Wednesday, February 27, 2013

Forget the Sequester; Bernanke Has All the Cards (and all the money)

Nothing like a couple of days in the woods - away from the Sturm und Drang of the neo-rational markets and shrieking media pundits - to offer a bit of perspective on not only the economic realities of the day, but the human condition in general.

What appeared to be the inevitable swoon the naysayers have been long-hoping-for on Monday, with markets taking their most violent downturn of the year, was quickly overruled on Tuesday and absolutely trumped and superseded with the third-best gain (on the Dow, at least) of the year on Wednesday.

Not that there wasn't a good share of associated nonsense and rationale for each of the directional market moves, but, in the end, it was a wash and a win for the erudite chairman of the Federal Reserve, Mr. Ben Bernanke, who availed himself of the opportunity to alternately receive and give both praise and chiseled criticism to both chambers of Congress in his annual Henry Hawkins testimony and the adjoining question and answer periods. We rest assured that the Chairman is content that not only are his policies of ZIRP and QEternity the correct ones for the US and global economies (because as goes the US, so goes the world at this juncture), but also that he has convinced most members of congress that they are working. Besides, there's nothing the congress nor the president nor any other person or assemblages can do about said policies, right, wrong or otherwise.

He is, for all intents and purposes, master of the financial universe. So be it.

Noting the chairman's unadulterated power to influence and control the economics of the world, skeptics still advertise their discontent, brining up the untidy details of the unwinding of his easy money regime, but this argument is a chimera, a cloak for ineptitude, a misunderstanding, a falsity, an impotent attempt to fleece power from the unbridled king of money, because the chairman and his cronies at the Fed are not at all concerned with unwinding anything. Their policies will remain in effect until the next chairman and governors are appointed/elected, and then such unwinding - if there ever is one at all - will be their problem.

For the rest of us, who do not enjoy the luxuries of appointments or elections, but rather suffer the daily slings, swings and arrows of outrageous fortune (or misfortune), a plan is a necessity, though those offered by the shysters and criminals populating the financial services industry might not always be in our own self-interest, if only because they contain the notion of conceit that markets are always optimized and correct, risk is always contained and humans always make rational decisions.

History will prove all three of those basic financial tenets absolute falsehoods. That is why we have booms and busts, successes and failures, joy and tears. Existence is not guaranteed and a fruitful existence is only attainable at some others' expense, such is the basis of capitalism.

So, a note, as the congress and the president sit upon their fattened hands awaiting the monster of their own creation - sequestration - which commences on March 1st, but in reality is more a boogie-man-in-the-closet apparition than an actual threat to the economy, especially on a local, individual, human level. It's something on the order of a two percent cut in the discretionary budget - domestic programs (not welfare, Social Security Medicare or Medicaid) and defense spending - thrown against the background of a baseline budgeting process which automatically increases the spending on these programs by three to ten percent in the upcoming continuing resolution process (which has displaced the budget process for five years now) due to commence by mid-March. In effect, the sequester is a non-sequitur - it is utterly meaningless.

Still, a plan one must have for the Ben Bernanke era, so make one, and make sure it includes not buying a new car unless you are willing and able to pay for it in cash or can get 0% interest for the life of the loan (hey, the banks get that rate, why not you?) which should be no longer than five years. Your plan should also include the paying down or clipping up (or maybe both) of all your credit cards except one for dire emergencies, unless you have $10,000 or more in cash safely hidden away in your back yard or sock drawer (though a safe would seem a more prudent place).

Those are the starting points, but check to see if you are playing more than 1/3 of your net income (after taxes) on housing. If you are, move. Downsize. There are plenty of deals available at excellent prices, even though the housing market in many places has yet to bottom.

And here's something that bugs the heck out of some people: It doesn't matter if you make $20,000, $200,000 or $2,000,000 a year. Spending four to five dollars on a cup of coffee is stupid. Stop it. Put Starbucks out of business. And stop all the other dumb, extravagant, ludicrous things like lottery tickets, day spas, dining out and "entertainment." Well, you don't have to stop them altogether, just be sensible about your spending. A very wise man (my father, RIP) once said, "it's not how much you make, but how much you spend." That kind of depression-era advice can go a long way these days (since we're in another depression but don't really know it. Shhh... the banks are faking it).

Remember at all times that financial news - even news on specific stocks - is marco-news, and, thus, will have little effect on your own personal condition.

Save. Don't invest. Save 5-10% of your gross income and put it into cash or physical gold or silver or tangible assets which will hold their value no matter what (a tough find).

Grow yourself some herbs, fruits or vegetables. Seriously. There's nothing like the taste of something you've nurtured from seed or seedling or sapling to a ripened delicacy. And, it's relatively easy. Nature does most of the work. Wall Street has nothing that compares to the return you get from a handful of seeds, sunshine and rain. Beyond that, you will be the envy of your neighbors, who aren't nearly as smart or thrifty or nature-loving as you. There's something to be said for that.

All hail the great Bernanke! Amen.

Dow 14,075.37, +175.24 (1.26%)
NASDAQ 3,162.26, +32.61 (1.04%)
S&P 500 1,515.99, +19.05 (1.27%)
NYSE Composite 8,875.33, +109.15 (1.25%)
NASDAQ Volume 1,726,024,500
NYSE Volume 3,911,747,250
Combined NYSE & NASDAQ Advance - Decline: 4528-1799
Combined NYSE & NASDAQ New highs - New lows: 252-38
WTI crude oil: 92.76, +0.13
Gold: 1,595.70, -19.80
Silver: 28.94, -0.317

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