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June 18, 2004

Stink Baum
by Ed Bugos

Baum Bombs Out, in Journalism

What a joke. What happened to the press of the seventies that uncovered Watergate? Today's press couldn't find a scandal if it tried. You'd think it was because Diogenes has finally found a bunch of honest politicians. At least that's the implication in Baum's attitude, implicit in her rhetorical blasting of Robert McHugh's conclusion on May 30^th:

The Federal Reserve has confirmed our Stock Market Crash forecast by raising the Money Supply (M-3) by crisis proportions, up another 46.8 billion this past week. What awful calamity do they see? Something is up. This is unprecedented, unheard-of pre-catastrophe M-3 expansion. M-3 is up an amount that we've never seen before without a crisis - $155 billion over the past 4 weeks, a $2.0 trillion annualized pace, a 22.2 percent annualized rate of growth!!! There must be a crisis of historic proportions coming, and the Federal Reserve Bank of the United States is making sure that there is enough liquidity in place to protect our nation's fragile financial system. The amazing thing is, the Fed's actions mean they know what is about to happen. They are aware of a terrible, horrific imminent event. What could it be? - Robert McHugh's Financial Markets Forecast and Analysis, May 30^th http://www.safehaven.com/article-1597.htm

First of all, the non-seasonally adjusted figure for the month of May was actually US$165 billion. The seasonally adjusted figure is now about US$110 billion. The Fed has revised the numbers since McHugh's report. Though exaggerated, this is nevertheless a worthy observation.

M3 has in fact grown by similar amounts on three other occasions: according to the seasonally adjusted data at the Fed's website, it grew by US$117 billion in April 2001, US$158 billion in September 2001 and US$132 billion during November 2002.

But going back to 1959 there are no more such instances; hence, rather than reject McHugh's exaggerated claim these findings basically confirm it. After all, one of these periods was April 2001, five months ahead of 9-11.

To be sure, M3 has grown from US$1 Trillion in the seventies to more than US$9 Trillion today, so the math can play tricks. Still, we're talking about a 15% annualized rate - which is the seventh highest monthly gain on record since 1971... that's out of almost 400 months.

Here's a sample of Bloomberg writer Caroline Baum's criticism:

It must say something about fear and greed that normally sane people take leave of their senses to construct financial market conspiracy theories. Some of these theories, embarrassing as it would seem, find their way into print. A recent conspiracy theory (CT) making the rounds concerns the surge in money supply growth and -- watch the web being spun -- the implication that "the Fed must know something." According to this line of thinking, the Federal Reserve is flooding the banking system with reserves in the same way that it did following the Sept. 11, 2001, terrorist attacks -- except this time it's anticipating the event.

Two weeks ago, Safehaven.com posted an alarming analysis on its Web site, warning of the "unprecedented, unheard-of pre- catastrophe M3 expansion" (unprecedented for a four-week period unless you count similar spurts in July 2003 and November 2002). M3, the broadest monetary aggregate, rose $154 billion, or 22 percent annualized, from mid-April to mid-May. This suggested to the author (with a Ph.D. after his name) "a crisis of historic proportions coming, and the Federal Reserve is making sure that there is enough liquidity in place to protect our nation's fragile financial system." - Caroline Baum, Bloomberg; Black Helicopter Theories Whir Through Markets (June 15, 2004)

The rest can be found here (if they don't change the link): http://quote.bloomberg.com/apps/news?pid=71000001&refer=columnist_baum&sid=ao9ZrDl_sQPs

Maybe this quote will better illuminate her fundamental objection to the writer's speculation, or at least her personal bias:

When I received yet another e-mail alerting me to the Fed's classified intelligence, I replied to the sender: "If the Fed knows something, maybe it ought to alert the Office of Homeland Security."

Baum may be immune to talk of crises, so maybe comments that are out of the ordinary are automatically a CT (conspiracy theory). But what really irks me is how the hell would she know if the Fed hasn't already alerted the office of fatherland security?? Is she in the loop? And if she is, as a journalist she ought to tell us what we don't already know. The truth is she probably can't infiltrate the loop.

This is a disease common in journalism today. Believe what you want; but I've always found the absence of a good public scandal as suspicious.

Today people seem to think the worst the President is capable of is infidelity. And we believe that journalists like Baum deserve all the credit. Notwithstanding, if they did such a good job they'd have nothing to fear from the competition sprouting up all over the Internet. The Internet, as you know, is in the process of breaking down information monopolies controlled by the likes of the outfit Baum works for. It's no secret how consolidated the media business has become structurally.

The writers that have popped up in the context of this change are part of a growing online free press movement whether they know it or not; most of them are professionals busy in other related occupations and don't have time to be full time journalists. There is substance to what they say; contrary to the status quo in financial journalism where, the saying goes, journalist rookies often start their careers.

