Tuesday, July 19, 2005

Federal Reserve and Monetary Policy: Chaos and Control

The Federal Reserve has been selling its US Treasuries. This action, coupled with raising short term interest rates has one goal: to control inflation and inflationary expectations. There are two targets that is in the Fed's cross hairs; $dollar denominated commodities and the “funny money” housing has generated. Unlike the Federal Reserves ability to control the “irrational exuberance” of the dot com bubble, the Fed can control the “irrational exuberance” of the US housing market and $dollar denominate commodities.

The Fed is controlling States and Local governments from making future promises, aka California, based on current values of the “funny money” houses has generated. This is very dangerous because inflation (or more specifically the home buyer's perception of the property's value) is needed to maintain the value of the property (or “funny money”).

The $dollar is currently indicating the US has, on the surface, fixed its “structural problems”. If the $dollar weakens against major currencies, I think this is an indication that the “global” financial markets have made the decision the US's “structure problems” have not been addressed. The “funny money” that housing has been generated needs to be propped upped (a re-inflation event).

The market has baked in Alan Greenspan's appearance on Capital Hill, however they have not baked in his probable response to the Chines government's attempt to buy an American oil company. It is going to be interesting how a “free market” central banker is going to weasel out of this given the fact that this certain central banker had given a speech about energy and specifically natural gas. Would you like to guess what the nature of this particular oil company reserves are in the Asian regional? Give yourself 10 points if you said natural gas. Greenspan has to balance his view that government should not go down a “protectionist path” to that of having the American people believe that the US government has sold out to the Chinese Communist government.

Thursday, July 14, 2005

Federal Reserve and Monetary Policy: How does the Federal Government balance its books when there are 2 CIAs?

Does it not strike one the oddish way “intelligence” seems to work during Bush's first term?
The CIA tells Bush that Saddam Hussein recently sought significant quantities of uranium from Africa. However, CIA Director George Tenet says the Niger uranium claim should have been left out of the State of the Union speech.

Robert Novak tells the “CIA” in July 2003 that he is going to write that Wilson's wife, Valerie Plame, is a CIA operative and suggested sending him (Wilson) to Niger. In September, the CIA requested, the Justice Department launches a criminal probe into the leak of Plame's identity.
There appears to be 2 “CIAs”. I wonder if that “other” “CIA” is Rumsfeld's Pentagon's “CIA”? I wonder how long the Pentagon's “CIA” was in operation?

“Rove told the grand jury that by the time Novak had called him, he believes he had similar information about Wilson's wife from another reporter but had no recollection of which reporter had told him about it first.”

Question 1) What did Rove do when he was told that a reporter had information about a CIA operative? Did he tell his Boss (BUSH)? If he told Bush, then what did Bush suggested he do? Did he tell the CIA? If Rove told the CIA, then which “CIA” did he informed? Did Rove informed the FBI? If that were the case, then why is this investigation in its second year? As far as we know, Rove blabbed to another reporter (Cooper).

The general gist is that Rove did not believe that particular information was of importance that required him to keep it “close to his chest”. If this was the case, then shame on Rove, but a bigger blame is to be placed on Bush for not taking action (firing Rove). This means that Bush lied to the American public and that the Downing Street Memo was correct.

If Bush was informed and he gave the OK to play politics with a CIA operative then this again shows that Bush lied to the American public and that the Downing Street Memo was correct.

Novak said that there were two Bush administration officials. Since there is no news coming out of the White House, I'm going to stick my neck out and wonder out loud if that other official worked with the Pentagon and it was that person whom Rove told (that other “CIA”). Bush is in charge of the White House, supposedly. Which means, again, that Bush lied to the American public and that the Downing Street Memo was correct.

Question 2) Why is it that the CIA missed the UN's Food for Oil program scandal? Or did they? If I was a intelligence analyst, notice I did not say “a CIA” analysis (under the Bush administration, the CIA are a group of morons), I would have loved the opportunity to get an inside track that such a program would have presented. The oil for food is a direct channel into Iraq. Such a channel would have been priceless if one can use blackmail to gain information. Hence, a very good reason why the police force and intelligence should remain separate. One would want to bring violators to court, the other wants to pump as much information as they can.

It looks like Bush did know that the intelligence gathered on Iraq, was faulty, but ordered the invasion anyway. The faulty intelligence was in fact within the White House, common denominators are Rove and Bush. If Rove knows that the value of intelligence was not worth keeping it to himself, then Bush knows that the intelligence was faulty. Hence, there is a cover up at the White House and Bush is that common denominator.

This political event has just begun. It is time to price some risk into this market. Partisan bickering is going to spill over into the Supreme Court nomination. These two events will combine to suck the “drive of doing the Peoples' business”. This “Leak” from the White House will be carried over into the 2006 election year.




