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From Financial Inferno to Stocks on Fire?


How did we go from risk-averse at any price to chasing risk at every price?

The following is a free edition of Jeff Cooper's Daily Market Report. For a FREE two week trial, click here.

I have squandered my resistance for a pocketful of mumbles, such are promises,
All lies and jest, still a man hears what he wants to hear
And disregards the rest
-The Boxer (Paul Simon)

"The guys sitting in the bar in Chicago talking about how America "kicks ass" don't realize yet that other countries are actually pimping us. "Why is that bastard Obama apologizing to these countries?" Well, because they own us. The world isn't going to work for our leisure much longer. We (and the government) have long forgotten the Constitution, and have forsaken much of what our forefathers worked so hard to build. It's not that we aren't working hard, it's that we're not working smart. Government policy and lawmakers in conjunction with big business have created a monstrosity, and it'll work a bit longer. If the government can continue to convince the public to "go shopping" and re-inflate the credit bubble our creditors will play along and play nice with their eyes on the horizon."
-Ryan Russell

An error does not become truth by reason of multiplied propagation, nor does truth become error because nobody sees it.
-Mahatma Gandhi

Alan Greenspan (Feb. 2000): "We very much believe that, if you have a debased currency, that you will have a debased economy. The difficulty is in defining what part of our liquidity structure is truly money. We have had trouble ferreting out proxies for that for a number of years. And the standard we employed is whether it gives us a good forward indicator of the direction of finance and the economy. Regrettably, none of those which have been able to develop, including MZM---has not done that. That does not mean that we think that money is irrelevant. It means that we think our measures of money have been inadequate. And, as a consequence of that, we, as I have mentioned previously, have downgraded the use of the monetary aggregates for monetary policy purposes, until we are able to find a more stable proxy for what we believe is the underlying money in the economy."

Representative Ron Paul:
"So it's hard to manage something you can't define?"

Mr. Greenspan: "It is not possible to mange something you can't define."

There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million can diagnose."
John Maynard Keynes, "economic consequences of the peace"
- Unseen Hand

In Greek mythology, the chimera was a monstrous fire-breathing creature composed of the parts of different animals. In the Iliad, Homer described the chimera as a creature who "breathed raging fire, a creature fearful, great, swift-footed and strong, who had 3 heads, one of a grim-eyed lion, in her hinderpart, a dragon; and in her middle, a goat."

Ladies and gentleman, allow me to introduce to you a band you've known for all these years: Chimerica - the monstrosity of the military industrial complex crossbred with big government, corporatism and conspicuous consumption. According to lore, sighting the chimera was an omen of storms, shipwrecks, and natural disasters.

In more modern times, the cchimera has served as an embodiment of the deceptive forces of nature and the iconic representation of hypocrisy and a foolish fraud. Now, Betsy, what design did you have in mind for the new flag for these Altered States of Chimerica?

The chimera seems a perfect representation of the current countervailing dualities at play in America:

1. A metamorphosis in financial markets from bitterly bearish a scant 2 months ago to brazenly bullish.

2. From a financial inferno to bank stocks on fire.

3. From a Greater Great Depression to a La La Recovery Land in 60 seconds (did Fiat or Ferrari purchase Chrysler?)

4. From Wall Street scorn to equity euphoria.

5. From a tsunami of sentiment disabusing a generation of risk-taking in stocks to a generational stock-market low (or so I'm told and sold).

6. From risk-averse at any price to chasing risk at every price.

The remarkable persistence of the rally pales in comparison to the confidence of those people who had no idea there was anything wrong with the global financial system 2 years ago - and who now proclaim that everything has been fixed.
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No positions in stocks mentioned.

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