Analysis of Bernanke's Humphry-Hawkins Testimony + Dow Goes Past 9000 (July 26)

PODCAST-TRANSCRIPT-WEEKLY-UPDATE-2009-JULY-26 (FRANCONOMICS.COM)

Dow Goes Past 9000 for the first time since January; what does it mean for you, the average individual investor? Also, in this podcast, we analyze Fed Chairman Bernanke's Semi-Annual Humphry-Hawkins Testimony to Congress and critique his recent Wall Street Journal article targeted at the masses and titled "Fed's Exit Strategy."

Hello, I am Sam Mishra from Franconomics.com with the weekly roundup and analysis of the American and Global Economy for the week ending July 26, 2009.

Dow Jones climbed above 9000 this week, and personally, I took profit by selling my Apple stock and 100 shares of QQQQ, both of these were long term capital investments, I don’t invest short term in the markets, and I don’t usually invest in individual stocks, unless it is a good firm like Apple. While we don’t predict what the markets do week in and week out, it could be a good strategy to sell into the market profits for stocks which are giving you good returns. You could always buy them back, if the markets tanked again. One of the wise things to do is not do what everyone else does: everyone is saying: Dow is 9000, let’s buy some stock. But you know what the real economy is, right? … The markets are up! But, the markets are up, because the earnings are good. But the earnings of firms are good, not because the revenues are good. Mostly, earnings are good, because costs are down. In other words, big companies keep laying people off. And that sucks.
Unemployment is going up, not down, foreclosures are going up, not down, and home prices keep going down, not up. This is the real economy, and one may enjoy the summer outdoors, but when you see a good looking man with a sign which says: my son and I are helpless, please help anyway you can on the opulent Newbery street, one wonders if the statement by Larry Summers that the economy is back from the Abyss has any merit. In our last week’s podcast, we critiqued the Summers 6 month progress report. But we are not happy with all that he said. So, we will take a special edition out critiquing this speech in further detail, where we will introduce sound bites from that speech and the Q&A (as in questions and answers) which followed that, which will be thoroughly critiqued the Franconomics.com way.

This week, Goldman bought its warrants back for $1.1 billion, paying full price. Media cheered, since other smaller ones were paying a discount. But hey, what is there to cheer about? The banks still own the media, or the mainstream media still gets its funding from the banks, just like the politicians do. And Goldman did not pay a premium for the warrants, did they? Also, they paid some interest on those warrants, but we should never forget that by allowing the Goldmans of the world to dodge the compensation czar, the current administration has ensured that the wealthy bankers keep looting the American people in the name of Friedmenite Free Market Capitalism, where as what these greedy pigs are exercising is Friedmenite Greed which understands no moral code, no compassion for fellow human beings who are jobless unemployed or foreclosed homeless, no civility, and no decency. We urge the congress people that they should pull back the Goldman bonus of yesteryears by taxing those at 100%, and also that Goldman not be allowed to pay its bankers any bonus as long as other banks are in duress. Even though we have done it in a prior podcast, we will give our reasons why in the Action Items Section towards the end of this podcast.

