Dear Readers,
This just came in from David.
"Greetings from Croatia. We are in Karin, a simple village on the shore of the Adriatic. Doug Casey, Olivier Garret, Louis James, and Marin Katusa are spending a few days in a retreat discussing investment strategy and meeting with executives of European-focused resource companies.... but, to refresh the body and brain after long flights to get here, we jumped into a local mud bog that the locals believe has ‘magical’ qualities. I can't attest to any magical properties but will say that, due to its sulfurous content, it smells approximately like bathing in something that came out of the wrong side of a dog. The smile is nothing more than a survival mechanism – I laugh so that I don't cry from the stink.
“Croatia is a beautiful country, but wherever you look there are the bombed-out houses, a testament to mankind's inhumanity to his fellows. But that was then, and this is now... and now I must run off to dinner.
“More soon, time and schedule permitting."
Thank you for the lovely intro, David. Now on to today’s stories.
Back in March we wrote an article called “When Bernanke Says All Is Well, It’s Time to Duck and Cover.” In the article, we laid out a couple predictions about the economy by our esteemed Federal Reserve chairman and followed the predictions with a description of how things actually turned out. Needless to say, Ben did not fare too well.
Thanks to a recent article from the Ludwig von Mises Institute called “Ben Bernanke Was Incredibly, Uncannily Wrong,” we have more mud to sling.
The article is really just a transcription of a YouTube video called “Bernanke: Why are we still listening to this guy?” (which is a must-see) with some commentary by the author interspersed throughout.
Here are a few choice excerpts from the article:
July 2005
INTERVIEWER: Tell me, what is the worst-case scenario? Sir, we have so many economists coming on our air and saying, "Oh, this is a [housing] bubble, and it's going to burst, and this is going to be a real issue for the economy." Some say it could even cause a recession at some point. What is the worst-case scenario, if in fact we were to see prices come down substantially across the country?
BERNANKE: Well, I guess I don't buy your premise. It's a pretty unlikely possibility. We've never had a decline in house prices on a nationwide basis. So what I think is more likely is that house prices will slow, maybe stabilize: might slow consumption spending a bit. I don't think it's going to drive the economy too far from its full employment path, though.
[FYI: In July 2005, the median price of homes sold in the U.S. was $227,800. The most recent data from the National Association of Realtors indicates that the current median price of homes sold in the U.S. is $170,200, which reflects a decline of more than 25% from when Bernanke gave this interview.]
November 2006
BERNANKE: This scenario envisions that consumer spending, supported by rising incomes and the recent decline in energy prices, will continue to grow near its trend rate and that the drag on the economy from the [inaudible] housing sector will gradually diminish. The motor vehicles sector may already be showing signs of strengthening. After having cut production significantly in recent months, in response to the rise in inventory of unsold vehicles, automakers appear to have boosted the assembly rate a bit in November, and they have scheduled further increases for December. The effects of the housing correction on real economic activity are likely to persist into next year [2007], as I've already noted. But the rate of decline in home construction should slow as the inventory of unsold new homes is gradually worked down.
[FYI: According to data from the National Association of Realtors, home inventory reflected 7.2 months of supply in November 2006. The most recent data shows an inventory equal to 10.2 months of supply, an increase of more than 40%.]
February 2007
BERNANKE: We expect moderate growth going forward. We believe that if the housing sector begins to stabilize, and if some of the inventory corrections still going on in manufacturing begin to be completed, that there's a reasonable possibility that we'll see some strengthening in the economy sometime during the middle of the new year.
Our assessment is that there's not much indication at this point that subprime mortgage issues have spread into the broader mortgage market, which still seems to be healthy. And the lending side of that still seems to be healthy.
Say what?
The YouTube video’s title says it all. Why are we still listening to this guy?
Bernanke may be wrong more often than not and still keep his job – we at Casey Research cannot afford that luxury. Our subscribers depend on us researching, correctly analyzing, and predicting market currents and emerging trends… which also includes the movements and changing policy decisions of Big Politics. Every month in The Casey Report, we run a feature called “Obama Watch,” in which our Washington correspondent Don Grove shares the inside scoop of the goings-on in D.C. Click here for a risk-free trial of The Casey Report.
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On Tuesday the S&P 500 closed at 1,005.65, its highest level since November 4, 2008. The index is now up 48.6% from its March 9, 2009, close of 676.53.
Why?
A few tidbits of less-than-terrible economic data and better-than-expected earnings reports from a few companies (even though the expectations themselves had recently been revised downward considerably).
But is the worst really over?
Insider activity suggests a resounding No!
History shows that insiders are worth paying attention to, because they’re the ones on the front lines. And insider sales now stand at levels not seen since late 2007, right before the current bear market began.
Here’s the big picture:
Also consider the Barron’s “Insider Spotlight,” a weekly rundown of the top 10 insider purchases and sales. In the past two weeks, the buyers have accumulated $53.9 million in stock. Meanwhile, the sells amount to $640.2 million. That’s a historically very high ratio of 1:11.9.
Although the level of insider selling is alarming, it’s important to note that the very low levels of buying are particularly alarming. Insiders sell stock for many reasons, but they generally only buy stock for one reason: they believe the stock is going up. Despite the fact that the media is reporting an end to the recession, a bottom in housing, and a trough in earnings, we are witnessing a vote of zero confidence from the people who know these companies better than anyone else.
Could this be a sign that the underlying economy is still in fact very weak?
We think so.
And that, dear readers, is that for today. As I sign off, I see the S&P 500 is at $996.32, gold is at $962.90 /oz., crude oil is at $71.43/barrel, and the dollar is up slightly on the euro from yesterday at $1.4351.
See you tomorrow. In the meantime, thank you for reading and for being a subscriber to a Casey Research service!
Chris Wood
Casey Research, LLC