12/9/2009 Page 1 Issue 145 The "Bold Colors" Conservative Voice in Washington Issue 145 - December 9, 2009 Why Are Stocks Up? From the Battle Line Culture Wars Why Are Stocks Up? Galileo Silenced Again by Donald Devine by Soon/Legates Summits Don't Pay Where Heck Is Warming? by Haulk/Gomrat by Dennis Avery Peaceful Islamic Threat A Gore History of Warming by Daniel Pipes by Paul Driessen Media Pass in Review Political Front Hasan Media Correctness Harding Outlasts Wilson by Brent Bozell by David Keene Ignoring Gulags Politicized Warming Fraud by Daniel Crandall by Alan Caruba Missing "Monk" Going Rogue by S.T. Karnick by Jeffrey Folks Government Maneuvers Reader Backfire Smart Growth Fails The Burka Barbie by Randall O'Toole by Jim Lakely A New Aviation Policy? Darkening Unemployment by Bob Poole by Latoya Egwuekwe Squeezing the Doctors Reader Comments by John Goodman 12/9/2009 Page 2 Issue 145 Why Are Stocks Up? by Donald Devine Issue 145 - December 9, 2009 President Barack Obama was finally relieved to announce, “We have pulled the economy back from the brink.” While warning there was still a “long way to go,” he emphasized, “We got good news last week showing that for the first time in over a year the economy was actually growing once again.” A few days before the Commerce Department noted the gross domestic product had turned positive (later adjusted to +2.8%) and the Dow Jones Industrial Average broke above 10,000 – both, as the president said, for the first time in a year. This has now been sustained for weeks. If the president’s economics is so wrong, why do the experts all say the recession is over? Yes, the GDP increase was mainly due to one-time government stimulus and bailout funds that would soon run dry but, then, why is the stock market pointing positive? In fact, the Dow Jones’ 10,000-plus is up almost 20% over last year. It seems impressive. But this is where the index was ten years ago. At least it is up? But ten years ago gold was selling for $400 an ounce and today it is over $1,100. In terms of real money (gold), yesterday’s 10,000 DJIA should equal 27,500 today. Two of our favorite market analysts, Brian Wesbury and Benjamin Stein of FirstTrust Advisors, are still predicting a fourth quarter GDP rise of 4.5%. They insist the pessimists are “recovery-deniers.” While gold has increased 25.1% since March, they note that the S&P 500 has increased 64.1%. While they admit the price of gold has quadrupled over the last eight years and stocks have been flat, they insist the Fed could not have inflated that much, so gold must be “overpriced.” They do concede that government spending, proposed expensive new programs and potential inflation if the Fed cannot reduce the historically high liquidity levels could stifle recovery. But why is gold overpriced rather than a hedge against the day the Federal Reserve will have to soak up the trillions of dollars of liquidity it has created over the past year? Is it “overpriced” 2.7 times? The more likely answer is that the smart money is selling the dollar short. The dollar has not only fallen dramatically against gold. Against a basket of the six major currencies, the dollar has recently dropped 6.8%. Other commodities have been increasing over the decade relative to the dollar too. Take oil. From the price collapse in 1998 to $10 a barrel, oil has increased 76% this year alone to $77 a barrel. More important, as Mark Shenk of Bloomberg reports, the number of futures contracts betting the price will go to $100 by March rose to 27,482 in October from 7,181 in September, and climbed another 1,609 to 29,091 by November 5. The contracts cover more than 29 million barrels of crude. But Saudi Arabia wants a sustainable price near its present value and in the past has increased supply when prices went too high. The OPEC cartel countries are meeting December 22 to stabilize the price. Kuwait’s minster has called for an earlier meeting if the price reaches $100. The problem today is that demand is down and inventories are high, so rather than supply or demand for oil they think the price is being driven by hedging against the dollar, which they cannot do much about. 