Wednesday, August 31, 2011

August... What a month! Now what?

Today was the last market day of the bumpy month of August. We saw a ton of volatility in the beginning and a market rebound off the lows at the end of the month. Many have asked what are the reasons for the rebound and what is the near future outlook? Besides the traditional oversold bounce from such a violent move downward the market has been helped in my opinion by Ben Bernanke and the central bank signaling/hinting at major monetary stimulus. The minutes that came out recently and the debate during the meeting makes this more of a certainty.

Back in March I discussed my Thoughts on the End of QE2 and what would likely occur in the aftermath. It appears that my forecast has been accurate... so far. It certainly looks like there is high probability of a “QE3” or other major intervention into the markets. With those hints the markets have responded and are up 8% since Bernanke and the Fed met on August 9th. This is playing out eerily similar to what happened last year and could be beneficial to the stock markets believe it or not. However there are some factors out there that may not lead to the same repeat. Three factors that prevent me from getting out of defensive positioning at this point are: 1. that the economic numbers & 2. the European crisis are worse than this time last year. 3. The last monetary stimulus “medicine” was beginning to show some troubling side effects. Side effects like a run up on commodity prices and risky assets. The medicine didn’t prevent the weak economic numbers discussed in factor 1 that were showing up before the stimulus had been withdrawn (6/30/11). In addition I would like to see some technical breakout on the S&P 500 index to show that this August has been put behind us. Until then be careful out there because the bear doesn't look like its hibernated just yet.

Tuesday, August 23, 2011

Continued Keynesian Policy Failure Undressed!

A Guest Post (Keynesian Solutions- After Total Failure- try, try again) over at Zerohedge does us all a great service with their undressing our "current" government policy wonks. Current is kinda a misnomer when you consider Keynesian economics have been of every major institution and taught in schools across America since the 1930s! The post is thorough and a must read in its entirety. These paragraphs some it up perfectly:

The Keynesians had their chance. They controlled the Presidency and both houses of Congress. A Keynesian runs the Federal Reserve. They implemented everything they proposed. The $862 billion porkulus program, the $700 billion TARP program, home buyer tax credits, energy efficiency credits, loan modification programs, zero interest rates, QE1 and QE2. They increased social welfare transfers for Social Security, Unemployment Compensation, food stamps, Medicare, Medicaid, and Veterans by $600 billion since 2007, a 35% increase in four years. No one has foiled their plans. The Tea Party didn’t really exist until 2010. They didn’t lose the House until November 2010. They cannot blame the Tea Party extremists, but they do.

The Keynesians have successfully increased Federal spending by $1.1 trillion, or 41% since 2007, and are running deficits exceeding 10% of GDP, but they call the Tea Party extremists. Domestic investment is still 9% below 2008 levels as the Federal government has crowded out the small businesses that create the jobs in this country. And now the Keynesians declare we need more stimulus, more programs, more debt, more quantitative easing and lower interest rates. It just wasn’t enough the first time. You have to give the Keynesians credit. Despite the utter absolute failure of every scheme they have implemented, they will worship their models and theories until they successfully collapse our economic system. Then they’ll blame the Tea Party terrorists who foiled their plans.

None of the Keynesian solutions worked during this crisis, just as they didn’t work during the Great Depression. The solution was simple, yet painful. The banking system needed to be saved, not the banks. The bad debt needed to be purged from the system. Wall Street criminals needed to be prosecuted. Bondholders and stockholders needed bear the losses from their foolish investments. Saving and investment in the country needed to be encouraged, while borrowing and consuming needed to be discouraged. Our leaders have failed to lead. The American people have failed to accept the consequences of their actions. And now we are going to pay a heavy price as Ludwig von Mises predicted:

“There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit (debt) expansion, or later as a final and total catastrophe of the currency system involved.”

Please spread these posts around as hopefully more and more will demand a stop to this madness. It must be stopped.

Monday, August 22, 2011

Another favorite Merc: Kyle Bass of Hayman Capital

I am a big fan of Kyle Bass and his insights. His analysis seems spot on again in this CNBC clip: