their verdict. A poll on Friday showed that 70% of Investors now consider President Obama “Anti-Business”.
The President vs. the Mayor
A number of experts protested Mr, Obama’s seemingly draconian reform plan. Representative Barney Frank disagreed with some elements and the pace of the plan in his appearance on CNBC (see clip 4 below). Even Tim Geithner, the Treasury Secretary, seemed to express reservations thereby creating rumors about his own status.
No one did it with the authority and directness of Michael Bloomberg, the Mayor of New York City. Mayor Mike Bloomberg lashed out at Obama’s reform proposals, calling them economic doom for his city and an end to the US as the center of Western finance. In addition, Mr. Bloomberg told reporters in New York City to expect layoffs by the boatload if the Obama plan passes.
Unfortunately for New York City and America, our bet is that some version of the Obama Bank Reform plan will pass and whatever passes will be a large negative for the largest Banks & Investment Banks in America.
Just think as if you were a Democrat running for re-election. What are you going to run on? Cap & Trade, Health-Care? Frankly, you got nothing. The only platform left for you is to run as a Main Street representative who will penalize the Banks for making excessive profits and giving obscene bonuses. Your hope is that the economy continues to improve at least during the first half and so you can attack Banks without risk.
The President & The Chairman
Unfortunately, President Obama and his new populism may have put into jeopardy the one man he needs the most – Ben Bernanke, the Chairman of the Federal Reserve. It is Bernanke who kept the financial markets humming and protected the American financial system.
When President Obama attacked large Banks with ferocity, he unknowingly attacked Ben Bernanke, the chief regulator of the large Banks. How could Democrats run on a strident anti-Bank platform without jettisoning the man who made the Bank profits possible with his injection of liquidity?
President Obama announced his Damn the Banks plan around 11:30 am on Thursday morning. By 3:00 pm on Friday afternoon, the Bernanke reconfirmation was in severe jeopardy. People wondered whether Chairman Bernanke would survive the weekend (see clip 1 below). No wonder the stock market fell off the cliff in the last hour of trading on Friday.
Perhaps, the stock market selloff panicked the Obama Administration and Tim Geithner began calling each of the Senators to jawbone them to vote for Bernanke.
We cannot think of a more serious danger for global financial markets than a non-confirmation of Ben Bernanke. In case people have forgotten, the US Treasury plans to borrow hundreds of billions of dollars from the markets every month. The success of these auctions depend entirely on the confidence in the US Federal Reserve.
This week, especially Friday, should have seen a huge rally in long maturity Treasuries. But the 30-Year Treasury actually sold off a bit on Friday. The US Dollar also fell back from a key moving average. Does this portend an erosion of faith in the American system?
Right or wrong, global investors have a great deal of confidence in Ben Bernanke. They regard him as the man who saved the global financial system, the one sane man with power and political independence. If Bernanke is made to leave after his stellar job and if the political independence of the Fed comes into question, investor confidence in our Treasury markets could be shaken and then all hell might break loose in the Treasury markets. This is our greatest fear.
We are convinced that President Obama understands this. But we are equally convinced that President Obama did not pause to reflect whether his new populist anti-Bank mission would backfire on the man who had the President’s back, Ben Bernanke.
This is why Presidents are expected to be resolute and thoughtful in their plans or response.
A Dark Prophecy
This week made us recall the dark prophecy of Robert Prechter, founder of Elliott Wave International, from his Bloomberg interview on December 10, 2009 (see our December 12 article – clip 4).
- We are about to roll into the 3rd Elliott wave down – this is the place where the news & the markets are really in sync…Problems in Dubai, Greece, Spain, London – they are all coming out in the fringe area of debt markets and we are going to see the debt problems migrate into the United States & Europe as the year (2010) progresses
- 2010 will be a very very big year of credit defaults and people need to be careful where they invest the money – they are putting their money in dangerous places like junk bonds, munis & corporates. I think you want the safest possible debt you can find..
- We are going to break the March lows for sure; Next year is going to be at least as large as 2008. Again all I am doing is recommending caution. If I am right, you have really saved your financial health, if I am wrong, you are pretty much trading water.
This week the news and the markets really got in sync – China tightening, Greece getting in trouble and the American political system coming unraveled before our very eyes and all markets selling off in fear & closing on their weekly lows.
We hope that next week Ben Bernanke would be reconfirmed and this week turns out to be a bad dream. If not, even a Jets win may not taste that great.
Featured Videoclips
With the future of Ben Bernanke in question, all other issues for financial markets pale into insignificance. This is why we feature the following four videoclips this week:
- Big Ben on the way Out? James Pethokoukis of Reuters on Friday, December 22
- Bernanke’s Future – Alfred Broaddus & Robert McTeer on Friday, December 22
- Game Plan – Jim Cramer with his views on Friday, December 22
- Representative Barney Frank on Thursday, December 21
1. Big Ben on the way Out? James Pethokoukis of Reuters & Steve Liesman on CNBC Kudlow Report – Friday, December 22
Larry Kudlow opened the segment with the provocative question – “Is Ben Bernanke going to last the weekend before he is forced to withdraw because he can’t get 60 votes to pass cloture, much less the 51 votes to get through the nomination to be reconfirmed as the Fed chairman?”
