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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
April 10, 2012
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The week brought important confirmation for the thesis of heightened European market vulnerability.  There’s a strong case that an important market inflection point has been reached in Europe.  Once de-risking/de-leveraging dynamics commence in earnest they generally persist.  Contagion effects build momentum.  And this week global markets also appeared increasingly vulnerable.  But how this might play out in our markets is less clear.

There was a certain amount of intrigue heading into today’s payroll data, not the least of which was that most markets were closed for the holiday.  Many thought somewhat disappointing data would support Dr. Bernanke’s case for QE3, in the process bolstering the flagging “risk on” trade.  Others, including myself, believed U.S. equities would prefer stronger data, employment growth that would support the “U.S. as relatively best performer” thesis.   But at 120,000, the increase in nonfarm payrolls was the weakest reading since October (112,000) and below even the pessimistic estimates.  Bonds surged on the news, as S&P 500 futures sank more than 1%.  The dollar retreated somewhat on the news, although the currencies were mixed overall. 

Today accounted for much of this week’s decline in ten-year Treasury yields.  Fixed income spreads were generally resilient in the face of heightened European stress and resulting pressure on global risk markets.  If Friday’s Treasury rally is sustained Monday, it will be interesting to monitor various Credit spreads (many Credit instruments did not trade Friday).  There is growing market chatter regarding huge positions in various Credit indices being traded by major market operators (including JPMorgan).   I would tend to see such a backdrop raising the odds of market fireworks if the reemergence of European debt stress provokes a bout of general risk aversion.  With markets now poised for a weak Monday open, those positioned aggressively “risk on” will have a long weekend to contemplate an increasingly unsettled backdrop.

U.S. stocks were lower for the week, although they significantly outperformed Europe and most global bourses.  While today’s data don’t help the cause, it’s too early to dismiss the possibility that U.S. equities have been anointed “best game in town” by the sophisticated market operators.  At the same time, I see added support for the view that much of the global leveraged speculating community is operating with “weak hands.”  When markets head south – albeit Spanish stocks and bonds, commodities or gold equities – there's intense pressure to liquidate positions and cut losses.  At the same time, our Bubble markets have a history of trying to ignore European developments.  At the minimum, it is at this point reasonable to presume that the recent halcyon period for global risk markets is winding down. 

At the end of the day, the fate of the current global “bull market” will likely be determined by the willingness of the Fed and ECB to continue aggressively expanding their balance sheets.  Markets over recent months again succumbed to Bubble dynamics, largely on the presumption that determined policymakers have things under control.  This confidence has fomented only more egregious speculative and leveraging excesses – along with resulting fragilities. 

One can point to a momentous policy flaw:  policymakers have believed that it's critical to underpin financial markets during periods of stress, while failing to appreciate that this policy course nurtures dependencies and susceptibilities.  Over the years – and certainly going back to policy responses in 2008/09 and more recently with QE2 and LTRO – extraordinary policy measures have created acute dependency to ongoing liquidity measures.  Each intervention sows the seeds for the next even grander intervention.  At some point policymakers will simply not be able to deliver.