Saturday, September 19, 2009
Crash me now or crash me later
Chart porn is everywhere.
It's 1930 , no its' 1938.
It's 1987, no its' 1991.
It's 1974, no its' 2003.
Well actually it's 2009.
9 years after the market peak, halfway through a secular bear,we are having a rally irrespective nigh in defiance of fundamentals. It is different again this time, the new paradigm of holding hands with the Federales is in play, and it's time to go all-in.
The Nancy Capitalists chortle that the models show zero chance of fail this time, that bank solvency is being met by the Federales put, that the dollar will lubricate asset appreciation ad infinitum, that performance anxiety will fuel us to the moon, and that J6P won't want to miss this rally.
Let's apply a little common sense to the concept that the solution to the debt crisis is more debt.
ABC News(Via SomeAssemblyRequired Blog): Nearly half the country has had a pay cut or job loss in the last year, according to a new poll from the Washington Post and ABC News. A shocking 41 percent say that in the last year someone in their household has had their pay or work hours cut. Twenty-seven percent say someone in their home has been laid off or lost their job.
Shocking no. Deflationary yes.
So of course all the models say the magicians can restore confidence by giving cash away. Based on the experience of the last 15 years we will have little to no deflation. Based on the experience of between 15 to 60 years ago we will have deflation but it will be moderate. The mistake of the Depression was they didn't throw enough money at it, the mistake of Japan was that they didn't throw enough money at it fast enough : and in both cases once the authorities got the memo and started splurging they pulled it back too quick.
The Federales feel confident that they have learned all the lessons from history that are pertinent. Their lens, in my opinion, is a bit clouded.
Oh, yes, in the end the recovery will be paid for no doubt, barring the discovery of a perpetual motion machine other than the 'electronic' printing press.
No, what our blessed leaders are unaware of, perhaps because they too confuse the institutional manufacture of consent with relevant statistics, is what Henry Ford, notwithstanding his charitable endeavors, recognized about the governed - they needed to be able to afford his cars or the jig was up.
Greenspan, and Bernanke and Paulson have all , at various times in their respective careers, thought that the 'jig was up' and they all, in their respective fashions, have advocated free money and cheap money to keep the cars selling.
They unfortunately have confused folks being able to use cheap money and free money to buy cars as the same thing as folks being able to afford them.
Therein lies the difference between fail and hail.
If 41 percent say that in the last year someone in their household has had their pay or work hours cut, if 27 percent say someone in their home has been laid off or lost their job ... if almost 50 percent of the country has had a pay cut or job loss in the last year then what do you suppose that 50 percent believe they can afford now?
Will these folks believe that they should add more debt because prices are going to go up in the future?
And what of the other 50%? If dat guy over dere is sucking wind will 'the blessed' 50% be cautiously optimistic about a jobless recovery and add more debt because prices are going to go up in the future?
The models says yes. They believe fat,dumb,and stupid, if effectively financed, is a fine and exceptional way to go through life son.
I humbly suggest that reality is the tail risk.