Staging a Market Stampede
Rally will eventually run out of ground - and Americans still won't be spending.
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I think it's time, we give it up
And figure out what's stopping us
From breathing easy, and talking straight….
The little cracks they escalated
And before you know it is too late
For making circles and telling lies
- Lies (Glen Hansard)
"I believe that the general growth in large financial institutions has occurred in the context of an underlying structure of markets in which many of the larger risks are dramatically--I should say, fully--hedged." - Alan Greenspan, 2000
"The use of a growing array of derivatives and the related application of more sophisticated approaches to measuring and managing risk are key factors underpinning the greater resilience of our largest financial institutions….derivatives have permitted the unbundling of financial risks." - Alan Greenspan, May, 2005
Improvements in lending practices driven by information technology have enabled lenders to reach out to households with previous unrecognized borrowing capacities. - Alan Greenspan, October, 2004
To combat a depression by a forced credit expansion is to attempt to cure the evil by the means which brought it about; because we are suffering from a misdirection of production, we want to create further misdirection----a procedure which can only lead to a much more severe crisis as soon as the credit expansion comes to an end. - Fredrich Hayek, 1933
"Once public opinion is convinced that the increase in the quantity of money will continue and never come to an end, and that consequently the prices of all commodities will not cease to rise, everybody becomes eager to buy as much as possible and restrict his cash holdings to minimum size….if the credit expansion is not stopped in time, the boom turns to crack-up boom: the flight into real values begins, and the whole monetary system founders. " - Ludwig von Mises, 1949
"Appearances to the mind are of four kinds. Things either are what they appear to be; or they neither are, nor appear to be; or they are, and do not appear to be; or they are not, and yet appear to be. Rightly to aim in all these cases is the wise man's task." - Epictetus (c. 60AD)
The Hand should be applauded. Congress wouldn't stand for any more money funneled into the banking cartel, so how to raise capital in the banks? You don't get the Street interested in them by extolling their virtues and value - certainly not when those qualities are nonexistent. The Street is a funny place, though: Stage a stampede, and they must run with the herd - or lose money under management.
I'm optimistic most of the time, but I can't help feeling that the final verdict will be delivered by the Foot. Nature's Foot. And I can't help feeling that, in the big picture, most Americans feel faith has been broken, that the fabric of hope has been more than frayed, and that we have been hyped, duped and sold down the river lock, stock and smoking barrel by the leaders of industry and government alike.
So, when this hope-filled rally ends, whenever that is -- whether this summer, as I suspect, or at another juncture -- the test of the market will be the posture of the US consumer: Will they continue to hunker down? Likewise, the banks -- which once upon a time had a great business model and a license to steal by borrowing cheap and lending dear -- will be tested on loan demand. Ditto the credit-card companies. The government can attempt to stimulate all they want, but they cannot control the consumer - who may continue to cut back and against their expectations, heaven forbid, save.
Will Americans do the Kabuki dance? The infamous green shoots may end up bamboo shoots if the consumer is fed up with the Fed, and the flowers of unrealized gains that the rally is sending may end up dead on arrival before the end of the year.
How many people do you know who destroyed their credit cards because, despite a pristine record, the companies left their line of credit puny?
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