Is This the Rally?
A bullish case for the successful test of the low.
Editor's Note: This is a free publishing of Jeff Cooper's Daily Market Report. To receive a 14 day FREE Trial of Jeff's insights two times daily, click here.
Very superstitious, writings on the wall,
Very superstitious, ladders bout to fall
Thirteen month old baby, broke the looking glass
Seven years of bad luck, the good things in your past.
-Superstition (Stevie Wonder)
"A good many years have passed since I last appeared before this committee but during all of that time, there's never been a more critical time for the American economy and particularly for financial stability. That's true not just for the United States but globally. To put it starkly we are in a serious recession with no end clearly in sight. The financial system is broken. It's a serious obstacle to recovery.
There's no escape from the imperative need for the federal government to come to the rescue to right the economic and financial ship of state. Over time, the hard fact is that several trillions of dollars will be necessary to be committed in a combination of budgetary expenditures and various guarantee and insurance programs and extensions of credit by the Federal Reserve. Obviously, commitments made of that magnitude raise very large questions. They are not only questions of avoiding waste of the tax payers money as important as that is; there are also risks of undermining confidence in the dollar and raising fear of future inflation... we are in the midst of the mother of all financial crises."
Former chairman of the Federal Reserve Paul Volcker, January 21, 2009
"There is no way to avoid the collapse of a boom brought about by credit expansion."
Ludwig von Mises
"The biggest risk is expecting this thing to go away soon."
There you have it… the imperative need trumps moral hazard. It would have been nice if Volcker had been consulted prior to the day the world changed, September 15, 2008, the day they let Lehman Brothers fail. After all, what would the good folks say? Apparently, THEY should have been more worried about what financial market participants would do.
Sometimes events overtake the path of best intentions. Damage always stands and delivers on a road paved with nefarious negligence and sins of commission. The question is with the ship of state listing; will the bailing best the water flowing in? No matter how many trillions are tried, nothing short of a restructure of the system will plug a fundamental, philosophical, socioeconomic hole in the soul of state.
We can't know where we are going until we know what path brought us here. A problem can't be fixed unless you know what the core of the problem is. At the same time, good can't be sacrificed on the altar of a quest for the best solution. In short, this is a path we have never walked before. And, although the patterns and periodicities of the past may serve to shine a light, the bottom line is that however things play out over the next 10 years, however the cycles line up, the important thing to remember is that there is something fitting about the notion that the mother of all bull markets may be followed by the mother of all bear markets.
No one knows what the thud will sound like and what the ramifications will be when the Fed attempts to reduce its balance sheet. No one knows what the reverberations will be when the balance sheet is brought back to earth. We can only hope it won't be like the meteor that extinguished the dinosaurs. Actually, it seems like the banks already dropped that securitization comet on themselves and the ensuing dust is choking the economy.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter