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Jim Cook



Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

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The Best of Jim Cook Archive

Best of Doug Noland
January 10, 2011
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From my bearish perspective, the marketplace has been disregarding some important developments.  For starters, despite the massive $4 trillion increase in government liabilities in just nine quarters, an extended period of near zero interest rates, and unprecedented Federal Reserve quantitative easing, the unemployment rate will end the year near 9.8%.   And despite extremely low mortgage yields, our nation’s housing market is barely treading water.  Developments – or lack of them – in the real economy are disconcerting and supportive of the secular bear thesis.

There is also the important issue of rising global yields.  Moreover, the debt markets have become increasingly discriminating.  A few months back – in the heat of the euphoric “endless liquidity for everybody forever” backdrop – the markets were content to readily finance just about any borrower.  More recently, in somewhat of a return to sobriety, the marketplace has looked increasingly askance at borrowers such as Ireland, Spain and U.S. municipalities.  This is a serious development for the global government finance Bubble – but perhaps not as serious in the short-term.

The U.S. financial system these days is being completely dominated by the expansion of federal borrowings.  This creates different financial and economic dynamics than we’re used to analyzing.  In contrast to when mortgage Credit was playing a predominate role during that Bubble period, a rise in market yields today will have virtually no near-term impact on the quantity of (government) Credit being issued.  And especially with the extension of Bush era tax cuts along with additional stimulus measures – the speculative U.S. stock market has taken great comfort from the seeming sustainability of the tepid (government-dominated) U.S. economic recovery. 

I have written that policymakers were more than content in 2010 to Kick the Can Down the Road.  In fact, it was a year where policymaking became completely unbounded.  The 26% gain in the small cap Russell 2000 and 26% advance in the S&P400 Mid-Cap index support our contention that Bubble dynamics more than persevered through year 2010.  The Bernanke Fed certainly ensured that financial speculation gained at the expense of savers.  And the municipal debt market now confronts the dilemma resulting from Bubble-related risk distortions, misperceptions and investor disappointment – and a problematic flow reversal out of the sector.  Was year-end dollar weakness a harbinger of things to come?