Update July 15, 2005


“The July 11, 2003, e-mail between Rove and then-Deputy National Security Adviser Stephen Hadley is the first showing an intelligence official knew Rove had talked to Matthew Cooper just days before the Time magazine reporter wrote an article identifying Valerie Plame as a CIA officer.”

“Rove told the grand jury that by the time Novak had called him, he believes he had similar information about Wilson's wife from another member of the news media but he could not recall which reporter had told him about it first, the person said.”

The question remains; What happened between the first time Rove was informed by this forgotten media person and Novak. There are a lot of holes in this saga.

I bet you the leak came from the Pentagon. Why not? Rumsfeld was in Bush senior's administration during the first Iraq war. A war that a lot of people thought ended too soon. The Pentagon was gathering intelligence about the weapons and strength of Iraq's forces. They knew that there was no WMDs. Rumsfeld saw a chance to settle a dispute once and for all. Wilson's information was an obstacle toward that goal.




Update July 16, 2005


If the information came from the State Department, then the question becomes who is that forgotten media person. Was that media person Judith Miller?

If one believes this article's information “The memorandum was sent to Colin L. Powell, then the secretary of state, just before or as he traveled with President Bush and other senior officials to Africa starting on July 7, 2003, when the White House was scrambling to defend itself from a blast of criticism a few days earlier from the former diplomat, Joseph C. Wilson IV, current and former government officials said.”

The crucial question is now one of “TIME”. When did the leak happened? This is crucial because one should believe that Powell should have been informed before Wilson's trip, not a year later. This implies that Powell was out of the loop. This also implies that the State Department is being used as the scape goat.

I think this is the reason why Miller is sitting in a jail cell. The judge has stated that this is a plot against Wilson.

We are again back to the original question, where did this leak begin. The State Department is now a link, the question can be asked if this was a plot to discredit Powell? We know that there was infighting between State and Defense (Powell and Rumsfeld). Stay tune.

Tuesday, July 12, 2005

Federal Reserve and Monetary Policy: Obstruction of Justice and Its Accompanying Uncertainty.

Let's stop pussy-footing and call Rove leaking a CIA operative what it is:”It is obstruction of justice by the White House to prevent a high ranking adviser (at that time) from embarrassing the President during an election year”.

Whether Rove broken the secrecy law is not the issue. The issue is whether he leaked “intelligence” for political gain ( fraud and conspiracy). It is also important to track Rove's motivation. Remember, at the time of the leak, the US had ground forces in Afghanistan and Iraq. Leaking this intelligence puts the “spot light” on Bush and his ability to control the situation. Rove leaking this intelligence shows, in my opinion, the complete lack of control that was necessary for Bush to lead the war in Iraq and it certainly shows Bush's desire to force a conclusion of his family's vendetta against Hussein.

One does not leak any intelligence during a time of war. Bush's recent commits of “going forward and bringing the war to the terrorist” now takes on a different meaning. No wounder our “former” allies are afraid of Bush. Bush's comment, means we should be invading Europe.

The political fallout is in the “warm up” phase. Wall Street does not like uncertainty. The political fallout will be on peoples' minds and will affect the “Goldilocks” scenario that some have viewed the US economy to be in.

Friday, July 08, 2005

Federal Reserve and Monetary Policy: Oil's Well That Ends Well

Watch the $dollar. If corporate profits suffer because of the recent strength of the $dollar AND if this forces them to begin cutting cost to meet Wall Street's expectation AND the $dollar weakens, the Federal Reserve will stop. If corporate profit suffer, but margins are stable AND the $dollar breaks old levels (example: 117 Euro) then the Federal Reserve will continue its course of rate hikes until the $dollar is at par with respect to other major currencies.

Remember, a few hedge funds got into trouble with a bad strategy with regards to the GM and Ford's stock/bond hedge. It is possible that the recent and rapid strength of the $dollar has also blown other strategies. The Federal Reserve must continue its “measure pace”.

The price of oil will determine if the FOMC makes an other move on short term interest rate in its August meeting. The key to understanding this is to look at the $dollar index (see: Monthly $Dollar Index). When oil first approached the $55 range, the index was around 86 (June, July and Aug of 2004). The summer soft patch. The index was ranging in the low 80's during the first half of this year. It is now at 86. Turn your attention to the reasons that were given for the price of oil last year: the weak dollar along with global event risk. The excuse given during the first half of this year is based on capacity concerns. Now the excuses are again global event risk and capacity concerns. Notice what is missing, its the weak $dollar (as measured by the index). Let's add in a probable revaluation of the Yuan this summer(?) China pegged its currency lower than the US $dollar, which in turned made $dollar denominated commodities MORE expensive for the Chinese. If China revalues the Yuan by the rumored 10%, this in effect, will be a sharp drop of commodity prices in China. If this drop in prices reaches the Chinese consumers, then it becomes a certainty that the demand for commodities, like oil, will INCREASE (increase in demand). This becomes a problem of price stability for the Federal Reserve.