Just like in that famous scene in the land of Oz when everyone becomes fully aware that it’s only one person pulling the strings, we just witnessed that moment in real life this week. Unlike the movie, there was no attempt to yell: “Pay no attention to that man behind the curtain!” Rather, it was more akin to, “Let’s remove all doubt and shine a spotlight while we give him great round of applause!”
Of course I’m talking about Ben Bernanke’s appearance before both the House as well as the Senate. However, the truly telling change was what transpired during his House appearance.
Maxine Waters (D) California notorious for holding bankers of any stripe not only in contemptuous disdain. But also once caught mixing her words when excoriating bankers as to “socialize” their banks. It seems she’s possibly received even more than she might have once wished. Complete control of both banks and markets by way of the Federal Reserve.
If you watched the hearing Ms. Waters went out of her way as to not only praise, but rather to lavishly thank him for what he is doing that allows everything to run just ducky. Personally I was a little taken back on her fawning over the number one banker of bankers given her previous mistrust of anyone Wall Street or “bank” related.
Then it hit me. Of course she would. Why wouldn’t one of the most self-proclaimed big government advocates be enamored with what is transpiring? Actually could a bureaucrat ask for anything more? I believe not.
Now this isn’t about Ms. Waters. I only use her as a first reference in what transpired as the week progressed. The question on everyone’s mind from traders, corporate managers, to solo practitioners is this: “Are we a free market economy or not?” The answer to that question of late has been muddied. It’s also quite possible the mud has been removed by using the very curtain they once used so you couldn’t or wouldn’t see behind.
It would seem there’s no need for that curtain any longer so might as well use it for a rag to wipe away the mud. “Nothing to see here” has now become, “We’ve got nothing to hide.” The consequences good or ill are unknown at this moment in time. However if history is any guide. It’ never ends well.
Problem is what ever the consequences no one will be spared impact. Everyone will be affected in one way or another. Business may never be the same. If it’s not already.
Many have argued (and still do) that Bernanke’s involvement in the financial markets was and still is “a good thing.” I would argue that when the Fed first intervened a good argument for it could be made. Even the most vocal critics of anything interventionist could be reasoned with as to why the first actions might have eased some undue pain or pressure as to stabilize an uncontrolled panic.
It’s in the “staying too long at the bar” that has most up in arms. The question of: “Where would we be if he hadn’t intervened?” is the equivalent today as to pondering ones navel. The question of: “Where would we be if he didn’t over stay?” is the only question that is relevant. For everything anyone ever learned or knew about markets or business is jeopardized by the answer to that question. Yes I believe it’s that important.
So many this week were focused on the impending doom known as the Sequester. The markets like so many times before seemed to also notice that once again Europe was in trouble. (Italy being this years catalyst) As the markets abruptly hit reverse pulling away from record highs mayhem could have been right around the corner with the U.S. markets opening taking in the ramifications of a Europe based sell off, topped off with the sequester becoming finalized. And what transpired?
The Speaker of the House John Boehner (R) Ohio came to the podium right as the markets were opening and said: (I’m paraphrasing) “We will introduce legislation to keep the government open past March.” Then abruptly turned around and walked away.
Think he did that because you needed assurance? Or was it now how government “knows” how to influence the markets more efficiently? (Remember how Monti continuously saved the Euro last year?) I’m not saying I’m right, or wrong. I’m just expressing one of those; “Things that make you go hmmm” moments. That’s all.
What happened next as witnessed so many times of late was nearly text-book for these markets that appear no longer “free” but appear blatantly manipulated.
In what seemed like an algo induced HFT (high frequency trading) headline reading, hunt run and kill, stop program that pushed the markets off their lows to not only regain their lost territory, but for some back to lifetime highs. Was that “free market trading?” Or was it more along the lines of “Trading government manipulated markets?”
