Archives

                 BEST OF DOUG NOLAND

For lack of a better adjective, I’ll say it was a rather "idiosyncratic" week for the markets and otherwise. Monday, Citigroup’s CEO Chuck Prince made curious comments regarding the boom in M&A finance (quoted by the FT – see above): "When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing… The depth of the pools of liquidity is so much larger than it used to be that a disruptive event now needs to be much more disruptive than it used to be. At some point, the disruptive event will be so significant that instead of liquidity filling in, the liquidity will go the other way. I don’t think we’re at that point."

Not all that comforting. I could only chuckle when a journalist from the Wall Street Journal, appearing on CNBC, compared Mr. Prince to a ticket scalper outside a concert venue imploring potential buyers with assurances that the show was going to be so good they wouldn’t want to miss out.

On Wednesday, Alphonso Jackson, the Secretary of Housing and Urban Development (HUD), was on Bloomberg television warning that the U.S. mortgage default crisis may impact one-fifth of all subprime loans. This is no small sum considering that there are $800bn of outstanding subprime MBS (from Bloomberg). And what do you know, on Friday a Bloomberg article had Secretary Jackson meeting with Bank of China officials in Beijing urging the Chinese to "buy more mortgage-backed securities after a surge in defaults by risky borrowers in the world’s largest economy eroded demand for such instruments." Another ticket scalper in an age of scalpers, though one apparently forced to admit something like this: "Ok, I know you know this show isn’t going to be pretty but, please my friend, I really need you to help me out on this one."

And when it comes to "selling a bill of goods," I refuse to let Dr. Bernanke’s Tuesday speech, Inflation Expectations and Inflation Forecasting, before the Monetary Economics Workshop of the National Bureau of Economic Research, go unanswered. For starters, I don’t recommend reading it. It is academic, written specifically for so-called monetary economists, and basically propounds doctrine that is Worse Than Irrelevant with respect to current inflation dynamics. I found it disturbingly detached from reality.

I’ll plead once again that the issues of "money", Credit, and inflation are much too vital to the long-term health of free-market democracies to be left to a select group of policymakers and "ivory tower" dogma. I would instead argue that it is imperative that citizens become sufficiently educated on the perils of Credit inflation, financial excess, and unsound "money." This would provide our only hope against the inflationary tendencies of politicians, the Fed, and the Financial Sphere – tendencies that turn highly toxic when mixed with high octane contemporary "money." Whether by design or, perhaps more likely, his theoretical indoctrination, Dr. Bernanke’s inflation discussion continues to evade and obfuscate when it comes to the central monetary issues of our day.

Doug Noland is a market strategist at Prudent Bear Funds. Their website is www.prudentbear.com.