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The World According to TARP!

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Preparing for the "new normal."

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"We'll take the house. Honey, the chances of another plane hitting this house are astronomical. It's been pre-disastered. We're going to be safe here."
- The World According to Garp

Bill Gross said in his December investment outlook last week that the"systemic risk"of new asset bubbles are rising with the Federal Reserve keeping interest rates at record lows.

Under what PIMCO has termed the "new normal," investors should be prepared for lower-than-average historical returns with heightened government regulation, lower consumption, slower growth and a shrinking global role for the US economy.

That's what I touched on last week when I wrote that the current course of fiscal and monetary policy was absolutely insane.

Does that pave a path for this gentleman to assume the role of Treasury Secretary?

Yesterday's Groundhog Day lower-dollar-induced-higher-everything-else catalyst was St. Louis Fed President James"Raging"Bullard's views that he would like to extend the Asset Purchase program beyond the scheduled March sunset.

"I would just like to keep them active at a very low level instead of saying we're shutting down, shutting down permanently. Initially, it would do nothing for the economy, but it would give the Fed the option to react to future news as it comes in."


In other news, I've immediately suspended my no-alcohol, no-bread, no-sweets diet-and while I'm at it, I'll start smoking again-such that one day in the future, should I so desire, I'll have the option to again choose to be healthy.

Bank of Hysteria

The Federal Reserve has asked nine of the US banks that were part of this year's stress tests to submit plans for repaying the governments capital injections, according to a person familiar with the situation, says Bloomberg.

There are three ways to interpret this potential move:

  1. The relay race is on pace; the government-sponsored euphoria has passed the baton to corporate America, who has rolled mountains of corporate debt and issued oodles of equity into the hands of an unsuspecting public (rinse and repeat, over and over, consistent with the definition of insanity).

  2. The government, having now replenished the coffers of those too big to fail, will redirect those (read: our) funds to a litany of looming shoes, be them state bankruptcies, commercial real estate sinkholes, unfunded pension messes or messy municipalities.

  3. The cumulatively imbalanced, debt-ridden finance-based global economy-you know, the one with massive deficits and upwards of $500 trillion of derivatives tying an increasingly acrimonious world together-has been magically fixed by…drum roll please…more debt!

I don't mean to sound saucy, Béarnaise-those who know me will tell you that I'm an optimistic person who believes in solutions, community and camaraderie. Seriously, I'm an Oakland Raider fan; need I say more?

Yesterday, while hosting a Town Hall Chat at NYU, I tried to walk a delicate line of truth and trust while not sugarcoating the plain and painful truth that the bar tab of our societal largess will be picked up by the citizens of tomorrow. How -- and, more importantly, when -- that manifests very much remains to be seen.

The corporate credit markets are telling us it may not matter for a few more years.

The currency markets feel like an unwind is imminent.

The geopolitical landscape is the definition of fragility, seemingly one sneeze away from protectionism, isolationism or perhaps something worse.

It -- the world, our roles, and the choices we make -- often feels over-whelming. As I said to the students, however, we're blessed to be in a position to take a stand, make our mark and do our part to affect positive change. That is not to be squandered.

Society is the sum of the parts; as part of society, it's not only our right to question the status quo, it's our responsibility. That doesn't mean we should grab pitchforks and vilify our leaders.

It simply means we should be heard, for there is strength in numbers and unity in benevolence.

Good luck today.

R.P.

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