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Welcome to the "Wolf Creek Pass" School of Monetary Policy

I don’t know if you folks remember that hit ditty: a humorous tune about two truckers attempting to manhandle an out-of-control 1948 Peterbilt down the “other side” of Wolf Creek Pass – a death-taunting section of U.S. Highway 160 where the elevation drops a hefty 5,000 feet in a relatively short distance.

The song’s two characters – a truck driver named Earl and his brother, who’s his partner as well as the song’s narrator – are taking a flatbed load of chickens on a speedy trip down this winding, two-lane Colorado highway. After the narrator gives Earl the above-mentioned warning, the ancient semi’s brakes fail.

From there on down, the narrator tells us that the brothers’ trip “just wasn’t real pretty.” The truck careened around hairpins and switchbacks, and then raced at an uncontrolled 110 mph toward a tunnel with “clearance to the 12-foot line” – with chicken crates sadly “stacked to 13-9.”

The drivers and the runaway Peterbilt “went down and around and around and down ’til we run outta ground at the edge of town… and bashed into the side of the feed store – in downtown Pagosa Springs.”

Believe it or not, I started thinking about this funny old country tune the other night – right after I’d read a piece about QE3 and the U.S. Federal Reserve.

As zany as it first sounds, the parallels are striking.

November 2009 - Page 4 of 10 - Money Morning - Only the News You Can Profit From- Money Morning - Only the News You Can Profit From.

  • Warning: You May Not be Making as Much on Gold as You Think

    Millions of investors who bought gold in the last 12 months are undoubtedly very happy at the moment – considering that the yellow metal has risen 60% since last November to a recent close of $1,138.60 an ounce on Monday.

    But chances are good that many won't be smiling when they discover just what the taxman has planned for their gains.

    Unbeknownst to most investors, gold is considered a collectible not a capital asset. In plain English, this means that despite the fact that many people believe they are investing in gold, the Internal Revenue Service (IRS) believes that they are collecting it.

  • Home Depot's Numbers Show Housing's Still in the Basement

    In spite of the Obama administration's latest effort to boost the U.S. housing market by extending the first-time homebuyer credit, numbers reported yesterday (Tuesday) by the nation's biggest home-improvement retailer, The Home Depot Inc. (NYSE: HD), indicate it could still be some time before the industry can claw its way out of the basement.

    Home Depot reported sales of $16.36 billion for the fiscal quarter ended Nov. 1, down almost 8% from $17.78 billion in the comparable period last fiscal year. That resulted in an 8.9% drop in net income, which fell to $689 million, or 41 cents a share – down from the year-ago figures of $756 million, or 45 cents a share. Same-store sales were down 6.9% corporate-wide, and 7.1% in the United States.

  • Lazard Puts Future in M&A with New CEO

    In a signal of confidence for the future of mergers-and-acquisitions (M&A), Lazard Ltd. (NYSE: LAZ) appointed Kenneth Jacobs as its chairman and chief executive officer following the unexpected death of famed dealmaker Bruce Wasserstein.

    Jacobs, a 21-year company veteran, was most recently CEO of Lazard North America and has a history of leading M&A advisory teams.

    “Jacobs is clearly qualified for the position because he has run the North American operations of the company,” Dick Bove, vice president and equity research analyst at Rochdale Securities LLC told Bloomberg Television. “It should be positive for Lazard.”

  • Fed Preparing Unorthodox Exit Strategy

    The U.S. Federal Reserve may take an unorthodox approach to raising interest rates by paying interest on bank reserves rather than relying on traditional open market remedies, as it exits from its long-term fiscal stimulus programs, Reuters reported today (Tuesday).

    Paying interest on reserves is mostly untested and would represent an unexpected twist in the Fed's response to the financial meltdown.

    "In the old days … the Fed controlled the federal funds rate with open market operations," Antulio Bomfim, a former Fed economist now with Macroeconomic Advisors LLC in Washington told Reuters. "Now, at least in this period when reserves are over-abundant, the way the Fed hopes to raise the federal funds rate will be primarily by raising the interest rate it pays on reserves."

