On the Street the expression is you can’t fight the Fed, well it seems you can’t fight the drum beats of war either.
US markets reversed a 150 Dow point move overnight on the French retaliation bombing in Syria.
As I wrote here and here there’s a playbook for extracting an economy from a prolonged economic malaise. It’s called war and not only is it a distraction from the underlining problems, but it spurs spending to stem the depressionary forces on the economy.
The problem this time is not depressed spending by consumers, however. It’s the lack of liquidity provided by central banks to them.
Money — as I have said numerous time — is not getting into the hands of Main Street. The term is velocity. In order to have growth, you need legitimate pay raises for workers and the ability to borrow for new businesses and new homes.
Well the Fed is constraining both those needs with rules on what large money center banks can and cannot do with cash on hand.
So why not start a war — or a least talk it up — to allow industry to start moving towards ramping up production on needed items.
Look at the news breaking this morning. Warren Buffet is selling part of his stakes in Goldman Sachs and Wal-Mart for Precision Castparts.
And here is that company’s Wikipage:
Precision Castparts Corp. (NYSE: PCP) is a Portland, Oregon, United States-based industrial goods and metal fabrication company that manufactures investment castings, forged components, and airfoil castings for use in the aerospace, industrial gas turbine, and defense industries. In 2009 they ranked 362nd on the Fortune 500 list, and 11th in the Aerospace and Defense Industry. They are now ranked 322 overall and 9th in the Aerospace and Defense Industry.[
Surprised that Buffett would exit or pare down a losing sector like retail with a depressed sales expectation for the holiday shopping season for a defense contractor?
I’m not. It allows Buffett to not fight the Fed (depressed retail sales due to little velocity in money) and be on the right side on the drum beats of war.
A win-win for Berkshire Hathaway chief.