….and now some opinions….

Posted on 07/05/2011

0


 

I’m a blogging novice, but I have an affinity for the power of the written word and see this as a valuable, creative outlet.

In my opinion, the markets (equities, commodities, derivatives, etc.) and alcohol/recovery share many common traits. The adjectives “cunning, baffling, and powerful” (used frequently in meetings and recovery circles) appropriately describe the behavior of the disease and the markets. I intend to focus primarily on the markets, and hope, from time to time to draw parallels between the two.

I believe both are underestimated, often with egregious consequences. I’m constantly reminded of John Maynard Keynes succinct insight, “the market can remain irrational longer than you can stay solvent”. (Painful examples of this to follow)

I contend, and have for the past year, that the domestic equity market (I.E.  S&P 500) is behaving much like an addict for one very obvious reason – exposure to massive stimulus. When economic data started sagging in summer 2010 there was pervasive talk about the threat of a deflationary spiral and double dip recession.

On August 27, 2010 at a speech in Jackson Hole, WY FOMC Chairman Bernanke signaled the Fed’s intent to engage in another round of quantitative easing. Market participants had to wait until just after the mid- term elections to find out the exact size and scope ($600 billion, on top of the $1.7 trillion – yes, you read that correctly….. that was pumped into the financial system between Dec 2008 and March of 2010). 

Markets, like drug addicts, like stimulants and we’re talking in terms that would make Pablo Escobar blush.

George Santayana, Spanish philosopher and writer, is credited with saying “those who cannot remember the past are doomed to repeat it”.  That also happens to be a theme touched on frequently in AA meetings/recovery. 

To be fair, there was no textbook from which Mr. Bernanke could draw when the collapse of Lehman Brothers (combined with the excess of a decade of “trading bubbles” – technology for housing, etc.) triggered a domino effect of global proportions. He is, however, incredibly well versed in the causes of the Great Depression as well as the “lost decade” for Japan and will continue to err on the side of too much stimulus as opposed to too little.

In my estimation, the question then becomes……was this extraordinary fiscal experiment effective? Did the stimulus resuscitate the flat lining patient? At what cost?

Advertisements
Posted in: Uncategorized