05 Feb

5 Feb: Cashin’s Comments

thank you Art Cashin for this comment:

On this day in 1895, America was in a funny financial spot. Well, it was a bit over a hundred and twenty-one years ago today – so – I guess you deserve an explanation. Let me see….if I remember what Sister Herman Joseph taught me – that different America of a century ago looked something like this:

The economy appeared to be struggling. There was a Democrat in the White House. Congress was divided and squabbling, hostility and uncivilly. Some thought the debates were so coarse and rude they spoke of forming a new political party. Technology was the new mantra even after a bumpy start and telecommunications were exploding (in use if not profitability). Much of the country was in the grip of unusual and extreme weather. And…oh yeah….I almost forgot….suddenly folks had begun talking about gold….can you imagine “gold!”

Anyway, despite what pundits of the day thought, gold had begun to rise. Now, in 1895, the old U.S. was on the old “gold exchange standard.” That meant, whether citizen or foreigner, if you thought public policy was not to your liking, you could hand in your green pictures of dead presidents and get gold – real, glistening, bite into it to check it, gold.

As hard as it is for us to believe today, a goodly number of those citizens distrusted what they saw in Washington. Gold rose and soon began to bubble and the dollar began to slide. The rush to exchange dollars might deplete the gold of the U.S. Treasury and cause a default. Imagine – a time when the government wrestled with the question of default.

So – to avoid chaos – the President sought the help of the one man who could control the banks, who could calm Wall Street, who – in short – could find a way to halt the run on the dollar and government reserves. (No Virginia, it was not Jerome Powell – there was no Federal Reserve.)

Thus, on this day in 1895, the President of the U.S. sat down with a certain J.P. Morgan seeking the latter’s help in saving the country. Morgan allowed as how he might just happen to know one fellow who could put the government into default that very afternoon. (The President never
asked if it was Morgan, himself.) Morgan conveniently recalled some obscure Civil War legislation that allowed the President to issue bonds to buy gold. The same law said the bonds could be sold secretly (without bidding). But who would buy them. Well, Morgan allowed as how it was probably his civic duty (along with that of his syndicate) to not only buy the new secret bonds but to buy up some gold and recycle it to the Treasury for the dollars he paid for the bonds. And all this for just a small commission.

To mark this anniversary recall the words of Warren Buffett – There’s always a silver lining – or was that Jimmy Buffett.

The bulls certainly could have used the help of J.P. Morgan, and maybe a dozen or more associates, as the great bull market of 2018 looked on the verge of becoming undone on Friday.

Buyers Boycott, Rate Fears And Other Stumbles Produce a Trapdoor Selloff – After a volatile and shaky week, U.S. stocks were under a bit of a cloud Friday morning. Less than hoped for results from Apple and Alphabet put some of the FANG all-stars into the doubt column. That led to selling in the tech sector.

Falling oil prices put downward pressure on energy stocks and that sector also weighed on the indices. The healthcare sector also continued under pressure that had begun with the Amazon joint venture proposal and the President’s State of the Union proposals.

Then, with the release of the payroll data, another shoe fell. There was clearly upward pressure on payrolls and that raised questions about whether tax cuts and other forms of stimuli might kick inflation into higher gear and force the Fed to act more quickly than expected. That fear spooked both bonds and stocks.

All these pressures came on global markets already concerned about the slipping effectiveness of some key central banks, in particular the Bank of Japan.

Then came the icing on the cake. In mid-morning, the so-called Republican memo was released. That prompted an instant buyers boycott since no one wanted buy into a potentially wild Washington weekend with possible resignations and even a possible Constitutional crisis. The attitude was – I might as well wait until Monday and a possible all clear. With the buyers boycott as the key factor, the stock market went through several stages of near free-fall in the afternoon on only marginally higher volume. Nonetheless, the sharp selloff caused some to reassess the status of the Big Bull.

Overnight And Overseas – In Asia, most markets got banged around in apparent reaction to Friday’s U.S. plunge. Tokyo was down about the equivalent of 656 Dow points. Hong Kong and India had more moderate selloffs. Shanghai actually rallied but cynics claims a heavy government influence. Europe saw 1% selloff. Gold is up a bit but still stuck in the resistance band. WTI is struggling to hold above $65. The euro is virtually unchanged against the dollar and yields are down a tick or two on a mild safety play.

Consensus – The Washington picture remains less than clear and could inhibit some potential buyers. Traders look for the S&P to drop to and possibly through its 50 day moving average (circa 2715). Other cocktail napkins look to 2650. Draghi may speak at 11:00 (EST). Stick with the drill – stay wary, alert and very, very nimble

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