  • U.S. Economy Will Dodge a Double-Dip Downturn, But Won't Escape Unemployment Woes During 2010 Jobless Recovery

    [Editor's Note: This is Part I of a two-part story that examines the U.S. economy's prospects for 2010. It's also the leadoff story for Money Morning's annual "Outlook" series, which will forecast the prospects for gold, oil, banking, and top investing trends in the New Year. Part II of the U.S. economy story will appear tomorrow (Wednesday).]

    Historically, the U.S. stock market has been one of the key leading indicators of a U.S. economic rebound.

    With the Standard & Poor's 500 Index up more than 60% from its March lows – and the Dow Jones Industrial Average up nearly 40% – prognosticators are finally confident that the U.S. economy will dodge the "double-dip" recession that has been the focus of much fear since the Bush and Obama administrations launched their financial counterattacks on the worst financial crisis since the Great Depression.

  • Investment News Briefs

    "New" GM to Begin Bailout Repayment; Dollar Drops to 15-Month Low, Gold Continues Record Highs; SEC to Investigate Trading Prior to 3Com/HP Deal; Sprint Pays Down Loan, Stock is Upgraded; Canon to Buy Europe's Largest Printer Maker; Hitachi to Raise $4.6 Billion in Stock and Bond Sale; Cisco Ups Bid for Video Conference Equipment Maker; Millions of U.S. Taxpayers May Unexpectedly Owe, Treasury Says

  • Open Letter to Timothy Geithner: Is Your Nose Getting Longer?

    Dear Treasury Secretary Geithner:

    I noticed you recently told the Japanese press that you intended to maintain a strong dollar, and that the Obama administration would bring the U.S. fiscal deficit back to a "sustainable balance."

    Tell me, don't you feel your nose extending like Pinocchio's when you tell these fibs to innocent Asians?

    The dollar is not strong. In fact, it's sinking to record levels of weakness, and it's going to stay that way, for three reasons:

  • Japan's Economic Growth Accelerates, but Deficit Raises Concerns

    Stimulus measures in Japan helped the world's second-largest economy grow at its fastest pace in more than two years, but it's unlikely policymakers will reduce spending despite the nation's rapidly growing debt.

    Gross domestic product (GDP) in Japan grew at 4.8% annual rate in the third quarter, surpassing all the forecasts of 20 economists polled by Bloomberg News. That follows a revised gain of 2.7% in the three months ended June 30, according to Japan's Cabinet Office. Japan's economy grew 1.2% on a quarterly basis.

    "The turnaround in public investment has definitely contributed to the rebound in GDP, so if they do start to cut it'll weigh on growth,” Hiromichi Shirakawa, chief Japan economist at Credit Suisse Group AG (NYSE ADR: CS), told Bloomberg.

  • Surging Auto Sales Drive Retail Purchases Higher

    U.S. retail sales rose unexpectedly in October as vehicle sales rebounded from a deep slump. However, non-auto sales rose less than forecast, suggesting consumers remain cautious as unemployment surges amid a "jobless recovery."

    Sales at the nation's retail outlets increased 1.4%, the Commerce Department said today (Monday), much better than the 0.9% increase projected by the median estimate of 66 economists in a Bloomberg News survey. But September sales were revised downwards to a 2.3% decrease from the previous estimate of a 1.5% decline.

    Aside from automobiles, other sales rose just 0.2%. That increase marked the third month in a row that sales rose, but failed to meet the 0.4% climb economists had predicted.

    Michael Feroli, an economist at JPMorgan Chase & Co. (NYSE: JPM) in New York, who projected sales would increase 1.3%, told Bloomberg the numbers give retailers hope for a brighter holiday season.

  • Buy, Sell or Hold: Inc. (Nasdaq: AMZN) Has Been a Boon to Investors, but Now It's Time to Take Profits

    We have been front-running many very positive catalysts since I first recommended buying Inc. (Nasdaq: AMZN) on Feb. 5.

    First, that put us ahead of the bull-market rebound in U.S. stocks that started in early March. My recommendation also predated the launch of Kindle 2, as well as stimulus measures deployed by the United States and China in April.

    Just as predicted, the U.S. economic recovery has gathered momentum and Amazon has benefited greatly by offering a compelling value proposition to a cash-strapped consumer.