Well that thump we heard today wasn't the sound of a heart beating with love, it was the sound of the US markets hitting a gigantic air pocket, specifically the hot air that was coming out of the Capitol today.
We were treated to a less than stellar performance by Fed Chairman Bernanke as he looked and sounded like he would rather be somewhere else (perhaps screwing up the economy of a smaller country) as he answered some particularly uncomfortable questions from the Senate Banking Committee. It was, as I predicted this morning, a massacre as Al Capone's gang at least had the decency to put their victims out of their misery back in Chicago.
Mr. Bernanke said he expects "sluggish growth" in the economy and a "somewhat stronger pace" later in the year, thanks to rate cuts and fiscal stimulus. But he cautioned that housing and labor markets could deteriorate more than anticipated, emphasizing that "downside risks to growth remain." Paulson was no help as he admitted about Project Hope and the Stimulus Package that: "those programs alone will not be sufficient….It's going to take time and some pain before we work through this." TIME and PAIN?!? Hey man, this is America – we don't have time and we can't stand pain – SELLSELLSELL!!!
And sell, sell, sell they did with the markets taking a nasty hit, finishing below technical levels I had warned about at 11:46 in yesterday's comments. 12,400 didn't hold on the Dow, we lost 9,000 on the NYSE and 1,350 did not hold up on the S&P. We need to retake those levels at the open tomorrow or there is little hope for recovery while, to the downside, we need to hold Nasdaq 2,325 (now 2,332), SOX 350 (now 353) and Russell 700 (now 705) or we may as well throw in the towel and run some mattress plays.
Kudos to Sen Bob Corker of TN (R), who said: "Sprinkling $160 billion around the country and asking people to spend it quickly to me was not a solution worth debating or passing." When we had our economic crisis in the '80s, Ronald Reagan (who is rumored to have been a Republican) and Paul Volcker fixed the economy by RAISING interest rates to STRENGTHEN the dollar, which lowered those pesky food and energy prices that the government likes to pretend don't exist. This administration has just three weapons – cuts, cuts and more cuts, and the dollar took another dive this week, failing the critical 50 dma at 76.32 while the Chairman was demonstrating his monoline mindset on how to solve our problems.
I mentioned in the morning post how a gallon of gasoline takes a European 75% further than it takes an American but I forgot to mention that a Euro takes a European 40% further than a dollar takes an American consumer. This is the gigantic, gaping hole of a joke of our economic policy – we import energy and everyone has to buy it. You can't have an economic policy without an energy policy – it's a guarantee of failure before you even start. While the dollar drowned on the Bush gang's $168Bn giveaway, the price of oil rose from $86.24 to $95.55 in the past 5 sessions, that's 11%!
$9 per barrel costs US consumers $12 by the time it's refined (42 gallons a barrel, $3 per gallon) and the US uses 20M barrels of oil a day so that's $240M A DAY coming out of US consumers hands in just the past week! Over the course of the year, that's $88Bn of damage from rising oil prices caused by the "stimulus" package so, like virtually all policies put in place by this administration, the only thing being stimulated is the price of oil!
It's not just oil of course, because of oil, food prices are going through the roof and it's been rumored that poor people NEED food to live but the administration says that there are many scientists who dispute this and, until further review, they will continue not to count the price of food in their "core" economic forecasting models.
While the chart on the right may seem shocking, it's nothing compared to the chart for wheat, which is now up 60% in the past 12 months and prices have now reached the breaking point in many foreign countries who have been brought to the brink of disaster where it will take very little to push millions of people to starvation. Our policies are literally killing people!
Of course a large part of the problem is our ridiculous ethanol program which did not encourage any new planting, simply a profitable switch from one crop to another by the farmer. Since it takes 200 pounds of food to give you one tank of gas, you can see how a clever policymaker may have questioned the logic of pushing fuel substitution over something as radical as, say, conservation.
Of course we are the champions of consumerism and anything that deprives us of our guns and our Hummers is simply unamerican and can't even be discussed. In fact we have been so intent on spreading our way of life to the rest of the world that we've caused hundreds of millions of Chinese to stop having rice and switch to the drive-through at McDonald's, a meal that consumes 10 times the resouces of their old lunch. Changing a Billion thin Chinese rice farmers into a Billion Frito munching couch potatoes may be a US marketer's wet dream but the repercussions on the global economy are staggering.
Our next President needs to plan on working on a Global solution by INCLUDING the rest of the World in our plans. We have to have global solutions in place on energy, food, the environment and terrorism. We've given the cowboy the chance to head 'em off at the pass but America is looking more and more like Bush's Alamo every day (ironically, the Texans were the rebels, fighting to drive out the Mexicans, who owned the land) – we're surrounded and out of ammunition and our leader has drawn "a line in the sand" and vowed to defend our fort to the last man, which sounds very heroic but really sucks when you are outnumbered 30 to 1 with no hope of victory.
I just hope that 170 years from now, we don't have to be reduced to the battle cry: "Remember America."
