Thanksgiving Gridlock: The Daily Beast Ranks America's Worst (and Best) Airports
Hot Topics: Galleries, Sarah Palin, Big Fat Story, Giving Beast, Hungry Beast, Art Beast
Enter your email address:
Enter the recipients' email addresses, separated by commas:
Message:
Richard Drew / AP Photo The markets are rallying as home purchases are up 10 percent—to a 6.1 million annual rate, the highest level since February 2007—and gold rose to a new high on the back of a weaker dollar. But Charlie Gasparino says it may be just another case of irrational exuberance.
It’s true—Wall Street loves unemployment.
How do I know this? When I speak to CEOs and others in the executive suites of our big banks, they tell me that if not for the unemployment rate heading toward 10.5 percent, the markets would never have recovered from their financial-meltdown lows. Business conditions are uniformly lousy, but the markets are surging because they are celebrating the government’s solution to high unemployment: easy money. The near-zero percent interest rate offered by the Federal Reserve is supposed to make credit cheap and allow businesses to expand. It hasn’t quite worked out that way, but easy money has made stocks more liquid because investing in anything else doesn’t pay. (Just check out 10-year bond prices.) So stocks will keep going up as long as interest rates remain where they are, and that’s why Wall Street loves high unemployment. Even as the number of jobless Americans continues to mount, the investment banks make money off free money.
“The advice I gave people when the Fed began to lower rates is buy into the market but get ready to sell when they reverse course,” said a board member of one large financial company.
But even Wall Street knows this scheme has got to end; the dollar is getting hammered and people are bidding up gold, all pointing to the growing realization that unless the Fed raises rates again, the dollar will soon be worth far less than a dollar. That’s why a growing number of senior Wall Street executives I speak to use the word “bubble” to describe the market’s recent rally, with the Dow Jones Industrial Average going from a low of around 6500 in March of this year, to comfortably above 10000.
It’s not that they’re pulling money out in any significant way—at least not yet. The banks are, however, poised to do so the minute they see the Fed begin raising its base “Fed Funds” rate, the interest rate that other interest rates take their cues from. That simple act will tighten credit and, so the theory goes, make it less advantageous to invest in U.S. stocks.
“The advice I gave people when the Fed began to lower rates is buy into the market but get ready to sell when they reverse course,” said a board member of one large financial company. “When will the Fed do that? I can’t tell you because the economic fundamentals are so bad they have to keep rates low, at least for now.”
• Jacki Zahner: If Wall Street Repents, Can Main Street Forgive?• Charlie Gasparino: The Best Job No One Wants• Charlie Gasparino: Wall Street's Grinch SpeaksNormally, the stock market is a reflection of the economy in some way, and yet the market keeps going up even if the economy by every “real” statistic is pretty lousy.
We may now finally be producing economic growth through an increasing GDP, but much of that growth is a function of the fact that things couldn’t get much worse. Beyond that, these big firms have put a hold on hiring, so in many cases they can make money just by sitting still.
Meanwhile, unemployment keeps rising because small businesses can’t get credit to expand from banks that are still holding toxic assets and may need more capital. Commercial real estate is heading into the gutter with the residential stuff. Other job killers include higher taxes on the “rich” and small businesses that are a given thanks to among other reasons, the latest new entitlement coming out of Washington, health-care reform.
Put all of that together and you have what Alan Greenspan once famously termed “irrational exuberance.” Stock touters might believe the Obama Administration that the economy has turned the corner and that the market gains are real, but some smart people I know who run firms and need to make payroll don't think so. In fact, they believe much of the market's gain can be attributed to the herd mentality of investors acting en masse, ignoring the danger signs and completely unaware of what's really propping up stock prices, which is the essence of a bubble. But the bullish herd has a way of changing course, and you don’t want to be standing in front of it when it does.
Charles Gasparino is CNBC's on-air editor and appears as a daily member of CNBC's ensemble. He is a columnist for The Daily Beast and a frequent contributor to the New York Post, Forbes, and other publications. His new book about the financial crisis is The Sellout.
For more of The Daily Beast, become a fan on Facebook and follow us on Twitter.
For inquiries, please contact The Daily Beast at editorial@thedailybeast.com.
As opposed as I am ethically to short-selling - I would love to short-sell gold when the Fed decides to raise interest rates. I hate the arrogance and absurdity of investment in gold and few things would give me more pleasure than sticking it to the guy who keeps saying "You know, you should really invest in gold now that the economy is bad." No - no I shouldn't. America backs its dollar with the most powerful military on the planet and as soon as the economy recovers, gold drops. Oh how sweet it could be. Anyone have some cash burning a hole in his pocket who wants to lend it to an enterprising youngster?
Close to the end of the first qusrter of 2010 we will see a recession that will make this look puny. Holiday sales are going to be a flop, entire malls are going to close, and the part time holiday work will be gone. Wall street is preparing for it now. I'm not going to argue this with onyone. I know of what I speak. Poo-poo it all you care to. But one piece of advice. Don't buy anything you don't need. Hold on to your Cash Dollars. Twenty four states have had to go to the FED for loans just to pay unemployment as of November 20. The loans are coming from freshly printed money that have no backing. The administration cannot continue paying unemployment with "Dead" money. So that stream will dry up by the end of the fiscal year.
