Ruby, played by Renee Zellweger in the movie "Cold Mountain" said it about the Civil War, but she was really saying it about all old men or sclerotic institutions that make horrible mistakes to support their earlier stupid decisions - "They call this war a cloud over the land. But they made the weather and then they stand in the rain and say 'S**t, it's raining'."
It was reported today on Bloomberg news that the Greek government is giving a private company a subsidy of 29 million Euros to assist building a Formula One race track.
Hey guys, it's raining out.
Then again, I'm not sure the US of A is much better.
Ben, of Benny and the Jets (sometimes called the Federal Reserve), has effectively bought $573 billion of the $619 billion increase in Treasury paper since QE 2 started. He can create money but ultimately it's the taxpayer paying it back. So, do we need to worry when the Fed disappears from the market?
No, not really. Or, no, not at all.
As long as we are little piggies and keep running a current account deficit, dollars have to be recycled. I believe QE2 was unnecessary and that the liquidity created seeped into the financial and commodity markets, as Ben planned. He didn't get to be leader of the Jets for nothing. With QE2 over and the commodity markets showing they can go down, the Treasury bond market will be fine. It's interesting to note that the yield on the ten year bond has declined from over 3.6% to under 3.2% the last four weeks. Such a move does not indicate financing will not be a problem and interest rates do not have to rise. The move down indicates, to me, we have hit a soft patch in the economy.
I wouldn't call China in a soft patch, but all the tightening the government has done has slowed the train a bit. While the dollar amount of commodity type imports was up in April due to price increases, the actual volumes of copper, aluminum, soy beans and iron ore were down. Only crude oil was up and that by just a touch. If the US has hit a slow patch and China is purposely trying to head off inflation, I think some estimates for GDP and earnings are too high.
To emphasize the point, the National Federation of Independent Business is well representative of small businesses in the US. Their latest sentiment indicator fell to 91.2 which is an eight month low. Most new jobs are created by small business. It can be confusing when job reports come out, but the unemployment rate is figured off the 'household survey' which is more like the small business report. While the 'big' survey showed an increase of 244,000 jobs, the jobless rate as measured by the household survey, showed unemployment rose. Last month was because there was an actual decline in jobs, but often during a recovery, people that have stopped looking for work rejoin the labor force and joblessness goes up as the denominator in the equation swells. With 9% unemployment there is no near term chance there will be wage pressure, which is the biggest component of cost of goods sold. No wage hikes, no big inflation move (although you and I and the local gas station guy know there is inflation hitting our pocketbook.)
And what's with this? Bloomberg reports that Wall Street rivals are bidding away talent at escalating prices. Well, nobody has called me! What the hey...
Vincent Farrell, Jr. is chief investment officer at Soleil Securities Group and a regular contributor to CNBC.