Farrell: Know The Way Out!

Rudy Giuliani grew up loving firefighters. I tended to worship cops as a kid. Cops were so real. On the ground and there to touch. Fireman were distant and on their trucks, so to a kid it made sense for me to want to be a cop. Plus, you have never seen anything like the NYPD in action. Their response to a call is immediate, overwhelming in force, and intimidating. The bad guys usually don't have a chance.

I was in a cab the other day on Broadway around 23rd Street, where Broadway is six lanes wide as it splits near the Flatiron Building, and we got waved over for making a turn from the wrong lane. The cop was no nonsense and blunt. I figured I was close enough to where I was headed that I got out of the cab and tipped the driver an extra five dollars to ease my guilt. Getting ready to walk on, I called to the cop and said, "Hey, no business of mine and I'll shut up, but he was in the right lane." (He was!) Now most NYC cops are overweight from too many donuts but this guy wasn't. Plus he was taller than me, and I'm 6'2". He walked up, put his face in mine and said "You sure about that, Mac?" "Yes sir, I'm sure," I said with a bit of fear. He turned and let the driver go and made my day when he said to me "You're OK, Mac." The driver pulled up next to me and gave me my five dollars back with a thank you. Only in New York.

Back to Rudy's firemen. The first rule of every fire department in the world is to know your way out. You don't go in unless you know how to get out. I think Ben Bernanke knows the way out of what could be an inflationary mess, with all the stimulus that is being introduced. A lot of the programs are designed to run themselves off, for one. He now has the ability to pay interest on excess bank reserves. He has wanted permission to sell Federal Reserve Bonds to soak up excess liquidity. That seems to be stymied by forces in Congress, and there's also a lot of sniping about what Ben should and shouldn't do. I think he knows the way out, and we should let him take it. I'm fearful that the Chairmanship of the Federal Reserve is going to be politicized, and, while we are not worried about near-term inflation, we sure better have a guy who knows the way out when the time comes.

I don't think the Obama Administration has a clue as to how to pay for a new health care program. Every program ought to have three components: 1) The objective, 2) how to pay for it, and 3) how to execute the plan within the budget. We seem to have a lot of plans and no realistic approach as to how to pay for them (which would mean execution is going to be expensive and hit or miss at best). I'm not even sure we really know what we're getting into, let alone how to get out of it. "Pay-and-you-go" was last week's flavor. I first heard "pay-as-you-go" in 1991, during Bush the Elder's administration. It never happened, and I doubt it's going to happen now. We should probably call the cops and the firemen.

Monday's market was a complete downer, but it stayed within June's range of 920 to 950 (924 close.) The coiled spring has not yet sprung. I think we need to breach one side or the other.

My guess is it will be on the downside.