Thursday, May 14, 2009

Ben’s first bubble

It is now clear, by our “animal spirits” lights and the granddaddy of all long-term momentum oscillators (see last two posts), that as it concerns Depression II, history is going to repeat as farce.

You cannot have the degree of simultaneous stimulation from monetary and fiscal policy that we have now without it hitting something, sooner of later.  As we sagely commented yesterday, it would appear that Ben’s First Bubble will be in the stock market.

This follows in the Greenspan (modern Fed chief model) tradition.  Old Alan the Appeaser’s first bubble was in the stock market.  As his first official act, Greenspan blew the Stock Market Bubble of 1987 that appears so like a mini-bubble to modern eyes, so quaint and harmless and quickly reflated.  Since the Crash of 1987 occurred at a time of very high, actually peaking, “animal spirits,” (see this) in our view the fabled Plunge Protection Team was entirely unnecessary—but what the hell, Arch, when you got an opportunity to blow up a bubble, you blow.  We’ve had bubbles in stocks, housing and commodities just in this decade.

So here is our view:  A tsunami of liquidity is going hit the stock market in a few months.  Why not housing?  Once burned, twice shy, plus they’ve tightened credit so ordinary folks can’t play the leverage game the rich can play, and the securitization markets are dead and the banks won’t book the trash.  Just when we beginning to have fun!  Why not consumer goods—good old-fashioned inflation?  Too much labor market fear and slack, dummy!  People are taking pay cuts, for crying out loud!  Sure, we’re starting to see stagflationary increases in commodities, like food and energy, but they don’t count, stupid!  They’re not core [inflation]!  Why not commodities?  We’ve got supertankers sitting off Singapore harbor inventorying oil, that’s why!  Glut glut glut!  So what does that leave?  The stock market!

Now, I feel the pain of the investment bankers who’ve lost their world as much as the next guy (not much), but there’s still Goldman and Morgan Stanley, and I know that other at-liberty IBs are joining hedge funds.  Yes, the big money folks are applying their blades to their whetstones in anticipation of extracting further wealth from the American economy.  At some point someone’s going to make a killing shorting the American dollar (not anytime soon, in our view) while blaming the entire thing on the American government.

We urge President Obama and the Congress to consider addressing the needs for food, shelter and health care for the American people, because the next crisis is going to be worse than this one, and you, Mr. President, and your bought-and-paid-for Congress, bless your hearts, do not have the power to stop the big money vandals from gutting our economy again.  And how about raising marginal tax rates on incomes over $1 million to 90 percent to bring these people down to earth?  What do they think they are, gods?  This is getting old.

We hope to be proven wrong. 


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