The next round of money printing

Oct 6, 2010

Paris, France

The time to hesitate is through
No time to wallow in the mire
Try now, we can only lose
And our love become a funeral pyre

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The Doors

The Fed spoke. The markets soared.

The Dow rose 193 points yesterday. Gold shot up $23.

The dollar sank, of course....and is now back down to $1.38 per euro.

What did the Fed say to cause so much agitation?

It said that its first round of "quantitative easing" (aka money printing) was a great success and that it planned to do more. No sitting on their hands at the Fed. No idling on the sidelines. No waiting to see what develops.

Un un. They're going to take action.

Japan too. They've been watching their long, slow, soft depression for the last 20 years. They've had it. Enough! Basta! Or whatever you say in Japan.

The Japanese feds and their American colleagues have apparently decided that the time to hesitate is through. They're going to se the night on fire!

They've got the will. They've got the way. They've got the weapon in their hands. They're going to use it. Collateral damage? What?

Stand clear, dear reader. Hold onto your gold.

Meanwhile, now that Ken Fisher has spoken on the subject, our fears and doubts are greatly salved. Our anxieties relieved. Our nerves are settled.

Fisher says the whole idea of a "new normal" - with slow growth and high unemployment - is "idiotic."

Bloomberg has the details:

Sept. 28 (Bloomberg) -- The next decade will be as good for investors as the 1990s, said Ken Fisher, the billionaire chief executive officer of Fisher Investments Inc., dismissing notions that developed economies face below-average growth.

Fisher said the concept of a "new normal" is "idiotic," pitting him against money managers including Mohamed El-Erian, the CEO of Pacific Investment Management Co., which coined the term to describe a world of high unemployment, more regulation, and the shrinking importance of the U.S. in the global economy.

"We are chimpanzees with no memory," Fisher said at the Forbes Global CEO Conference in Sydney. "The next 10 years are going to be just as good as the 1990s. The problems in this current environment we think are so different, and so new and so unique. It's the same stupid old normal we've always had. We've got a great future."


That puts our mind at ease. But wait. We seem to recall Ken relieved our worries in 2007 too. Yes...we were concerned that the bottom was falling out of the housing market. He came to our office in London. Ken told us not to worry. Here's what he said in March 2007, just as the sub-prime market was beginning to crack apart.

"For months now the debate has been over whether America will have a hard landing or soft landing, the answer hinging on how big 2007's housing disaster turns out to be. Well, there won't be any housing disaster. We won't have a landing at all, soft or hard. Right now the U.S. and global economies are both accelerating."

"You can see right through the housing crash story by looking at the prices of housing stocks. The market knows what the economic worrywarts do not, which is that the housing sector is already making a comeback. In the last six months housing stocks are up 24%, well ahead of the overall market. If housing were destined to fall apart in 2007 these stocks wouldn't be so strong now."

"Did you know that housing sales are up in the last few months, not down, and that inventories are lower than six months ago? We're accelerating, not landing."

Oh, and here's Ken, turning his eye to the US debt situation in 2007:

"We shouldn't reduce debt. In fact, we need more debt--even from stupid borrowers. The right level of debt would be when we've borrowed enough to drive interest rates up, the return down, or a combination of both. Then, we'll be optimal. But we're far from that. The U.S. has $55 trillion in debt of all types--mortgages, car loans, local and federal, according to the Federal Reserve Flow of Funds Accounts. I would argue that tripling all these types of debt would probably get us close to profit maximization and increase wealth for society. Imagine what we could invest in!"

Let's see. Triple debt. Hmmm... That would be $165 trillion worth of debt...or about 13 times GDP. So, let's say this moved interest rates to a reasonable 5% level. That means that more than half the entire nation's output would be used just to service the debt.

Well, you gotta hand it to Ken. You gotta love him. Most analysts and economists waffle. Most of them give you "on one hand this...on the other hand that"... most hedge their bets and temper their opinions with doubt and maybes. Not Ken. It's all out in the open...100% nonsense...pure, undiluted claptrap.

*** Expatriation. It's happening. Thousands of people are picking up stakes and leaving. They're leaving their high-tax home states.

"I'm outa here. I've had enough," said a friend at dinner last week. "[Maryland Governor] O'Malley thinks he can tax us all he wants. But I don't have to put up with it. I can move. We bought a place in Florida.

"He probably thinks it doesn't matter. What's a single taxpayer, more or less? That's not going to change the outcome of an election. But I'm taking my business with me. I'll set up shop in Florida. I don't have to be in Maryland. I can get crab cakes in Miami too."

What had set him off was an article in the Wall Street Journal. "Millionaires Go Missing: Maryland's fleeced taxpayers fight back."

The WSJ:

"Governor Martin O'Malley, a dedicated class warrior, declared that these richest 0.3% of filers were 'willing and able to pay their fair share.' The Baltimore Sun predicted the rich would 'grin and bear it.'"
However, there were two things that Maryland politicians didn't count on (1) a world-wide economic crisis decreasing the number of million dollar earners and (2) millionaires simply leaving (or taking in less income). "By April 2009, one-third of the millionaires have disappeared from Maryland tax rolls. On those missing returns, the government collects 6.25% of nothing. Instead of the state coffers gaining the extra $106 million the politicians predicted, millionaires paid $100 million less in taxes than they did last year -- even at higher rates."

What the WSJ failed to mention was that 6.25% isn't the end of it. There are local taxes too. And in Baltimore City and Montgomery County, for example, the additional local taxes bring the total take up to nearly 10%.

If you have $100,000 of taxable income, in other words, you pay almost $10,000 for the dubious privilege of living in Baltimore rather than, say, some low-tax city in the Sunbelt.

In our own business, we have an office in Baltimore and one in Florida. We can't move our entire business to Florida, but more and more we hear from employees in Baltimore who want to move to Florida. So the business moves...organically, naturally. And when we create new businesses we put them in Florida, rather than in Maryland.

We already see the results of this and similar policies in Baltimore. People who create wealth tend to live outside the city...or move out. In the city limits, zombies have taken over - with a high percentage of the cities population on government payrolls or various forms of welfare. They're less interested in creating wealth than they are in redistributing it to the shuffling, mouth-breathing masses.

The city's largest employer, for example, Johns Hopkins, is a private institution. And a great one, from what we've heard. But it is hardly independent of the zombies. Much of its research and operating budgets are funded by the government.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

Disclaimer: The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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2 Responses to "The next round of money printing"

Philip B. Sabala

Oct 11, 2010

Gimme a break. The claptrap is the stuff those Agora books put out. All gloom and doom, selling to people's worst fears. What was Bonner saying in 2009 when stocks were booming? Bearish bearish bearish. People attack Fisher for being a permabull. Which is of course, nonsense. The guy was bearish in 2000 and then through 2002. And he called the 87 crash and the 90 bear. Not bad at all if you ask me. Then he was bullish all in between. But a permabear missed all those bullish parts. How'd that feel in 2009? Pretty lousy I bet. Then again, I don't expect any of the "secular bears" here to see reason. This is all just scare tactics to sell more Agora books.



Oct 6, 2010

Please advise me. I have 170 SBI shares. Is it the correct time to dispose them or any chances of raising the share value.

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