Thursday, November 4, 2010

Could Not Have Said it Better

Amazing that on Jim Cramer's site, so many people who believe in a 'free stock market' whereas Jim himself is applauding anything the Fed can do to create a manipulated system.  But for now - Cramer wins.  I will reiterate what I said a while back.... the greater the imbalances, the larger the eventual bombing we are going to see when the dam bursts.  (and now I am trying to figure out the Fed response to the crash of 2013 or 2014?)  Frankly, I cannot believe we are having this conversation just 2 years after the largest intervention in the history of mankind due to the previous Fed induced bubble.  I am truly numbed by it all - unlike most on 'the Street, it is very difficult for me to segregate what is happening to our society from being giddy that assets are being manipulated in a ponzi scheme to make us all winners.  It is not just this act - this is the cherry on top of a system where Fannie and Freddie are run at loss to subsidize housing, there is no care other than dogma about long term entitlement issues, millions live in homes without making a mortgage payment, savers are considered a cancer to society, government transfers are now approaching 20% of average American income (not for me?!), and we surely are looking at future Federal Reserve bailouts for states and pension funds.  I guess the Fed will create money to pay all the future obligations of Medicare as well, so that's not an issue we have to worry about either.  I don't know how people look at that landscape and just buy stocks in glee and with abandon, I must be built incorrectly as I have a permanent pit in my stomach and a sense of disgust that pervades.  It appears not only are we Japan, we seem to be turning into the old school Argentina.

A liked this opinion from Realmoney

Allen Gillespie
The Problem with Cornered Markets
11/4/2010 9:31 AM EDT

The presence of a large price insensitive buyer, which the Fed has become of all assets is that it leads to a cornered market. Think oil when Bush decided to fill up the strategic petroleum reserve and China to secure reserves. Think the Hunts. Janus 20. The Northern Pacific Corner. In short, it is the opposed of a crash or bid wanted market - it becomes an offer wanted market.

A market depends on both buyers and sellers and a free and competitive market depends on numerous buyers and sellers. We have a market of one massive buyer - moral hazzard not in theory but in fact.

Markets will eventually seek to be free and the history of busted corners is not pretty.

As Bernake writes "we have the tools to unwind these policies at the appropriate time" and thus when the large buyer turns to forced seller - well markets crash because the gap between price and value must close.

Prices are up but the moral bankruptcy of the central bank has destroyed value today because it destroyed a market ....


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