The biggest potential disaster awaiting us is the commercial real estate market. If it collapses - which seems likely - a lot of banks are going to fail, and the recession crypto predicts will almost certainly happen.
" Wall Street executives tell Charlie Gasparino they believe the market's surge is irrational, fueled by traders' twisted affection for high unemployment. " " Business conditions are uniformly lousy, but the markets are surging because they are celebrating the government's solution to high unemployment: easy money. " " Easy money " provided on the backs of hard working Americans who will paying off this " LOAN " for generations ? Do we need any more proof that Wall Street is anti-American Worker ? Can't wait to give incompetent sniveling Wall Street runts another bailout.
Wall Street is not providing itself the easy money. The Federal Reserve Board is providing this easy money. And who do you think is ordering the fed to provide the easy money? That's right, your hero!
As recent events have demonstrated, no group is more 'entitled' than the Wall Street crowd.
Would you expect anything different, sphi300? These are almost all staunch Republicans, and they have lobbied heavily, spending hundreds of millions of dollars. They certainly want results from this investment!
extreme sentiments in any direction are wild@ssed guesses. but hopefully anyone who thinks this fragile economy is on a clear path to recovery nevertheless is proceeding with caution. at the national level we are bogged down in a health reform debate when it would be more prudent to be concerned with the nation's economic health first and foremost. we take it for granted we will make it out of this in good time and therefore concern ourselves with other issues we believe to be important. i wish that ultimately the optimists were right, the pessimists were wrong and the realists were running the show.
I think Obama qualifies as a realist, jus1drun.
we'll have to agree to disagree
Bubble bubble foil and trubble michaelslevinson.com
I don't know what Charlie is smoking. It should be clear to everyone that people (worldwide) have no confidence in the manner with which the various central banks (and governments) are managing the paper currencies. The central banks forced me to invest their money some way, shape or form because interest on short-term deposits are virtually zero. There is no place in the world where this is clearer than the US. The value of the dollar is declining because of the monetary and fiscal policies being pursued by the Fed and the federal government. People do not want to hold US dollars because the US dollar is going to go down in value BY DESIGN. As a result people are buying gold (not because they are seeking 50% returns but because they are seeking to protect their wealth from (effective) confiscation by the central banks, i.e., if the fed reduces the value of the dollar by 20%, they have effectively stolen 20% of your money! People are buying gold to manage this risk.
The house of cards is not a USA deck - it is global. Time to read up on the Progressive Utilization Theory (PROUT) and become foward looking with universal eyes. "we are not alone or helpless -----"
Thank you. As a first time user, your comment has been submitted for review. It can take anywhere from a few hours to a day or two for your comment to be reviewed, depending on the time of week and the volume of comments we receive.
Please log in to leave comments.
John Talks Joe
Lloyd Grove is editor at large for The Daily Beast. He is also a frequent contributor to New York magazine and was a contributing editor for Condé Nast Portfolio. He wrote a gossip column for the New York Daily News from 2003 to 2006. Prior to that, he wrote the Reliable Source column for the Washington Post, where he spent 23 years covering politics, the media, and other subjects.
Amateur Hour at the White House
Leslie H. Gelb, a former New York Times columnist and senior government official, is author of Power Rules: How Common Sense Can Rescue American Foreign Policy (HarperCollins 2009), a book that shows how to think about and use power in the 21st century. He is president emeritus of the Council on Foreign Relations.
Going Rogue: The Index
Christopher Buckley's books include Supreme Courtship, The White House Mess, Thank You for Smoking, Little Green Men, and Florence of Arabia. He was chief speechwriter for Vice President George H.W. Bush, and is editor-at-large of ForbesLife magazine. His new book is Losing Mum and Pup, a memoir. Buckley's Daily Beast column is the winner of an Online Journalism Award in the category of Online Commentary.
New Terror Indictments in Minnesota
Up to eight helped others join Islamist group.
Pentagon, White House Split on Surge Cost
Admin estimates $1m per troop per year.
37 Ethics Charges for Sanford
Allegations say he misused plane, campaign funds.
The Best Job No One Wants
Charles Gasparino is CNBC's on-air editor and appears as a daily member of CNBC's ensemble. He is a columnist for The Daily Beast and a frequent contributor to the New York Post, Forbes, and other publications. His new book about the financial crisis, The Sellout, was published by HarperBusiness.
Wall Street's Grinch Speaks
Charles Gasparino is CNBC's on-air editor and appears as a daily member of CNBC's ensemble. He is a columnist for The Daily Beast and a frequent contributor to the New York Post, Forbes, and other publications. His new book about the financial crisis, The Sellout, was published by HarperBusiness.
Wall Street Will Walk
Read Full Article »