Larry then asked Mr. Pethokoukis for his basic take.
- Pethokoukis – “My take is that if you had asked me at 3 pm this afternoon, I would have said I didn’t think he could last through the weekend..I think Reid coming out in favor of Bernanke helps but don’t forget who is really in favor of Bernanke right now? We have Harry Reid, who is a dead duck, we have Chris Dodd who is a lame duck, on Republican side you have Jud Gregg, who is also a lame duck, people who care about their futures, if they are running this year, they are very anti-Bernanke..if he can make it past the state of the union, I think he is OK. But I don’t know if he can make it all the way to the State of The Union Address.”
At a later point, Pethokoukis pointed out that a large section, especially the Tea-Party crowd, doesn’t even believe that we need a Fed, let alone have Ben Bernanke lead it.
Steve Liesman made a key point in his comments:
- “Of the things this economy had going for it, the stock market was a real green shoot. Between the Bank Regulations put forward by President Obama and really his failure to steer Bernanke through the Senate, because ultimately where was the President when it came to Bernanke..these are two strikes against Obama when it comes to the economy, Larry.”
This is a must watch clip.
2. Bernanke’s Future – Alfred Broaddus & Robert McTeer on CNBC Closing Bell – Friday, December 22
Mr. Broaddus is a former Richmond Fed President & Mr. McTeer is a former Dallas Fed President. Their conversations begin at minute 05:26 of the clip.
- Mr. Broaddus – “It is not a stretch to say that he probably saved both the economy and the country and that includes Main Street as well as Wall Street from a real financial calamity. And I think he is by far the best person to lead us out of it. There are lots of issues still ahead of us. He is really uniquely qualified, he has the intellectual capacity, he has the experience, I think it is critically important that he get reconfirmed and that we move on.”
At this point, Maria Bartiromo read out a statement from Mr. Alan Greenspan “Ben Bernanke is far and away the best person to lead the Fed going forward. He should be reconfirmed as soon as possible.”
- Mr. McTeer – “He has done a magnificent job over these past 2 years and he ought to be reconfirmed by acclamation. And our politicians, instead of leading, instead of showing any courage, seem to be trying to outdo each other in being populist and following populist rhetoric, and the rhetoric that does not have any principles behind it – just say no to everything. I am very disappointed in our political leaders.”
3. Game Plan – Jim Cramer speaking his mind on CNBC Mad Money – Friday, December 22
When the occasion calls for clarity of statement, Jim Cramer usually delivers it. In his opening segment on his Mad Money show, Jim Cramer was explicit. He told his viewers that politics has entered the investing arena and that every stock decision should be filtered through a What will President Obama Think filter.
- We now have huge political risk too, huge. While we are at it, let us throw Ben Bernanke into the midst. Why not? The Dems seem to be throwing him under the old Greyhound bus. So we have to consider the possibility that the market would get hit with a mega mega selloff if Congress doesn’t confirm him.
- What would make me go super-de-dooper negative? And issue No. 1 would be the end of Ben Bernanke’s reign. Bernanke saved the financial western world. We lose him, I think we are going dramatically lower.
- I don’t like the unconfirmed chatter I am hearing that Treasury Secretary Tim Geithner could be gone too. If we lose either Geithner or Bernanke, you can see the first serious correction since the bottom in March, a 1000 points minimum. That is why I think it may not be safe to wade back into stocks until the Bernanke confirmation issue is resolved. Better to be safe than sorry.
We remind readers Jim Cramer told his viewers to take their money out of the market in fall 2008. He saved his viewers a steep fall from around 11000 to 6500. That was a courageous act for a host of stock show. Will he right this time? We don’t know but we applaud his forthright stance.
4. Rep. Frank on Reform – Rep. Barney Frank with CNBC’s Erin Burnett & Jim Cramer – Thursday, January 21
This is an excellent clip and we encourage readers to watch it. You see Rep. Frank being a statesman. He clearly says that the Obama Administration had not consulted him and that he was in not agreement with some of the elements of the Obama plan.
Mr. Frank’s comments actually created a rally in the stock market. At the end of the clip, you see Erin Burnett & Jim Cramer getting a little too happy at what Mr. Frank said. The market probably felt as we did. Because the Barney Frank rally faded and frankly so did the impact of Mr. Frank’s comments. We confess that we do feel a little bit relieved that the Financial Reform bill will have to go through Mr. Frank’s committee.
You can read his comments on cnbc.com at Bank Rules Should Be Imposed Gradually: Rep. Frank. The key excerpts are below:
- “You shouldn’t require a whole bunch of the same things to be out at the same time and discount their value,..And you shouldn’t be disruptive at a time when the economy is troubled.”
- “I will be supportive of this (mandate to sell hedge funds or private equity) with no less than three, maybe five years before it’s done,…To order this to be all done all at once, it would be a fire sale and I would be opposed to that happening.”
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