Real Wealth Society

Sunday, September 30, 2007

Thinking about questions and catalysts By Fred Cederholm

Column for on/after September 23rd, 2007

I’ve been thinking about questions. Actually I’ve been thinking about the week that was, the FED/ Bernanke, choices, the US dollar, and our energy imports. What a week THAT was! When the FED knuckled under to pressure by Wall Street, the investment bankers, and the banking industry in general to cut interest rates; I was livid. Cutting rates may provide a surge of turbo-caffeine (or adrenaline) to our tottering financial mess, but it is NO solution. Cheap money (prolonged low interest rates) created this bubbling stench of a mess. Now we are supposed to believe that MORE of the true cause behind the bubbles be will remedy/ fix them – I TH*NK not.

You see as I watched the unfolding events after the half-a-point rate cut, I was left with far more questions than answers. Remember that before there can be an answer, there must be a (good) question. Questions are how we learn, how we grow, and how we prosper. Questions beginning with who, what, when, where, why, how, how much, or how many - elicit the most widely informative answers. Any single premise question beginning with a verb gets you only a “yes or no” answer. The events of the past week left me asking: How much? Who (benefits)? And most of all… Why?

The FED had been under increasing pressure from Wall Street and investment lobbies to again further cheapen our money by lowering interest rates - making credit (as in DEBT) more “affordable.” This makes no sense as the recent dip in share prices were about 8% off the all-time record high for the obscenely inflated Dow Jones Industrials (at 14,121) - which were still up (at the time of the rate cut) by almost 6.5% since the first of this year alone. The cut did little to help households being squished under the burden(s) of their credit card obligations and their resetting sub-prime mortgages, but it immediately sent the Dow upward to within 2.5% of the all time high – working faster than “the little blue pill.” Like that “little blue pill” taken to remedy another deflationary problem, the effects will soon wear off.

Chairman Bernanke and the Board of Governors of the FED were put in an untenable situation – which spinning propaganda lie would they tacitly admit was a falsehood, and which would they continue to sweep under the rug? For months they have denied both sides of the coin by keeping the rates static. By raising rates, they would have admitted that true inflation was a problem, and was far above the officially spun/ hyped 2.5 to 3% anyone who buys stuff knows to be total hooey. A rate increase was really justified, but that would have exacerbated the housing bubble, credit bubble, and deficit(s) bubble.

By cutting rates, – even by a quarter-point, not the draconian a half-point they chose – the FED was admitting that the housing bubble/ sub-prime lending/ CDO derivative mess was a gargantuan problem that was threatening to bring down our entire system. Those myths/ falsehoods that this was no BIGGIE were put to rest once and for all! While it was possible to ignore the freezes in liquidating investments in real estate and their derivatives faced here by US investors, queues of depositors lining up outside trying to withdraw deposits in the UK (and elsewhere) were just too juicy a video clip, but even those were never aired here – we got OJ and Britney footage instead. The FED acted to stem the tide (for the moment). It was a choice that would adversely affect the US dollar. It was an act of futility, desperation, and panic. What next from the FED? Another decrease? Or, a reversal with a rate increase?

From the moment of the rate decrease; equities rallied, bonds declined, and the dollar continued its descent relative to other currencies. A EURO which cost $ .89 at its origin in 1999 now costs a record $1.41. A British Pound is now over $ 2.00. The Canadian $ (which BTW is called a “loonie”) is now at parity with the US buck for the first time in over 30 years - and rising. So what, you might ask? A cheap dollar may make our exports a bargain, but it will also make our imports more costly. This country runs on energy - over two-thirds of which is imported. Every fractional drop in the buck is immediately reflected by a rise in “the dollar price” of crude and distillates. If you believe the short term answer to escalating cost of foreign made goods is to “buy American,” ask yourself this question: “Just what do we still make here right now?” I’m Fred Cederholm and I’ve been thinking. You should be thinking, too.


Column for on/after September 16th, 2007

I’ve been thinking about catalysts. Actually I’ve been thinking Petraeus, interest rates, “fixes and carrys,” the election 2008 candidates, Oprah Winfrey, and Dede Forrest. A catalyst is something added into the mix of a process, situation, or a movement to accelerate activity and output. It may cause more of a desired effect to result than might otherwise occur, or it might merely speed up the process instead.

You see catalysts do not just happen without some outside intervention. They are engineered and have a long history on planet earth. From the earliest of times, alchemists sought “something” to turn base metal into gold – take something commonplace and of margin value (or even a liability) and make it into something rare, significant, and valuable. They were looking for catalysts, but beware as catalysts are a also double-edged sword. They may foster, promote, stimulate, and accelerate. However, the actions and re-actions may not always proceed unilaterally in the anticipated or desired direction.

Last week, we saw “der spinmeisters” of the administration push General Petraeus and his long anticipated reporting to the US Congress about the progress of American actions in Iraq made since the surge in troop deployments in spring. While Congress had mandated 18 criteria (or “bullet” points – no pun intended) for consideration and measurement, we all somehow knew the message was going to be one of “stay the course, minimal current troop reductions, and an American deployment of our young men and women long into the future.” With only marginal progress having been made on 3 of the 18 benchmark criteria, the Petraeus Report SHOULD justify a timetable for accelerated withdrawal instead. The opponents of the war should feel stimulated, NOT the proponents. Neither appears to be the case.

Last week also saw the publicity foreplay of the release of Maestro Greenspan’s book about his controversial tenure as the Chairman of the FED. It appears to be a composite history, apologia, and defense of the Greenspan years. The FED’s monetary and fiscal policies were clearly catalysts behind the dot-com boom, the irrational exuberance of a stock market running amok (and then crashing), and the surrogate bubble of the housing/Real Estate sector as the subsequent “fix” to an economic/ financial mess crested by the original meddling/ muddling of the FED’s rollercoaster interest rates! Will meetings of the Bernanke FED’s Open Market Committee on interest rates again interject the FED as the catalyst for good, or for ill? Will a return/ continuation of cheap money be the “fix,” the “carry,” or the problem?

US/us needs REAL leadership. The 2008 election of a President will prove perhaps THE most important of this generation. With rare exception, the candidates from both parties are lack luster, and depressing at best. We need our next President to be a true catalyst for change – to restore our economic, financial, and global reputation(s). Most of this gaggle appear straight out of Hollywood’s central casting with their good hair and great pearly whites. Where are the plan, the substance, and the real teeth we need. Democratic Senators Obama and Clinton, and Republican Congressman Ron Paul are clearly exceptions to the buffet of “the cream of wheat(s) on a beige plate.” But, are they the catalysts to put the fire into the bellies of their own parties? Or… will they accelerate the emotion behind support for their opposition candidates instead? Obama has captured the catalytic star power of Chicago talk show host, Oprah Winfrey, who has the reputation for being a rainmaker of public opinion and promotion. Her celebrity status “creates” celebrities. At least… she can sure make “a best seller” in the genre of books!

This past weekend my little hometown community celebrated its 51st annual Creston Booster Days festival. As part of this event, we single out someone who has volunteered and worked so very hard to make our community a special place. These individuals are true catalysts for change and betterment for our little village in only the most positive senses of the term. This year Dede Forrest was the recipient of the 2007 Theodore Cederholm Memorial Community Service Award. Congratulations, Dede, and thank you so much for all you’ve done for us. May God bless you as you have truly blessed us! I’m Fred Cederholm and I’ve been thinking. You should be thinking, too.

Copyright 2007 Questions, Inc. All rights reserved.


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