How does a slowmotion train wreck look? Well, nobody need wonder. We’re living it.
The capital markets (and the economy) are like a leaking pressure cooker being held together with duck tape and chicken wire.
A more striking example could not exist.
http://www.smartmoney.com/investing/economy/business-keeps-getting-squeezed/
“Timid men prefer the calm of despotism to the tempestuous sea of liberty.” - Thomas Jefferson
When all that is growing is pace of rules and regulations, the economy cannot grow. Only a wide-open free market leads to prosperity.
How do you get a dead cat to bounce? Give it an injection of viagra, whiskey, and quaaludes. You will get a violent reaction, but it won’t last too long. How many more times are we going to try this?
It might be better to create some fundamental health.
Lack of trust has stalled our economy. Free markets instill trust. Corruption, bailouts, and bureaucracy impede trust by distorting markets. Private companies should not be bailed out or do business with the government. If they take the wrong risks or have products that are no longer valued, they should go bankrupt. Moral hazard kills integrity. It’s a simple equation.
The lack of trust, which creates fear, often leads to war and destruction. War is caused by poverty and politicians, not by market-driven prosperity. Prosperity creates more specialized trade and enables creativity. Integrity in trade, i.e. being able to trust the real value of the product you are buying, leads to more trust and thus more peace.
The market looks poised to break out to the upside. I am looking for a little more confirmation however. It looks like we are going to soon know whether or not this is a cyclical recovery or if Q2 represents peak earnings in this recovery (which ain’t so good given the magnitude of the stimulus). I imagine it was probably peak earnings. The economy is too weak to support a further rally. The economy is weak because of failed public policy, and central planning. If we get a break out rally from here, I would be very surprised. If we do break-out, I will be missing something. So, I remain open-minded to whatever happens.
Unfortunately, capital markets are too often driven by this dynamic. It works, until it doesn’t. I believe many potential investors are out of the market because they’ve been burned too many times by the manipulation of prices to exploit the greater fool theory. This is a deception, but cannot be regulated out of free markets. While productive growth in earnings is the only real fuel to capital appreciation, market regulation hinders trade and doesn’t do anything to protect the greater fool.
Information is everywhere and we’re all hyper-informed. It’s very hard to tell someone something they don’t already know if they’re plugged in. As such, raw information continues to decrease in value. We really are in an information age. Capital market participants are increasingly unable to profit from news ahead of time, although markets themselves always anticipate the future. While early knowledge of British victory at Waterloo was lucrative in the bond market in London, those types of opportunities don’t exist today. Or, if they do, I can’t see ‘em. Today, value in many fields is created by synthesizing information and discounting outcomes. This is a deflationary force. You have to go higher to create any real value.
“To create is to recombine” said the molecular biologist Francios Jacob.
This is what writers do, but it is also what network engineers do.
We need more Grinds. http://www.nytimes.com/2010/07/13/opinion/13brooks.html?_r=1&ref=todayspaper
