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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
August 24, 2011
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My premise has been that the unfolding sovereign debt crisis would expose important market misconceptions, especially in regard to the efficacy of government policies to rectify government debt problems.  Sovereign debt crises are a much different animal than private-debt crisis, and market complacency was in for a rude awakening.  Importantly, some basic premises behind the Bubble in leveraged speculation would be disproved.  Instead of controlling and reducing risk, the policymaking backdrop had in fact greatly increased market risk.  Rather than leverage providing a mechanism to capitalize on policy-induced market “inefficiencies,” the leveraged players had been induced into another precarious Bubble environment.  Instead of guaranteeing the marketplace liquidity, the government-induced Bubble had ensured inevitable liquidity problems.

European policymakers are pilloried for their inability to deal with their escalating debt crisis.  Well, a global sovereign debt crisis has been brewing for years.  There are no easy solutions.  The world is today inundated with debt lacking the backing of real economic wealth or wealth-creating capacity.  Trillions upon Trillions of debt will not be repaid – and markets are frustrated that it is increasingly difficult for politicians to “kick the can”. . . “extend and pretend.”  Meanwhile, at this late stage of the Credit cycle aggressive fiscal and monetary stimulus is largely an expended force.  Speculators have until recently taken great comfort in the reality that it has required overwhelming stimulus just to stabilize highly maladjusted market and economic systems.  Have we reached the point where the sophisticated players recognize that extreme policymaking has gone from supporting leveraged speculation to manifesting intolerable uncertainty and instability?

In the category of “be careful what you wish for,” global policy responses to the escalating crisis have of late acted only to further destabilize the currency markets.  For awhile now, nowhere has policy seemingly created more certainty – hence speculative opportunity – than in the currencies.  Washington has essentially guaranteed ongoing dollar devaluation, and the weak dollar has been instrumental to the global Bubble.  The scope of dollar short positions – including sophisticated derivative speculations derived from interest rate differentials – is unknown but likely huge.  This week is seemed that a short position against the dollar became less of a sure bet, a point made clear by policy moves from the Swiss, Japanese and ECB.

Today, the speculator community must have one eye on the debt markets and the other on the currencies – with nervous glances back and forth to unstable equities, commodities and the emerging markets.  And now that de-risking and de-leveraging have begun in earnest – and with losses accumulating rapidly – the fear will be of de-leveraging begetting liquidity issues and only more de-leveraging.  And, of course, today’s dog-eat-dog environment ensures that operators will now seek to profit (by selling first/”front running”) from those needing to sell – after a couple of years of seeking to profit (buying first) from those that needed to buy.  And there will be the issue of hedge fund redemptions, with the distinct possibility that industry fundamentals have recently taken a dramatic turn for the worse.  And throw in the lingering problem with derivatives, ETFs and other instruments that created heightened risk of trend-reinforcing trading to the downside.  Resulting uncertainty, tightened financial conditions and waning confidence portend economic disappointment – and the makings for burst Bubbles and bear markets.