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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
October 10, 2011
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Heightened uncertainty has moved well beyond Greece, “the periphery” and the greater euro zone.  There are now major questions – and worries – with respect to even the Chinese and “developing” Asian booms.  It is worth noting that Chinese Credit default swap (CDS) prices surged 38 bps this week to 197 bps, up about 110 bps from the July low to the highest level since early-2009.  CDS prices have spiked throughout the “Developing” markets - Eastern Europe, Asia and Latin America. 

And so we’ll be watching attentively.  Thus far, there is mounting support for the systemic fragility thesis with respect to the entire “Developing” world.  And despite the positive outcomes in voting for expanding the scope of the European Financial Stability Facility (EFSF), one had to squint this week to see improvement in Europe’s desperate financial situation.  Meanwhile, there was evidence of ongoing pressure on global “carry trades” and the leveraged community more generally.  Keep in mind that the gigantic (hedge and mutual) fund operators became only more monstrous over the past few years.  It will not be easy for the dominant players, especially in the face of faltering marketplace liquidity and diminished “hedging” markets, to get their trading books repositioned for today’s new realities.

And I’d be remiss if I failed to note that chairman Bernanke was compelled to dangle the QE3 carrot a bit this week.  The initial, yet fleeting, response was a little market-comforting relief from recent dollar strength.  I assume that QE3 will be forthcoming, although when it eventually arrives it will likely be met with disquieting internal Fed dissent, political risk, public angst and, perhaps, a lot of market indifference.  With each passing day of global de-risking/de-leveraging fallout, the market better appreciates that quantitative easing is suffering from a diminished capacity to sustain global Bubble dynamics.  The reality is that the scope of QE3 would have to be enormous to reverse the unfolding global bursting-Bubble backdrop.  This will create a serious dilemma for the Fed come decision time (a QE2-sized QE3 risks disappointing the markets, while a Trillion handle might just push shock and awe to the breaking point).  And while it surely sounds silly these days even to mention it, let’s also not completely disregard the festering issue of a policy-induced Treasury market Bubble matched against he recent 3.8% y-o-y increase in consumer prices.

Thus far, I’ve noticed little interest in assessing the early effects of Dr. Bernanke’s experimental manipulation of bond yields, stock prices and dollar devaluation.  I’ll throw in my two cents worth:  the Fed's extraordinary policy path of marketplace interventions has orchestrated an absolute mess with respect to global Credit, financial markets and economic uncertainties – the type of extreme uncertainty that is keenly hostile to risk-taking and financial/speculative leveraging.   

I know.  It all appeared to function relatively (and seductively) well, that is so long as global reflationary dynamics – massive sovereign debt issuance, speculator re-leveraging, global banking system re-risking, buoyant global “hedging” and derivatives markets, and spectacular “Developing” world Bubble inflation – were all in play.  Well, I am increasingly convinced that these various dynamics are in the process of falling like dominoes.  This thesis will be tested.  For now, my analytical framework has me confidently fearing that the deleterious consequences from this cycle’s reflationary excesses will prove especially formidable  – and increasingly immune to policy prescriptions.  This is what global equity (and CDS and risk asset) prices are shouting rather loudly and clearly, although our market continues listening for that little repetitive whispering voice: “next year is an election year and there’s way too much at stake for Washington to allow a debacle.”