Either answer is a guess. Which is precisely a problem that has never been experienced in the U.S. of this magnitude. If you’re in business or an entrepreneur of any stripe you should not only be concerned, you should be alarmed. If not – you’re not paying attention. Period. (Here’s an article I wrote in 2009 about exactly this point. It may add some more context for a big picture view.)
How exactly does a farmer hedge crops? Or an airline hedge oil? Or a cereal maker hedge grain costs or more if markets are zig zagging to and fro based on nothing but headline reading government speak based trading by machines fueled with billions of government interventionist monies via transfers from the Fed to dealers? Guess what…You can’t.
All day long the markets seemingly given green lights with the “all clear” statement pushed higher, and higher, and higher as the president came out and painted pictures of fire and brimstone that would now be forced upon the citizenry.
Normally the markets would have reacted to such apocalyptic statements from the President of the U.S. negatively – but not today. Why? I don’t know – but do you? Does anyone?
It’s all speculation or conspiracy and the problem with most conspiracies are the theories. But that’s all one has today. Nothing can be nailed down. It’s all like grasping at smoke. And that’s no way to run a business – let alone a country. (Please save the emails. I don’t care whom is in power, this about business and what it means to that only.)
As people will focus on this politician or that party being messianic or the devil incarnate one of the greatest watchdogs that kept many in line was the voice and power of the markets. Free markets allowed for the voting with one’s pocket-book to not only be heard loud and clear, but kept onerous measures of taxation and more at bay. It can now be argued the “fox” has now laid claim to that house also.
If the markets appearing more and more just extensions of government intervention where winners and losers will be chosen by “who do you know” rather than “how good is your company” what does that mean to business today? How about your business? Can you answer that with clear understanding of the implications that may or may not be felt at this moment? I believe an honest answer to that is – hardly. And once again, that is a different dynamic to business not seen here. Ever.
Taxation of what, where, and how much if at all can be argued for or against. But free markets can not. Without free markets where the marketplace of ideas has a chance to both come to life as well as die is unquestionable. Without free markets you have nothing. But arguing that point to anyone that has never known the world without them is an exercise in futility. They can’t get past some chicken or egg quandary argument as if there is one. There isn’t.
So once again why is this whole argument about markets, taxation, manipulation, and everything else so poignant to entrepreneurs as to what is transpiring today? Easy…
Not that long ago being the C.E.O. of General Motors was once believed more prestigious (as well as important) than being President of the U.S. Not only has the president now become de facto head of GM but, the once great city known as Detroit has also been taken over this week by the state because it has fallen and it can’t get up.
All this while politicians go on multimillion dollar tax payer funded vacations and junkets. Spends billions upon billions of dollars in give a way’s to foreign countries. While its chief executive takes to the podium proclaiming we need more “revenue” or you’ll all be hurt with no meat inspection and more. And the markets rise! I’m sorry but something is terribly wrong because we are definitely “Not in Kansas any longer!”
Not for nothing, but another part of this whole surreal interpretation of impending doom from behind or in front of curtains just gnawed on me.
Having actually both owned as well as run a meat company that required meat inspectors, taken the test to actually be a meat inspector, was a corporate liaison to the U.S.D.A. I couldn’t help wonder why meat inspectors could be laid off since meat companies pay and fund that program separately via a “fee for service.”
Maybe it’s in the same lock box as the “fees” already paid via gas and road use taxes that are acquired to maintain and fix roads and bridges. Maybe if they just said we need more money to pay for a lock smith to open those boxes an argument for more could be made.
But hey the markets probably went higher on the news that California just let entrepreneurs know that in order to fill those deficits they’re now retroactively taxing them going back 4 years! Sure hope no one thought that money was theirs to keep. That would be a mistake. (Gives “you didn’t build that” a whole new meaning and ring doesn’t it?)
But hey, the markets went up right? So everyone should just forget about anything that makes you go hmmm, and just start humming…
“Don’t worry…Be happy… Don’t worry be happy now..doooooo do do…..”
© 2013 Mark St.Cyr