Friday, May 6, 2011

you can't tell the players without a program

Unemployment claims jumped by 43,000 last week pushing toward the 500,000 mark. That’s the bad news, the good news is that 244,000 jobs were created last month. If this were the Clinton years that would be an average month not a high point but this is what we’ve become accustomed too. Not that we should forget that Clinton participated with the Republicans in creating the WTO and NAFTA.  The good news is the jobs were widely distributed across the labor spectrum and not concentrated in temp jobs perhaps indicating wages are no longer being driven down.

The commodity bubble appears to have burst with West Texas Intermediate Crude dropping 15 dollars since Monday to under a $100/barrel. Gold was up slightly today but is down a $100/oz from Monday. Other commodities have dropped by similar amounts while at the same time manufacturers of consumer goods and food suppliers have been announcing sharp price increases.

The USD has strengthened dramatically as speculators are scrambling to get back into dollars to cover their contracts and loans that are payable in dollars. How this will shake out in the 600 trillion dollar derivative market is unknown as this is all done on dark markets. When these weapons of economic mass destruction were created toward the end of the Clinton Administration they were deliberately unregulated contrary to New Deal policies.

Congress had authorized the Federal Reserve to set the rules because the Commodity Futures Trading Commission who should regulate this sort of contract thought these things were crazy and shouldn’t be allowed at all. Allan Greenspan however thought they fit perfectly into the Ayn Rand model of an efficient economy. Greenspan further shoveled his wisdom over the heads of critics by saying there was no risk because such contracts would only be traded between sophisticated parties who know what they are doing. Sophisticated parties like Lehman Brothers, Goldman Sachs and AIG that participated in the market for securitized subprime loans and derivatives based on them. A few people made billions and it cost the rest of us trillions.

AIG got hundreds of billions in bailouts that in turn went to bailout Goldman Sachs. Lehman Brothers which was one of the really big banks turned out not to be too big to fail. TV stock analysts were screaming on Friday that Lehman’s stock was a steal at $60 but by Monday it wasn’t worth anything.

It took trillions to bailout the big banks and corporate America but of course it was all funny money. Basically the Fed, the FDIC, the SEC and the Treasury Dept just cooked the books and started over again. Only it wasn’t a start over in any real sense, they just fixed the bubble machine. The commodity bubble appears to have burst and they are talking about a sharp drop in gasoline prices by Memorial Day. The stock market is sagging but that bubble will probably float along in the breeze for now and hey look it‘s up today!

The Republicans appear to be pulling back on a number of fronts (or affronts) with Budget Committee Chairman Ryan saying publicly that he doesn’t think they can do anything about Medicare in this round (this round of the Republicans playing chicken with the debt ceiling). Since Obama is winning big with the poll numbers the Republicans have no choice but to regroup and lick their wounds. (Why does this sound like Al Qaeda? Get your program! You can‘t tell your terrorist groups without a program!)

Treasury Sec Geithner has extended the debt crisis deadline to early August which indicates they know they have the upper hand with Congress as Obama would have kept the pressure on otherwise, we are already past the first predicted deadline. So it looks like the economy is a strong buy despite all the bad news and we’ll see if it has goes to zero by Monday.