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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
February 29, 2012
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We are now into the fourth year of previously unimaginable stimulus.  Considering zero rates, massive Federal Reserve monetization and unconscionable deficit spending, economic performance has been abysmal.  There has been ample confirmation – economically and financially – to the secular bear thesis.  And this fragility has virtually guaranteed ongoing fiscal and monetary largess.  At the same time, the backdrop should engender sufficient economic momentum to support bullish sentiment.  Today’s ultra-loose financial conditions – especially in government and mortgage finance – should equate to decent GDP growth, seemingly solid corporate profits and, even, more than a faint pulse in housing.  And this could suffice as support for the bull thesis.   Of course, the stronger the markets the more positive the news flow and analysis - which can support a self-reinforcing boost in overall confidence.

But don’t count me bullish. I see no holes in the analysis that this remains an ongoing slow train wreck – the unfolding worst-case-scenario.  The European financial and economic crisis will not be resolved anytime soon (think post-Bubble Japan).  Greece is an unmitigated disaster and, throughout Europe, economic structure now (in a post Credit boom backdrop) matters.  I don’t see how such dissimilar economic structures (and social and political systems), say between Italy and Germany, are consistent with a common currency.  LTRO only buys time.  China is, as well, an accident in the making.

Here at home, Treasury debt issuance is unsustainable.  An incredible amount of finance is being mispriced, over-issued and misallocated.  It may equate to GDP growth, but it won’t amount to sustainable robust and balanced economic performance.  Indeed, we should by now be familiar with the dynamic where the more prolonged the Bubble the greater the distortions and maladjustment to our already maligned economic structure.  And surely the last thing our system needs at this point is another bout of destabilizing speculative excess in our stock and risk markets.  It’s a dangerous phase. 

Yet these types of policy-induced market runs become the devil’s playground for precarious Bubble excess.  With the bears out of the way, stock prices become easily detached from underlying fundamentals.  Markets become dislocated – and speculation runs roughshod.  Markets will tend to climb walls of worry – and derivatives will tend to leverage market buying power.  And a marketplace dominated by trend-following and performance chasing trading dynamics forces everyone in.  It convinces most to disregard risk.  Hedging is abandoned, and everyone gets comfortably positioned on the same side of the boat.

I look at the global backdrop and see all the makings for a major, major market top.  It’s just impossible to know how far away – both in time and price – we are from such an outcome.  I don’t envisage a new bull market – but instead see the same type of manic marketplace that brought us the 2010 “flash crash” and the 2011 10-day market shellacking.