There Is No Curtain (by Mark St.Cyr)

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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) is 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, you saw that Ms. Waters went out of her way as to not
only praise, but
0302-maxine 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 naval. 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   www.MarkStCyr.com

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