This wave of freelance writers may not possess the writing finesse that Baum and her colleagues do; but I have little doubt that their average experience in the real life financial business is a multiple of the average Bloomberg reporter's.

Safehaven sprouted up in order to fill a need. The principal founder is Bruce Stratton, a retired stockbroker that has worked in the financial industry since April 25^th 1966.

The stuff that mainstream typically publishes, let's face it, is homogenous; they all talk down to readers, and promote special interests; they make sound bites out of everything; all of their stories have happy endings. I personally can find at least one fallacy in every report on financial markets. Stratton says he started Safehaven because he wanted "To present a more diverse forum for opinions" because he felt that what was lacking was some good old fashioned "honest reporting and analysis of financial news."

My own experience confirms this. I started the Goldenbar Report because I too felt that there was a need for quality analysis that wasn't getting filled. The fact that this need exists is exemplified by Safehaven's success. The site started in April 2000 (with an article from yours truly) and by December of that year it was attracting about 1,000 visitors daily. According to Mr. Stratton, the proprietor, it has drawn as many as 29,000 daily visitors in recent weeks.

These aren't hits. And the trend is confirmed by the fact, as Bruce Stratton said in response to Baum's article: "We saw no change in traffic whatsoever." There was no link to either the article or Safehaven in her piece, and she failed to mention the actual author's name.

Baum is definitely out of the loop. The real question is why Bloomberg would care about Safehaven anyway? Well, that was Bruce Stratton's question at any rate.

Our answer is that he was right about the demand he's trying to satisfy, and that Bloomberg has resorted to labeling Safehaven as a conspiracy site.

Some Additional Evidence Supporting McHugh Conclusion
Normally I tend to avoid the subject of manipulation. This doesn't mean I don't think it exists; it's just that I don't think it is effective; and to the extent it is in the short term, the retribution in the market is justice enough for me.

One thing is certain; the Federal Reserve's inflation policy is effectively a policy of redistributing wealth. It's a hidden tax - one that they couldn't get by consent.

It is a process whereby the "central" bank (a planning body) virtually takes over the price function from the market from the monetary side... under the guise of price stability.

The "press" has no idea this is the case. But other professionals do. Once understood, however, it is not at all a long-distance jump to make the conclusions that someone is planning production, a world government even, or that someone is manipulating interest rates and currencies. In fact, by definition, a Statist does not believe the market should be left to its own devices. If Baum doesn't perceive who these people are in our society it's because she's not part of the solution.

In my June 9^th newsletter, "Token Fed Scare," I repeated the comments I'd made in a prior letter:

First, as we reported in the previous week, according to the CFTC's COT the commercials went from an extreme net short position in April to their lowest in years. The caveat is that the COT isn't usually a useful forecasting tool in gold. But this activity is so extreme that it makes me wonder if someone important knows something since it is occurring ahead of the June 30th deadline in Iraq. Or maybe we'll hear that a major producer finally liquidated a chunk of its hedge book in the second quarter - Ed Bugos, Token Fed Scare, June 9^th

I hadn't read the letter by McHugh beforehand. But if I had, taken together with the observation above, I would almost certainly have made more of it than I did. If something is afoot and "they" know, depending on who they are they may or may not have informed homeland security. Baum wouldn't know. On the other hand, these things could all be precautionary measures just because of the dual significance of June 30^th.

We cannot know either; but then, we're not the journalists. We don't claim to be. Baum is and she should take these observations and use up Bloomberg's resources to find more facts. In the final analysis it is up to the government to rebuff conspiracy theories; journalists are supposed to follow them up.

Caroline, break out of your bubble! Leave the speculation to the professionals and do the journalism that's required. And if nothing turns up, unless there's reason to reject the hypothesis, why bother saying anything?

There's no good reason to reject McHugh's supposition even if it is slightly exaggerated. My own research supports his conclusion. Time will tell.

Ed Bugos is a retired stock broker, and founder of Goldenbar.com, a newsletter covering the gold, currency, interest rate, and stock markets as well as an analysis of international economic and monetary trends.

Sincerely,
Edmond J. Bugos
GoldenBar.com

Edmond J. Bugos is the founder and editor of the Goldenbar Report - calling markets accurately since 2000.

The GoldenBar Report is not a registered advisory service and does not give investment advice. Our comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity or any other financial instrument at any time. While we believe our statements to be true, they always depend on the reliability of our own credible sources. Of course, we recommend that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and barring that, we encourage you confirm the facts on your own before making important investment commitments.

Copyright © 2000-2008 Edmond J. Bugos

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