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By Art Cashin Director of Floor Operations at UBS

April 17 (King World News) - “On this day (+2) in 1536, there began one of those ventures that remind us cynics of the hope and promise that once was America.  To hear today's citizens tell it, there's something in America that brings out a "dog eat dog", survival of the fittest attitude.  When did all this happen??


Well, anyway back in 1536, America was new, pristine, an innocent wonderland.  Columbus had found it just 44 years earlier.  Cabot and Verrazano claimed to have seen wondrous shores teeming with lobster just a few years earlier.  It would be nearly a century however until there were pilgrims, Henry Hudson, John Smith or Pocahontas.


But rumors of this new and glorious virgin land inspired curiosity - a kind of Jurassic Park of its day.  And as Michael Eisner might say when folks are curious, or seek adventure and hope to see something new - there is money to be made.  (Okay! Okay! Skip Euro Disney.)


So a man named Richard Hoar (or Hore) offered (for a fee) a fantastic cruise to this wondrous new land and back.  He was an experienced sea-captain and also knew how to advertise.  Soon, 25 well-to-do young men (and their servants) as well as a small group of the aspiring middle class signed on.  Capt. Hoar rented two boats and with 120 adventurers sailed west.


Ship A, which Hoar captained, led the way and also led a rather spartan, disciplined life for a cruise ship.  Ship B, which had more of the wealthy young men aboard confused itself somewhere between "the Love Boat" and a frat party.  When they arrived in Newfoundland, Ship B had somehow run out of both wine and food.


Hoping to conserve the remaining provisions, Hoar suggested they set out in this bountiful land, to hunt and forage to feed themselves.  Used to playing fox and hounds (but lacking the requisite horses, grooms, valets or even red riding coats), these well-bred lads tended to come back to camp bearing bunches of either dandelions or poison-ivy (often both).  Soon the flood was virtually all gone and stomachs were growling in hunger.


Then two lads, whom we'll call Percy and Throckmorton, went off on a two man foraging party.  They went into the woods and over the hill. The next day folks saw smoke from the boys' campfire.  The second day, more smoke.  The third day, Percy came back and said Throckmorton got lost on the way home.  After a brief memorial service, folks began to notice Percy kept picking his teeth and burping which was strange in a guy starving to death.  Soon Percy asked one of the chubbier guys if he would like to go over the hill and look for Throckmorton.  Soon everybody was inviting everybody to go for a walk, and more and more folks seemed to get lost.  That Sunday, for some reason, Captain Hoar felt compelled to preach a sermon on cannibalism.


Ironically, that very night more tourists showed up in the person of a French fishing boat.  The stranded cruise crew waved hello and when the French came close enough they seized the boat and pummeled the crew.  Now having food and a functioning boat, they returned to England.  Apparently nobody signed up for the cruise the following year.


Where have those innocent good old days gone?


The good old days returned for the bulls as they put in a third solid day of gains.


Follow-up To Tuesday's Reversal Brings Steady Buying – Despite a late spring chill in Manhattan, it was all smiles and sunshine for the equity bulls Wednesday morning.


China's GDP slowed but only by a notch or two and that provided hope that no real slowdown was forming.  European markets were generally quiet and stable.


On the earnings front, Yahoo and Intel brought some smiles and a few buyers to the party.  Trading in Treasury bonds even contributed to the pleasant and benign backdrop.


U.S. stocks took the hint and came out of the blocks with a solid opening jump.  They then set about defending those gains and awaiting Janet Yellen's speech in early afternoon.


In a late morning note to friends, I wrote:


Morning action seems to support the contention in today's Comments that yesterday's solid reversal may have ended selloff.  Also 10 year is behaving, waiting on both Yellen and Dallas Fed's Fisher.  I'll be tied up in a market structure luncheon between 12:00 and 1:00.


The luncheon ended on time and I emerged to find little had changed during the hour other than a small Yellen relief bounce in stocks, putting a little icing on the morning's gains.


I updated my friends with this brief note:


Not much movement as they hold in narrow range.  No surprises from Yellen so far.  Run rate at 1:00 projects to final NYSE volume range of 680/760 – slower than yesterday.


(The NYSE volume barely made it into the range with final NYSE volume hitting a rather slow 695 million shares.)


Maybe the most interesting reaction to Yellen's speech occurred in the Treasury market.  Yields on short term notes and bonds rose, further flattening the yield curve.  They apparently heard Yellen's assurances that rates would stay low for a long time – as an assurance that the U.S. economy would struggle for a long time.


Post Yellen, the stock market churned sideways near the day's highs until a late flourish let them close at the day's top tick.


Among the big winners were the biotechs and momentum players that had been tossed in the trash over the last two weeks.  That helped solidify the premise that the recent liquidity selloff was over.


"And Yet It Moves" – As you recall from your studies of Medieval History in third grade that was what Galileo was said to have muttered under his breath after the after the Inquisition court had forced him to say the Earth was the stationary center of the universe.


Over the last five years, the Fed has shoveled trillions of dollars into the U.S. banking system hoping it would be lent out and stimulate the economy.  Instead it has piled up in the Fed's vaults in the names of the various banks.  These "excess free reserves" just sat there as stable and motionless as the Cardinals claimed the Earth was.


In a front page article this morning, the WSJ says that all may be changing.  They say banks are beginning to lend and business are beginning to borrow.  Here's a bit:


The increase in commercial lending is helping big banks offset slack demand for mortgages and other types of consumer loans, which has weighed on overall lending numbers. The six banks posted 2.9% growth in overall lending in the first quarter.


Andrew Cecere, chief financial officer of U.S. Bancorp, the fifth-largest U.S. lender by assets, said in an interview Wednesday the bank has seen increased demand for commercial loans from small businesses to midsize companies and large corporations. The Minneapolis bank posted a 9.7% increase in commercial loans outstanding in the quarter, to $113.8 billion, helping to drive a rise in first-quarter net income.


"There's just a general higher level of interest in loan activity and lines of credit," he said.


The implications of this are potentially huge – to the economy; to the stock market; to Fed policy; and perhaps, most importantly, to inflation.  In a fractional banking system, money gets velocity when it's lent.  High velocity risks hyperinflation.  We'll discuss more fully next week.


Consensus – Last trading day before an April Easter has an upside bias of 70% or so.  Today's unusual Expiration could muddy that a bit.  In any case, stay very nimble and I wish a Happy and Wonderful Easter to you and all you hold dear!

© 2014 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

IMPORTANT - KWN has many more interviews being released today.

The audio interviews with Grant Williams, Dr. Paul Craig Roberts, Bill Fleckenstein, Gerald Celente, Dr. Marc Faber, Egon von Greyerz, Rick Rule, Ben Davies, Andrew Maguire, Art Cashin, Eric Sprott and John Mauldin are available now. Other recent KWN interviews include Jim Grant and Felix Zulauf -- to listen CLICK HERE.

Eric King

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