Let’s analyze the Humphry Hawkins Semi Annual Testimony of the Federal Reserve Chairman to the Congress next. We have a link to the Q&A between Chris Dodd and Ben Bernanke in our Video Resources section, and you can watch that. We applaud Bernnanke for admitting that the serious problem that faces them is unemployment, and in the video, you can see Bernanke pleading that the Consumer Protection Agency etc. etc. should remain under the authority of the Fed, and not be taken out. But the Federal Reserve does not lend to the consumer? They lend billions to banks, whether domestic or foreign. In fact, we have also put a link to the video which shows a congressman by the name of Alan Grayson from Florida asking the details of a half a trillion dollars of Central Bank Liquidity Swap. What the congressman was referring to something which we have thrown light on in the Value Drain II article: namely the new LENDING
1. $620 billion in expansion of SWAP lines
2. $900 billion in Term Auction Facility (TALF) which are components of the $1.9 trillion of lending form the federal reserve. If you have not read this Value Drain II, please read it up. We have a link to it from our home page. This aggressive congressman zeroed in on a small part of that, namely 9 billon dollars to NZ, which averaged out to 3000 dollars per New Zealander. Grayson wondered why 3000 dollars were not credited to the American instead. We applaud the congressman, and also want to reiterate that under the GDP = C + I + G concept outlined in our website, we have mentioned how the country would have benefitted if the bank handout would have been given to every American, thus boosting the “C” portion of the GDP, bringing the economy back to recovery in a more direct way. Also, Bernanke, as should be normal, is trying to get popular, nothing wrong with that, by talking on 60 minutes, and writing this week in the Wall Street Journal on “Fed’s Exit Strategy.” He mentioned this: We have also greatly expanded the size of the Fed’s balance sheet through purchases of longer-term securities and through targeted lending programs aimed at restarting the flow of

credit. Our analysis: the TALF program, which, along with the TARP and the PPiP from the Treasury, is not working. Also, I have to say, he lacks the skills of Paul Krugman in terms of laying out in simple terms complex concepts like Fed Reserve or Reserves of Banks with the Federal Reserve, to the general public. In other words, if you read it, it will be a waste of your time in understanding how fed crafts monetary policy. If you don’t want to get lost in the maze of Bernanke punditry on the ups and downs of M1 and M2 money supply, your better investment of time is to listen to the 20 minute weekly from Franconomics.com, every week, week after week.
In any case, what sounded scary about the whole testimony was that the consumer is not getting the credit he needed, in particular, banks are not lending to small businesses yet, and the only answer fellow MIT alum Bernanke had was that they are going to bring forward in time the TALF program, and do it sooner than later. Now, this TALF, along with TARP and pPiP is one big scam to take money from main street and give it to Wall Street. When will these elites learn? When we have a double dip recession???

Action Items:
1.   To individual investors: Don’t go ga-ga over the Dow 9000, the economy is not back from the abyss yet. Commercial real estate is now going the way of the consumer real estate, and any panic there can pull the market down. Act prudently and take profit on your long term investments for which you have long term capital gains.
2.   To the Congress: First things first. Think of a meaningful way in which you can pull back the Goldman bonus. Can you somehow tax the 2008 bonus for breach of the PCA or the Prompt Corrective Action law when these banks, including Goldman, were not taken into receivership, and were doled
Out taxpayer money, from which they doled themselves out nice bonus. If you can’t do that, at least stop the 2009 bonus, because as we have pointed out in our prior podcasts, banks in duress like Citi are using that as an excuse to raise compensation for their employees, citing that Goldman will take their best and the brightest with attractive bonus as a bait. The whole financial system was treated as one black box and bailed out, so now , since the Government owns Citi, the government should restrict the Goldman bonus, either through a congressional act, or through a higher tax for these private banks. Else, the Citibank job will become like any federal job, which no one wants to do…

3.   To the Federal Reserve: When you say in your Exit Strategy that you have also greatly expanded the size of the Fed’s balance sheet through purchases of longer-term securities and through targeted lending programs aimed at restarting the flow of credit, we understand that you will lead the treasury in terms of contributing to the 8 trillion dollar, or the 14 trillion dollar, or the 20 trillion dollar value drain. When will you learn that the TARP and the TALP and the pPiP will just fill the blackholes in these banks’ balance sheets. How will shoring up the TALF program to these banks which are not lending help? Consider lending to the American consumer directly, especially to small businesses which employ 90% of the American people. And let the banks which are too much in the red, let them FAIL.

OK, we have come to the end of the podcast. As you can see, here at Franconomics.com, we are no fans of banks, big or small, who mismanage their lending or trading business, and when things go bad, come with a begging bowl to the Treasury and now the Federal Reserve, for a bailout. Tune in again next week for our next weekly podcast, and until then, stay well, and take care of yourself, and take care of each other. Thank you, and you have a good one.