12/9/2009 Page 3 Issue 145 Much of the supposedly hard evidence of recovery is simply wrong. Realtors were cheered when existing home sales increased 10.1% the preceding month to its highest number since 2006 before the housing crisis that sunk the economy. Yet, at the same time, housing starts fell 10.6% and inventories still totaled 3.5 million homes, down only one-quarter from the highpoint of the crisis. The Fed itself now says “bank loans continued to contract sharply in all categories" and believes “about five or six years would be needed for the economy to converge fully to a longer-run path" of full recovery and low unemployment. There is some good news about the economy. The Obama Administration and the Congressional Democrats do not look like they will be able to do as much damage as seemed likely when they first entered office. The economy-draining energy cap-and-trade bill looks dead. Big tax hits on high income earners have been delayed. Even the number one priority of restructuring the one-sixth of the economy that is health care seems less likely every day. In light of the likely poor state of the economy, Republicans are likely to make big gains in 2010 and this has revived optimism that if things can be stalled long enough at least the economy will not get worse. Some positive news on the economy is more tangible. Productivity has increased. But why? Unemployment is at a twenty year high ten percent. In a recession, who do employers lay off first? Obviously, they unload the less productive first – and they are more selective in who they rehire. Under these conditions, of course labor productivity will go up. But fewer are employed and the Fed predicts unemployment will remain over nine percent through 2010. And that is the more important factor. Above it all looms the coming inflation. And then the entitlements explode. If President Obama and Fed Chairman Ben Bernanke do not get it, America’s largest creditor does. Just before the President’s arrival, the chairman of the China Banking Regulatory Commission Liu Mingkang chided the U.S. for its weak dollar and low interest rates that were “seriously impacting world asset prices and encouraging speculation in stock and property markets,” inflating asset bubbles around the world that have created “unavoidable risks for the recovery of the global economy.” The U.S. government is even subsidizing short-selling the dollar. The Fed’s near zero discount rate has made borrowing trillions basically costless for big investors. Even a low-interest government bond generates a quick return at no risk. Assuming that horrendous inflation is imminent, one can even borrow at zero and invest in something that might rise with inflation. Gold is the most obvious but stocks in commodities and other inflation hedges make sense too. Why then do the U. S. government’s price indices not show inflation? They measure a full year and inflation is more recent. Actually, the Producer Price Index is up at a worrying 4.8% annual rate for the past six months. Consumer goods are up 6.4%. The Consumer Price Index over the past six months is above three percent. But the fact is the rise in stock prices and gold are themselves a measure of inflation but CPI/PPI do not count them. They count purchases but miss investments in an era when half of Americans own stock through their retirement savings. The economists all miss the point that it is the stock and commodity price increases themselves that are the leading edges of what will be a stupendous inflation. 12/9/2009 Page 4 Issue 145 What we are seeing today is not recovery but inflation anticipation. What can be done? How about imitating the Magi and give gold or commodities for Christmas? Suddenly, even a lump of coal in one’s stocking has become a desirable holiday gift. Donald Devine, the editor of Conservative Battleline Online, was the director of the U.S. Office of Personnel Management from 1981 to 1985 under Ronald Reagan and is Senior Scholar at Bellevue University’s Center for American Vision and Values. Post this article to your Facebook profile 12/9/2009 Page 5 Issue 145 Summits Don't Pay by Jake Haulk, and Frank Gamrat, Issue 145 - December 9, 2009 Shortly after the conclusion of the September G-20 Summit, the head of Visit Pittsburgh claimed the event’s economic benefits to the City and region reached $35 million. As we pointed out in an earlier Policy Brief, that was a very dubious claim. Two months later data are available that call into serious question the notion the region enjoyed a $35 million boost in economic benefits. We now have a reading on the RAD (regional asset district) tax revenue for September, which is a gauge of retail sales in Allegheny County, as well as figures for hotel occupancy tax revenue for September, which allow us to calculate the dollars spent on hotel rooms during the month. By comparing the September 2009 data to September 2008 numbers and examining the pattern of year over year changes for 2009, it is possible to come to a reasonable conclusion about the G-20 meeting’s direct impact on spending.